Marketing 5e

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Marketing 5e
Print ISBN: 978-0-199079-92-6
ePub ISBN: 978-0-199075-78-2
Typeset in Utopia Std Regular 9.5pt on 12pt
Acknowledgements
Publishing manager: Alida Terblanche
Publisher: Janine Loedolff
Editor: Sarah Floor

Designer: Cindy Armstrong
Indexer: Michel Cozien
Typesetter: Barbara Hirsch
The authors and publisher gratefully acknowledge permission to reproduce copyright
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Links to third party websites are provided by Oxford in good faith and for
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any third party website referenced in this work.
This edition of Marketing is dedicated to all the

health care practitioners across the globe who
have devoted their professional careers to
finding a cure for diabetes mellitus.
Christo Boshoff
Opgedra aan my seuns Nicol en Dorfling
Nic S. Terblanche
Abridged Table of Contents
PART ONE Introduction to marketing

CHAPTER 1:
An overview of marketing
CHAPTER 2:
Analysing the external

environments influence
on marketing
CHAPTER 3:
Understanding consumer decisionmaking
CHAPTER 4:
Analysing the competitive situation
CHAPTER 5:
Information for marketing

decision-making and marketing
research
CHAPTER 6:
Segmenting and targeting markets
CHAPTER 7:
Positioning the firm and its

products
PART TWO Implementing marketing mix strategies

CHAPTER 8:
Product decisions
CHAPTER 9:
Developing and managing products
CHAPTER 10:
Marketing channels and the role of

intermediaries
CHAPTER 11:
Marketing communication strategy
CHAPTER 12:
Implementing marketing
communication mix strategies
CHAPTER 13:
Pricing concepts and setting the

right price
CHAPTER 14:
Putting it all together: The strategic

marketing plan
PART THREE Specialised marketing

CHAPTER 15:
Marketing in specialised markets
CHAPTER 16:
Sustainable marketing
Index
Table of Contents
CHAPTER 1: An overview of marketing
Introduction
What is marketing?
Customer satisfaction
Measuring customer satisfaction
Customer satisfaction or customer dissatisfaction?
The benefits of customer satisfaction and loyalty
The concept of exchange
Marketing management philosophies
Production orientation
Product orientation
Sales orientation
Consumer orientation
Societal marketing orientation
Relationship marketing orientation

Differences between sales and consumer orientations
A word of caution
Implementing the marketing concept in existing firms
Changes in authority and responsibility
The importance of new opportunities
The firms business
The importance of a competitive advantage
The marketing process
The position and role of marketing in the firm
Why are there critics of marketing?
Why study marketing?
Marketing plays an important role in society
Marketing is important to businesses
Marketing offers outstanding career opportunities
Marketing influences your life every day
Looking ahead
Looking back
Summary
Discussion and writing questions
Key concepts
References
CHAPTER 2: Analysing the external environments influence on

marketing
Introduction
The marketing environment

Marketings interaction with the internal and external
environment
Understanding the external environment
Opportunities and threats
Environmental management
Identifying opportunities and threats
Social factors
Consumer values
The changing influence of families and gender
Is it a new social trend or a fad?
Todays pre-teens: Born to shop
Teenagers: Demanding and opinionated
Generation Y
Generation X
Americas baby boomers and South Africas prime timers
Older consumers: Not just grandparents
The Black diamonds
Survivors
Demographic factors
Universal Living Standards Measure
Using LSM and other demographic factors to understand
markets
Education and literacy
Language
Economic factors
Inflation
Recession
Technological factors
Political factors
Self-regulatory agencies
Legal factors
Central government legislation
Provincial government legislation
International agreements
The marketing implications of legislation
Competitive factors
Physical forces
Climate change
Pollution
Scarce resources
Recycling and non-wasteful packaging
Environmentally-friendly ingredients
Looking back
Summary
Key concepts
References
CHAPTER 3: Understanding consumer decisionmaking

Introduction
The importance of understanding consumer behavior

A model of consumer behavior
The consumer decision-making process
Problem recognition
Information search
Evaluation of alternatives and purchase
Post-purchase behavior
Types of consumer buying decisions and consumer involvement
Factors determining the level of consumer involvement
The marketing implications of consumer involvement
Individual factors influencing consumer buying decisions
Perception
Motivation
Learning
Values, beliefs and attitudes
Personality, self-concept and lifestyle
Social factors influencing consumer buying decisions
Culture
Subculture
Reference groups
Opinion leaders
Family
Social class
The influence of the purchase situation on buying decisions
Buying new-to-the-world products
Buying behaviour and technology

Looking back
Summary
Key concepts
References
CHAPTER 4: Analysing the competitive situation

Introduction
Identifying competitors
Approaches to identifying competitors
Using the strategic-group approach to identify competitors
Defining the competitive arena
The four industry structures
The competitive structure of an industry
Threat of new entrants
Threat of substitute products
Threat of buyers growing bargaining power
Threat of suppliers growing bargaining power
Threat of intense segment rivalry
Analysing key competitors
Understanding current competitors
Size, growth and profitability
Image and positioning strategy
Competitor objectives and commitment
The current and past strategies of competitors
Competitor culture
Cost structure
Exit barriers
Understanding potential competitors
Entry barriers
Evaluating competitors strengths and weaknesses
Step 1: Identify key success factors in the industry
Step 2: Rate the firm and competitors on each KSF
Step 3: Consider the implications for competitive strategy
Anticipating competitors actions
Likely reaction patterns of competitors
Direct rivalry among competitors
Deciding which competitors to attack and which to avoid
Looking back
Summary
Key concepts
References
CHAPTER 5: Information for marketing decisionmaking and marketing research

Introduction
The need for managerial information
Marketing decision support systems
Database marketing and micro-marketing
The importance of database marketing
The role of marketing research

The functions of marketing research
The relationship between marketing research and DSS
Management uses of marketing research
Improving the quality of decision-making
Identifying problems
Understanding the market
Fostering customer value and quality
The steps in a marketing research project
Step 1: Define the marketing problem
Step 2: Exploratory research by collecting secondary data
Step 3: Formulate the research objectives
Step 4: Planning the research design
Step 5: Collecting the data
Step 6: Analysing the data
Step 7: Preparing and presenting the report
When should marketing research be conducted?
The characteristics of good research
Why is marketing research criticised?
Looking back
Summary
Key concepts
References
CHAPTER 6: Segmenting and targeting markets

Introduction
The nature of market segmentation
The importance of market segmentation
The criteria for successful segmentation
Bases for segmenting consumer markets
Behavioural segmentation
Geographic segmentation
Demographic segmentation
Psychographic segmentation
Benefit segmentation
Qualifying and determining bases for segmentation
Steps in segmenting a market
Strategies for selecting target markets
Undifferentiated targeting
Concentrated targeting
Multi-segment targeting
Contrasting target marketing strategies
Positioning
Looking back
Summary
Key concepts
References
CHAPTER 7: Positioning the firm and its products

Introduction
Planning a positioning strategy

The nature of positioning
The consequences of failing to select a position
Differentiation the cornerstone of positioning
Classifying industries according to their potential
for differentiation and competitive advantage
Bases for differentiation
Product differentiation
Differentiation based on services accompanying the product
Personnel differentiation
Image differentiation
Bases for positioning products
The process of positioning a new product or brand
Repositioning a product or brand
The repositioning process
Repositioning in the maturity phase of the product life cycle
Development of a positioning strategy
Typical positioning errors
Tools and approaches to facilitate positioning
Looking back
Summary
Key concepts
References

CHAPTER 8: Product decisions
Introduction
What is a product?
Product levels
Classifying consumer products
Types of consumer products
Convenience products
Shopping products
Speciality products
Unsought products
Product items, lines and mixes
Organising related items into product lines
Adjustments to product items, lines and mixes
Branding
Benefits of branding
Features of effective brand names
Branding strategies
Generic products versus branded products
Manufacturers brands versus private brands
Individual brands versus family brands
Conditions favourable to branding
Co-branding
Levels of brand familiarity
Trademarks
Packaging
Packaging functions
Containing and protecting products
Promoting products
Facilitating storage, use and convenience
Facilitating recycling and reducing environmental damage
Labelling
Universal product codes
Product warranties
Looking back
Summary
Key concepts
References
CHAPTER 9: Developing and managing products

Introduction
The importance of new products
Categories of new products
The new-product development process
Idea generation
Creativity
Idea screening
Concept development and testing
Business analysis
The development stage

Test marketing
Commercialisation
Why some new products succeed and others fail
Organising for new-product development
New-product committees and departments
Venture teams and intrapreneurs
Simultaneous product development
The product life cycle
Stages of the product life cycle
Strategies during the product life cycle
Strategies during the introductory stage
Strategies during the growth stage
Strategies during the maturity stage
Strategies during the decline stage
Evaluating the product life cycle concept
The market acceptance of new products
Diffusion of innovation
Looking back
Summary
Key concepts
References
CHAPTER 10: Marketing channels and the role of

intermediaries
Introduction
The benefits of marketing channels
Providing specialisation and division of labour
Overcoming discrepancies
Providing contact efficiency
The functions of a marketing channel
Marketing channel structures
Utilising alternative marketing channel arrangements
Factors that influence marketing channel strategies
Market factors
Product factors
Producer factors
Levels of distribution intensity
Intensive distribution
Selective distribution
Exclusive distribution
Potential channel conflict
Horizontal conflict
Vertical conflict
Power in the distribution channel
Reward power
Coercive power
Legitimate power
Referent power
Expert power
Channel leadership
Manufacturers as channel captains
Retailers as channel captains
Wholesalers as channel captains
The importance of physical distribution
The nature of physical distribution subsystems
Warehousing
Materials handling
Order processing
Transportation
Retailing and wholesaling intermediaries
The classification of retail operations
Looking back
Summary
Key concepts
References
CHAPTER 11: Marketing communication strategy

Introduction
The role of marketing communication in the marketing mix
The elements of the marketing communication mix
Advertising
Public relations and publicity
Personal selling
Sales promotion
The marketing communication process

Elements of the communication process
The communication process and the marketing
communication mix
Integrated marketing communications
The objectives and tasks of marketing communication
Informing
Persuading
Reminding
AIDA and the hierarchy of effects
The hierarchy of effects and the marketing communication
mix
Factors affecting the marketing communication mix
Push and pull strategies
Steps in developing the marketing communication plan
Analysing the market
Identifying the target audience
Setting marketing communication objectives
Developing a marketing communication budget
Deciding on a marketing communication mix
Looking back
Summary
Key concepts
References
CHAPTER 12: Implementing marketing communication mix

strategies
Introduction
Steps in creating an advertising campaign
Formulating campaign objectives
Making creative decisions
Identifying product benefits
Developing and evaluating advertising appeals
Executing the message
Deciding which advertising media to use
Media evaluation and selection considerations
Media scheduling
Evaluating the advertising campaign
Pre-tests
Post-tests
Public relations
Public relations tools
Managing unfavourable publicity
Sales promotion
The objectives of sales promotion
Tools for consumer sales promotion
Tools for trade sales promotion
Personal selling
Contrasting personal selling with other forms of marketing
communication
Sales tasks
Steps in the personal-selling process

Sales management
Defining sales objectives and the sales process
Designing the sales organisation
Developing the sales force
Directing the sales force
Evaluating the sales force
Looking back
Summary
Key concepts
References
CHAPTER 13: Pricing concepts and setting the right price

Introduction
The importance of price to marketing managers
Pricing objectives
Profit-orientated pricing objectives
Sales-orientated pricing objectives
Status quo pricing objectives
The demand determinant of price
The nature of demand
How demand and supply determine prices
Elasticity of demand
The cost determinant of price
Mark-up pricing
Profit maximisation pricing

Break-even pricing
Other determinants of price
Stages in the product life cycle
The competition
Distribution strategy
Marketing communication
The relationship between price and quality
How to set a price on a product
Formulating pricing objectives
Estimate demand, costs and profits
Choose a price strategy
The legality and ethics of price strategies
Tactics for fine-tuning the base price
Relationships between products
Pricing during difficult economic times
Looking back
Summary
Key concepts
References
CHAPTER 14: Putting it all together: The strategic marketing

plan
Introduction
The nature of strategic planning
The strategic marketing plan

The value of a strategic marketing plan
The elements of a marketing plan
Defining the business mission
Strategic marketing objectives
Identifying opportunities to utilise
Conducting a situation analysis
Assessing the competitive environment
Strategic windows
Assessing the corporate culture
Opportunity-utilisation strategies
Strategic management tools
Competitive advantage
Setting marketing-strategy objectives
Formulating the marketing strategy
Implementation, evaluation and control of the marketing
plan
Writing the marketing plan
Effective strategic planning
Looking back
Summary
Key concepts
References

CHAPTER 15: Marketing in specialised markets
Introduction
Services marketing
How services differ from physical products
Marketing mixes for services
Sports marketing and marketing through sport
The special characteristics of sport
The sports product
Licensed and branded sports products
Marketing through sport
Non-business marketing
Factors contributing to the acceptance of marketing by nonprofit organisations
The dual role of marketing in non-profit organisations
Sources of competition faced by non-profit organisations
The unique aspects of non-business marketing strategies
Business-to-business marketing
Business-to-business customers
Classification of business and government markets
Differences between business-to-business and consumer
markets
Types of business-to-business products
The business-to-business purchase process
Travel and tourism marketing

The main sectors of the travel and tourism industry
The special characteristics of travel and tourism services
The marketing mix in travel and tourism
Looking back
Summary
Key concepts
References
CHAPTER 16: Sustainable marketing

Introduction
The concept of sustainable marketing
Green marketing
Social marketing
The origins of sustainable marketing
Green consumer segments
Key sustainability issues
Consumer social responsibility and the move towards
sustainability
The role of marketing in sustainability
The impact of sustainable marketing on the product life cycle
Making the marketing mix more sustainable
Product
Price
Promotion
Distribution
People
Processes
Physical evidence
The disadvantages of a sustainable marketing approach
Implementing sustainability
Summary
Key concepts
References
Introduction
This is the fifth South African edition of the adaptation of the
popular American textbook Marketing. Like the first four
editions, it adopts a modular approach in terms of the
structure of content, which is supported by discussions of
contemporary marketing strategy issues, South African case
studies and analyses of marketing challenges that are
unique to the South African business environment.
The South African adaptation of this leading marketing
text was guided by the following principles:
To reflect a South African and southern African

perspective (through the use of examples, case studies
and readings) without losing the international focus of
the original text
To take into consideration the requirements of the South
African higher-education environment
To build on and expand the strategy component of the
original text to permit the use of the book at both
university- and university of technology-level courses
To retain the user-friendliness and ease of reading of the
original text.
Todays marketers face a market environment that is

becoming simultaneously more competitive, more
specialised, more globalised and more technology-driven.
To succeed in todays changing environment, successful
marketing requires now more than ever a balance of
creativity and knowledge.
Marketing is a dynamic discipline that changes often and
rapidly. Furthermore, it is exciting because, sometimes
without realising it, we are all involved in marketing, both as
marketers and customers.
You may ask yourself, Why should I study marketing? or
What is in it for me?
There are several important reasons for studying
marketing. One is that marketing offers many diverse career
opportunities, such as sales, marketing research,
advertising, retailing, product and brand management and
sports marketing, to name but a few. In addition, marketing
is of particular importance not only to business firms, but
also to non-profit organisations. Marketing also contributes
significantly to the effective functioning of a countrys
economy by ensuring the efficient distribution of products
and services to consumers.
Marketing can be studied from a variety of different
perspectives. To pursue them all would be unmanageable
and unfeasible. To simplify matters, in this textbook, we
focus on several key perspectives of marketing.
First, the text concentrates mainly on the marketing of
products, particularly consumer products (goods that
consumers buy for their own consumption). It is true that
services, ideas, causes and even political parties can be
marketed, but our emphasis is on the marketing of products.

This does not mean that services or non-profit
organisations, such as the Red Cross or World Vision,
cannot be marketed. Most of the marketing principles
discussed in this book also apply to such organisations. The
marketing of services and non-profit organisations,
however, also requires some specialised approaches that
students will encounter in the future if they continue their
studies in marketing. In this book, we concentrate on
marketing from the perspective of firms that function with
the intention of generating a profit for their owners.
Second, this book views marketing from a management
perspective. This means we explore how firms can realise
their objectives by means of effective management. In other
words, we study marketing tasks, activities and decisionmaking from a managerial point of view. The goal is to equip
students with the necessary skills and knowledge to become
marketing managers. To this end, the emphasis is on those
aspects or instruments that marketing managers can utilise
to realise the marketing functions objective and thus also
fulfil the objectives of the firm.
Third, the book introduces readers to the theoretical
nature of the marketing discipline, the marketing process,
marketing activities, the environment in which marketing
operates and marketing instruments (i.e. promotion,
pricing, product decisions and distribution).
However, the theoretical principles are supplemented
with frequent references to strategy options. In other words,
we try to answer such questions as:
Given the circumstances, what can I as a marketer
do? Which marketing strategies can I use? What are

the implications of these options? Which strategies
can I use in a particular context?
You will see that potential strategy options are discussed
under the strategy icon:
>> Strategy
We also believe that aspiring marketers can learn a lot from
experienced practitioners both the good and the bad.
Therefore, we frequently refer to both local and
international examples of marketing situations, decisions
and activities under the example icon:
EXAMPLE >>
Real-world examples are a rich source of learning for all
marketers, and we supplement theoretical discussions with
several readers to illustrate the practical implementation of
key marketing concepts.
The book is divided into three parts: Introduction to
marketing, Implementing marketing mix strategies and
Marketing specialised markets. Part 1 provides a broad,
global perspective of marketing and marketing strategies.
Part 2 concentrates on the implementation of those
strategies. Part 3 considers the unique demands of
marketing in specialised markets, such as services, businessto-business markets and tourism markets.
Special features
The fifth South African edition of Marketing contains a
number of key features that serve as valuable learning aids
for students exploring the exciting world of marketing.
Opening examples preview each chapter: Each chapter
begins with a high-interest, real-life example designed to
introduce students to the chapters content. Each
opening reader (entitled Marketing in practice) is based
on a South African companys marketing activities. Each
reader concludes with questions that draw attention to
the key issues to be discussed in the chapter. Examples
of these questions include: Why have brands such as
Lion Lager and the VW Kombi been discontinued? What
can be done to revive ailing brands such as Barbie and
Nedbank? Why is Cell C struggling to penetrate the
cellular market? Why does Nandos use humour in its
advertising? What can the Post Office do to survive as
competing services, such as private couriers and email,
increasingly contest its traditional markets?
Students will discover the answers to these questions
and much more as they cover each chapter. A special
section before the chapter summary, called Looking
back answers the teaser questions posed in the opening
reader and helps illustrate how the chapter material
relates to the real world of marketing.
Fully integrated learning system: The text is organised
around the learning outcomes that appear at the
beginning of each chapter, providing lecturers and
students alike with an easy-to-use, integrated learning
system.
LO
Learning outcomes: Chapter learning outcomes are the

linchpin of the integrated learning system. Numbered
LO icons, like the one shown alongside, clearly identify
the material relating to the learning outcomes in each
chapter. They provide a structure for lecture plans and
study sessions, which lecturers and students need to
ensure complete coverage of each outcome.
Text pedagogy that adds value and reinforces
learning: Pedagogical features are meant to reinforce
learning, but they need not be boring. We have supplied
a number of teaching tools within the text that will
stimulate students interest and enhance teaching.
Chapter summaries: Each chapter ends with a summary
that extracts the essential points of the chapter. Chapter
summaries are organised around the learning outcomes
so that students can use them to quickly check on their
mastery of the learning outcomes.
Discussion and writing questions: To help students
improve their writing skills, we have included writing
exercises at the end of each chapter. The discussion and
writing questions are designed to be brief so that
students can accomplish writing assignments in a short
time.
Strategy readers: Each chapter concludes with a
strategy reader a brief case study of a South African
firms marketing strategies or activities. Each strategy
reader poses a number of questions that link the case
study with the theory discussed in the chapter.
Key concepts: Key concepts appear in italics in the text.
An alphabetical list of key concepts appears at the end of

each chapter as a study checklist.
Website: The website inserts direct students to relevant
websites where they can further their marketing research
on a given subject.
To summarise, the fifth edition of Marketing offers the

following special features:
A unique South African perspective without loss of an
international or global focus
An outcomes-based orientation
A sensible combination of both theory and practice,
suitable for university and technikon undergraduates
alike
A contemporary orientation, with case studies and
examples currently found in the
South African context
A modular structure for ease of use as stand-alone
modules or combined in a semester course
A strong marketing strategy component integrated with
the relevant theory
An enhanced emphasis of the role of technology in
modern-day marketing.
We hope and trust your journey exploring the intricacies of
marketing will be an enjoyable one.
Finally, we would like to welcome two esteemed co-authors
to the author team. Professor H.B. Klopper (Monash
University) and Professor Roger Elliot of the University of
Fort Hare are experienced marketing academics whose
expertise has enhanced the quality of this text.

Our gratitude also goes to Michele van der Merwe of the
University of Pretoria who again has made a wonderful
contribution in preparing the supplementary material
accompanying the book.
Christo Boshoff and Nic Terblanche
PART
01
Introduction to marketing
CHAPTER
01
An overview of marketing
LEARNING OUTCOMES
After studying this chapter, you should be able to:
1
2
Define the term marketing.

Explain the nature and relevance of customer satisfaction and
loyalty in a marketing context by emphasising the need to
measure customer satisfaction.
3 Explain the concept of exchange in marketing terms.
4 Describe six marketing-management philosophies and their role
in the evolution of marketing thought.
5 Differentiate between sales and consumer orientations to
marketing.
6 Discuss the nature and implementation of the marketing concept.
7 Explain how the pursuit of new opportunities can contribute to
the realisation of a firms goals and objectives.
8 Explain why an appropriate definition of a firms business is
important, and describe the pitfalls associated with an
inadequate definition.
9 Describe the importance of a competitive advantage in marketing
and how this advantage can be established and maintained.
10 Describe the marketing process.
11 Briefly review the role of marketing in the firm.
12 Critically evaluate the criticism often levelled against marketing
and suggest arguments that can be used to justify marketings
role in the economy.

13 Describe several reasons for studying marketing.
14 Demonstrate your grasp of the theory discussed in this chapter by
providing appropriate practical examples to illustrate any
marketing principle or concept.
15 Provide a marketing-management solution related to any of the
above outcomes.
>> Marketing in practice

Customer satisfaction still the key
ingredient
Whether travelling for business or pleasure, an airport
experience can set the tone for the rest of a trip, says
Dawn Nathan-Jones, CEO of Europcar. She says this is
why Europcar ensures that customer service remains at
the core of its business and why the company commits
to making each customers travelling experience easy,
personal and enjoyable. According to Europcar,
domestic passenger numbers have increased by 5 per
cent to 10 per cent at OR Tambo, Cape Town and King
Shaka airports over the past nine months.
Nathan-Jones says that the company has had to
ensure that its employees are properly skilled and
equipped with the right product knowledge to ensure
that customers are on the road as quickly and as
efficiently as possible. The company has seen an
increase in the demand for its ready service where
customers receive their keys in hand within 30 seconds

without having to complete any paperwork or having to
wait in queues. Once registered, all thats needed is
appropriate identification to get the car. Customers
want their airport experience, including collection of
their rental vehicles, to be seamless and quick and we
understand this, says Nathan-Jones.
With a 30-year track record in the industry, Europcar
constantly measures its customer satisfaction index to
ensure that it always meets customer needs. Each day,
more than 10 per cent of our customers are surveyed,
bringing all touch points into the mix. We believe that if
the customer experience is easy, personal and
enjoyable, a recommendation will undoubtedly be
made, and 98 per cent of our customers advise they
would recommend us to a friend or family member,
which is a score that Europcar is proud of. We aim to
exceed customer expectations at every touchpoint in
the business.
SOURCE: James, A. Customer satisfaction still the key ingredient. Business
Day, 17 November 2011, p. 8
QUESTIONS
1
2
3
Why is customer satisfaction important to business firms?

What are the dimensions on which the customers of car rental firms
base their assessment of customer satisfaction?
What role do expectations play in an assessment of customer
satisfaction
1. Introduction
Lets pretend that you are a budding young entrepreneur
who has decided to take the plunge and start your own
business with a few friends. As you are all keen cyclists, you
decide to open a cycling shop. What do you do to get
started? You may have completed a first-year business
management course, and recall something about the factors
of production: natural resources, human resources (labour),
capital and entrepreneurship. You also learnt about the
typical business functions, such as the production, finance,
purchasing and marketing functions. As the expert marketer
in the management team, however, you have to address a
few important marketing-related issues before you attend
the first management meeting. These include the following:
What are the needs of people buying bicycles?

Do they all have the same needs?
If not, how can we satisfy their different needs?
What do we know about the business environment?
How many people in South Africa buy bicycles every
year?
Do they buy at specific times of the year?
Who are our competitors? How many are there? And
how strong are they?
How can we differentiate our bicycles from those
marketed by competitors?
Are there different groups of cyclists who prefer specific
types of bicycles?
How should we design the bicycles?
Should we develop our own branding?

Will we be able to physically get our bicycles to potential
buyers?
What is an acceptable market price for different bicycles?
Can we be profitable selling at that price?
How we are going to tell potential buyers of our shop and
products?
How are we going to communicate with them and what
are we going to say?
Once you have addressed these questions you should know:
What the objectives, and in particular what the

marketing objectives of the business will be?
What the business strengths, weaknesses, opportunities
and threats are (SWOT analysis)?
What the businesses competitive advantage would be?

Which markets will be targeted?
How will the business be positioned against major
competitors?
What will be the features of the product, how will it be
priced and distributed and how will you communicate
with the markets you are targeting (the marketing mix)?
Who will be responsible for planning and executing our
marketing plan?
Using the figure in the margin may be a useful way of

structuring your first management meeting.
All these questions and activities are related to a process
called marketing. Marketing links production (in this
example, of bicycles) with a market consisting of potential
buyers. The primary function of marketing is to provide
need-satisfying products to potential buyers at a profit.
To realise the objectives of satisfying consumer needs at a
profit questions like the ones above must be addressed
before the business is established. This is normally done in
the form of a formal marketing plan (see Figure 14.1 in
Chapter 14). Part of the marketing plan will be devoted to a
marketing strategy. The marketing strategy will consist of a
market segmentation strategy, a market targeting strategy
and a positioning strategy (some refer to it as STP) on which
the product, distribution, marketing communication
(sometimes referred to as the promotion strategy) and
pricing strategies (collectively known as the 4Ps) will be
based.
But before you attend the first management meeting you
need to explain to your fellow business partners what

marketing is all about.
2. What is marketing?
LO1
What does the term marketing mean? Many people think

marketing means selling. Others think marketing is just
another word for advertising. Others believe marketing has
something to do with making products available in shops,
arranging product displays and maintaining inventories for
future sales. In reality, marketing includes all of these
activities and much more.
Marketing has two facets:
It is a philosophy, an attitude, a perspective and a

management orientation that stresses customer
satisfaction
Marketing is also a set of activities used to implement
this philosophy.
The American Marketing Associations definition

encompasses both perspectives: Marketing is the activity,
set of institutions, and processes for creating,
communicating, delivering, and exchanging offerings that
have value for customers, clients, partners and society at
large.1 Marketing, therefore, means anticipating and
satisfying consumer needs by means of mutually beneficial
exchange processes, and doing so profitably and more
effectively than competitors by means of efficient
managerial processes.
The key phrase here is satisfying consumer needs.
Without satisfying consumer needs, no firm or organisation,
either profit-driven or not, can survive in the long term.
Customer satisfaction can be described, therefore, as the
primary goal of marketing.
3. Customer satisfaction
When maximising customer satisfaction is the goal, the firm
needs to know how well it is meeting customer expectations.
Customer satisfaction is the feeling that a product has met or
exceeded the customers expectations and can be explained
in terms of the so-called Disconfirmation Paradigm (Figure
1.1). Figure 1.1 shows that meeting or exceeding customer
expectations both lead to customer satisfaction, but
dissatisfaction results if performance (such as product
performance or employee performance) falls short of those
expectations.
Figure 1.1 the Disconfirmation Paradigm
SOURCE: Adapted from Smith, R.A. & Houston, M.J. 1983.

Script-based evaluations of satisfaction with services. In
Berry, L.L., Shostack, G.L. & Upah, G.D. (eds). Emerging
Perspectives on Services Marketing. Chicago: American
Marketing Association, Proceeding Series, pp. 5962
Customer satisfaction, therefore, is a customer response

(a judgement) to a product or service in terms of the extent
to which consumption meets the customers expectations.
Meeting and exceeding customer expectations and thus
sustaining customer satisfaction is not an easy task. In fact, a
survey of 700 private firms in South Africa has identified
customer satisfaction as their key performance area even
more important than profitability, market share and
turnover.2 As a result many firms in South Africa cultivated
very high levels of satisfaction amongst their customers. It is
not surprising because these firms emphasise market
research and marketing as the tools to explore what
customers want. Knowing what your customer wants then
makes it possible to tailor everything you do to pleasing

them such as providing the goods that they want, in the
packaging that they desire, in retail outlets that are
convenient to use and easy to access.
No firm, however, can rely on customers to take the
initiative to make their feelings of satisfaction or
dissatisfaction known. Therefore, firms have to set out to
measure the customer satisfaction levels of their customers.
3.1 Measuring customer satisfaction

A programme to measure customer satisfaction should be a
permanent, ongoing process that translates what customers
want (their needs and expectations) into information that
can be used in managerial decision-making. A customersatisfaction programme should define, in their own words,
what customers want (their expectations) in respect of
products and services, in terms of product attributes and
quality level. Telkom, for example, measures its customer
satisfaction levels annually in terms of customer
expectations, quality of service, quality of products and
image.
Customer satisfaction measurement should also provide
insight into factors that are important to customers or
specific to a certain industry or firm, such as the price
perceptions of customers, the reliability of a service or the
image of a brand. Current customers, lost customers and
potential customers should all be included in a customersatisfaction measurement programme.
Information about customer satisfaction can be collected
in a variety of ways, including:
Formal research surveys (mail; telephone; personal

interviews; focus groups; Internet surveys)
Analysis of customer-complaint data (customercomplaint boxes, letters of complaint, monitoring
Internet discussions) and interviewing staff (especially
those who interact directly with customers)
Collecting information about customer needs and
expectations from intermediaries such as retailers, sales
agents and wholesalers.
Measuring customer satisfaction can, therefore, be both

formal and informal, and can be either qualitative or
quantitative in nature.
EXAMPLE >> British Airways/Comair collects customer satisfaction

information from a variety of sources. Customers participate in a global British
Airways customer satisfaction survey called the Global Performance Monitor,
which benchmarks British Airways/Comair against international standards. This
information is augmented with more qualitative interviews it conducts with its
Executive Club members (frequent flyers) during focus-group meetings called
Listening forums. Another source of information is comment cards that are sent
to the airline by passengers.
>> Strategy
Another example of a comprehensive customersatisfaction measurement programme and how it can
assist managerial decision-making is that of the
California Department of Parks and Recreation (DPR)
in America. Customer satisfaction surveys form a key

component of DPRs quality improvement process.
Data collected from 9 000 questionnaires sent out four
times per year at the 268 California state parks enable
park management to continually fine-tune their service
strategies. For instance, based on feedback from
concerned visitors, park officials began collecting data
on boating and jet-ski accidents. The results revealed
that over a five-year period there were 480 accidents
and most of them involved drivers between 23 and
33 years of age. Before the survey, staff believed that the
accidents were alcohol-related, and were ready to ban
alcohol at the lake. However, the data revealed that the
major cause of accidents was inexperienced operators.
This insight led park officials to shift their focus to
boating safety education. This change in strategy led to
a 31 per cent drop in boat accidents. 3
Like the California Department of Parks and Recreation, in
order to begin improving customer satisfaction, a firm needs
to be able to clearly identify the attributes that convey value
to the customer. To identify these attributes it needs to
measure customer expectations and perceptions of
performance as well as perceptions of importance for each
value component, such as product, service and price.
However, a good customer-satisfaction measurement
programme generates more than just empirical data about
customers expectations and perceptions. It also captures
qualitative inputs that do not typically result from traditional
marketing research, allowing the customer to become an
integral part of a firms learning and decision making

processes. For example, a series of focus group interviews
with small groups of customers may provide valuable
insights into how a firm could improve product features,
delivery times and enhance customer service or whatever
is important to customers.
If you still wonder why business firms should do research
to assess the satisfaction of their customers, ask yourself the
question: what do consumers do if they are dissatisfied with
a firm? Dissatisfied customers often complain to other
sources (such as other consumers or consumer bodies, like
the South African National Consumer Union (http://www.
sancu.co.za/)
or
the
Ombudsman
(visit
http://ombudsman.ombudsmen.co.za/find-anombudsman/ to find a specific ombudsman in an industry,
in the case of life-insurance problems); or they buy less and
less; or they stop buying from the offending firm altogether.
Even worse, they simply switch to a competitor (see Reader
1 Unwelcome at Telkom below). In addition, access to
modern technology allows consumers to complain in a
manner that can cause serious harm to a firms brand and
reputation. For instance, a disgruntled Cell C customer
erected a giant banner bearing the Cell C logo outside a
shopping centre in Boksburg reading: The most useless
service provider in SA Cell C Sandton.4
Firms that fail to retain their customers that is, keep
them loyal by keeping them satisfied pay a heavy price in
monetary terms for their inability to keep their customers
satisfied. Satisfied customers, on the other hand, tell others
how happy they are with a firm (positive word-of-mouth);
they buy more and more, and, in this way, increase sales and
profits; and are often prepared to pay a price premium,
further increasing sales and profits. Keeping customers
satisfied, therefore, leads to customer loyalty, which ensures
the survival and prosperity of the firms who get it right.
READER 1 >> Unwelcome at Telkom

I have to agree that Telkom must be the leading contender for the worst
customer service in history. I recently tried to arrange a Telkom e-mail
connection for my father. Telkom was advertising the first three months free
so I thought I would take advantage of this offer. The first bill was a dogs
breakfast and failed to correctly reflect my father as a pensioner. Then, after
three months, they just cut the service off. This is astounding as they are in the
business of selling services and we are willing buyers. Despite our efforts, the
service is still not up and running six weeks later. Ive found that the only way
to contact the Telkom call centre was to use our spare office phone on
speaker as one had to hold on for over an hour before they answered. Then
the Telkom staff behaved arrogantly and were uninformed, unhelpful and often
rude. In the interest of sanity Ive decided to try another service provider and
aim to have as little to do with Telkom as possible.
SOURCE: Letter published in the Financial Mail, 27 January 2013.
3.2 Customer satisfaction or customer

dissatisfaction?
When designing customer-satisfaction measurement
programmes, firms need to understand the two-factor
model of customer satisfaction. This model suggests that the
same factors that contribute to satisfaction may not

necessarily contribute to dissatisfaction. One category of
factors is called hygiene factors. Hygiene factors are factors
that contribute to customer dissatisfaction. The second
category is called satisfiers. Satisfiers are factors that
contribute to customer satisfaction.
Customers can tell firms why they are satisfied or
dissatisfied with a product or service. The absence (or poor
performance) of some product attributes may quickly lead
to dissatisfaction, even though high performance on those
same attributes may contribute very little to high levels of
customer satisfaction. Conversely, the factors that cause
customer satisfaction may not be identified as factors whose
absence results in customer dissatisfaction. In other words,
poor performance on attributes leading to high satisfaction
does not necessarily result in customer dissatisfaction. It is
important to note that hygiene and satisfier factors may vary
among different groups of customers. Customer-satisfaction
research can be designed to determine which factors
customers perceive as belonging in the hygiene category
and which they perceive as being satisfiers.
If a firm performs at a very high level in delivering the
hygiene attributes, customers will rate their satisfaction with
the product or service as being acceptable, but not
exceptional. Hygiene attributes collectively constitute a
minimum level of satisfaction, and failure to meet that
minimum will cause customers to become dissatisfied.
Performing at a very high level on hygiene attributes may
yield the customer response: So what? Youre expected to
do that.
For example, customers expect a hotel room to be clean

a hygiene factor. If the room is not clean when they arrive,
they will be dissatisfied. It will not matter if the bed is
comfortable, the decor of the room is impressive or whether
the bathroom is big and luxurious. Failure to deliver on the
hygiene attribute of cleanliness will lead to customer
dissatisfaction. Yet if the room is clean, customers probably
will not even notice it, because cleanliness is what they
expect as a basic minimum. Therefore, cleanliness (a
hygiene factor) does not have as strong an effect on
satisfaction as it does on dissatisfaction.
The hygiene attributes must thus be delivered at an
acceptable level of performance before the satisfiers become
important. Once the customers expectations on hygiene
factors have been met, then the satisfiers have the potential
to create higher levels of customer satisfaction. In the hotel
example, if the room is clean, then the comfortable bed,
soothing colours, a large luxurious bathroom and a splendid
view of the sea may each contribute to higher satisfaction
levels.
When measuring customer satisfaction, both the hygiene
factors and the satisfiers that are important to customers
should be identified and evaluated. Therefore, management
needs to ask the right questions to ensure customer
satisfaction and customer loyalty.
3.3 The benefits of customer satisfaction

and loyalty
L02
It is unfortunately true that many firms lose up to half of

their customers in five years. Keeping customers satisfied by

offering them superior value increases the chances that they
will become loyal customers, ensuring the firms long-term
survival and growth. Satisfied and consequently loyal
customers are more profitable to firms than those who are
not loyal. The favourable economic outcomes of customer
loyalty include:
Lower acquisition cost. Acquisition cost is the cost of

recruiting new customers, and includes the cost of
advertising, sales calls, public relations and promotional
expenditure. Although these costs may be the same per
customer for loyal and non-loyal customers, the overall
acquisition costs will eventually be lower for a firm with a
large, loyal customer base because it needs to generate
fewer new customers to sustain its profitability. The
direct retailer Home Choice, for instance, estimates that
42 per cent of its sales are made to existing customers,
dramatically lowering the need to generate new sales by
recruiting new customers. The retailer Edgars has found
that 55 per cent of its sales are to existing, loyal
customers. In the case of Clicks its 77 per cent. According
to a new global survey better branding, loyalty programs
and social media are responsible for this trend. But the
report also shows that fears about the security of
personal data shared online prevent some consumers
from making online purchases.
WEBSITE
For additional reading refer to the article:
Online consumers show greater loyalty to
fewer retailers.
(https://www.internetretailer.
com/2014/02/24/online-consumersshow-greater-loyalty-fewer-retailers) (24
February 2014)
Base profit. All customers buy some product or service

and pay a price higher than the firms costs. This profit
on basic purchases, unaffected by time, loyalty,
efficiency, or other considerations, is called base profit.
The longer a firm keeps a customer, the longer it will
earn this base profit.
WEBSITE
As technology has developed loyalty cards
have become a rich source of data for the
companies that offer them, but many
questions are asked about its true value
to consumers. For additional reading refer
to the article: Are loyalty cards really
worth it? (http://www.theguardian.com/
news/datablog/2013/oct/31/ areloyalty-cards-really-worth-it)
Revenue growth. In most businesses, customer

spending tends to accelerate over time. In retailing, for
example, customers who buy clothing eventually notice
that the shop carries other products, such as shoes or
jewellery, and begin to purchase these other products as
well which increases the firms revenue. Customers may
use a travel agent only for local travel, but when they get
the opportunity to travel overseas, they may make use of
the same travel agent. Clicks has found that its Club Card
holders spend three times more than its other
customers. Therefore, per customer, revenues grow if

firms can retain the loyalty of their customers.
Cost savings. As customers get to know a business, they
learn to be more efficient. Informed customers do not
waste time requesting products or services the firm does
not provide, nor are they as dependent on employees for
information and advice. For instance, financial planners
spend about five times as many hours on a first-year
client as they do on a repeat customer. Over time,
collaborative learning between the customer and firm
creates productivity advantages that directly translate
into lower costs.
Referrals. Satisfied customers tend to recommend a firm
or brand to others behaviour referred to as word-ofmouth. Positive word-of-mouth is a very powerful source
of advertising for any firm and is often regarded as a
more credible source of information than advertising by
many consumers.
Price premium. Loyal customers who feel they are
getting superior value tend to be less price-sensitive than
non-loyal customers. In other words, very satisfied
customers are less likely to respond to a competitors
lower prices, special offers or discounts, and will in many
cases be prepared to pay a price premium to continue
enjoying the use of the superiority offered by the firm. A
Mercedes-Benz is not the cheapest motor vehicle on the
market, yet it is a very successful firm. Absa emerged
from a recent Afriforum survey as the bank with the
highest bank charges in South Africa. Yet Absa is a
successful bank whose customers are more than willing
to pay the higher fees for what they believe is a superior
service compared with what they would get elsewhere.

It must be pointed out, however, that customer satisfaction
may not ensure customer loyalty at all times, or ensure
profitability, but it is a necessary condition for building
loyalty among customers. Therefore, the initial exchange
between buyer and seller must be a satisfactory one as a
starting point to build long-term customer loyalty.
4. The concept of exchange
LO3
Exchange is one of the key terms in the definition of

marketing. Yet it is quite a simple concept. It means that a
person (a buyer) gives up something of value to a seller to
receive something in turn that he would rather have.
Normally we think of money as the medium of exchange. A
buyer gives up money to get the products and services
wanted from a seller, who, in turn, gives up the products or
services to get money. Exchange does not necessarily
depend on money, however. Two persons may barter or
trade items such as books or paintings. A student who
swaps her bicycle for a textbook has been involved in
barter trade a form of exchange without money changing
hands.
Five conditions must be satisfied for any kind of exchange
to take place:
WEBSITE
A popular local website where retailers or
consumers can swop goods can be

accessed at
http://www.swapkit.co.za/index.html.
Similarly one can also swop many
products on Barterquest (www.
barterquest.com/) or OLX (www.olx.co.za).
Recently Swop.com launched a mobile
application that allows users to swap
items that they do not use for products
they do need.
There must be at least two parties (a buyer and a seller)

Each party must have something the other party values
Each party must be able to communicate with the other
party and deliver the goods or services sought by the
other trading party
Each party must be free to accept or reject the others
offer
Each party must want to deal with the other party. 5
It is important to note that exchange will not necessarily take

place even if all these conditions exist. They are necessary,
however, for exchange to be possible. For example, you may
place an advertisement in your local newspaper stating that
your used motor vehicle is for sale at a certain price. Several
people may call you to enquire about the car, some may
even test-drive it, and one or more may even make you an
offer. All five conditions have thus been met, but unless you
reach an agreement with a buyer and actually sell the car, an
exchange has not taken place. Also note that marketing can
occur even if an exchange does not take place. In the
example of the car just described, you would have engaged
in marketing even if no one bought your vehicle. Marketing,
therefore, does not guarantee successful exchange.
Successful exchange demands, however, that a number of

prerequisites are first met, as listed above.
Exchange takes place within what is described as a
market, which consists of people and organisations with
needs and wants, who have the means to pay for a product
and the willingness to buy. Needs are the basic (often
physiological) forces that motivate people to behave in a
certain manner. We cannot, however, create needs. Hunger,
thirst and the need for shelter, for example, cannot be
created. We can, however, create wants. Wants are needs
that have been learnt over time. Consumers can learn that a
Wimpy breakfast tastes delicious and is good value for
money. Marketers cannot make consumers hungry, but they
can certainly help them associate the need (hunger) with the
benefits of a Wimpy breakfast (a want) for example, by
advertising, which is just one of the many communication
tools available to the marketer. The exchange of value
(buying and selling), therefore, leads to benefits for both
parties: income for the seller and need satisfaction for the
buyer. And the firms reward for creating a satisfied
customer is profit.
Now you should understand what marketing is. How
marketing has been conducted over the ages, however, has
changed as the discipline has developed and adapted to new
influences over time. Several developmental phases can be
identified, and specific philosophies have dominated
marketing thought and practices during different periods.
5. Marketing management philosophies

LO4
Six competing philosophies can influence a firms marketing

activities. These philosophies are commonly referred to as
production, product, sales, consumer, societal and
relationship marketing orientations. Although they all still
manifest themselves in marketing thinking and activities to
this day, each one of them was the dominant paradigm
during a specific time in the historical development of the
discipline of marketing.
5.1 Production orientation

A production orientation is a philosophy that focuses on the
internal production or manufacturing capabilities of the
firm rather than on the desires and needs of consumers. The
production era culminated in the Industrial Revolution a
period in history when the world made significant progress
in improving production processes and started moving
towards mass production.
A production orientation means that management
assesses its internal resources and asks questions such as:
What can we do best?; What can our engineers design?;
and What is easy to produce with our equipment? In the
case of a service firm, managers ask, What services are most
convenient for the firm to offer? and Where do our talents
lie? Some have referred to this orientation as a Field of
Dreams marketing strategy, referring to the famous line
from this movie, If we build it, theyll come.
There is nothing wrong with assessing a firms internal
capabilities. In fact, such assessments are major
considerations in strategic marketing planning (see
Chapter 14). However, focusing a firms marketing efforts on

its internal production capabilities only and ignoring
customer needs can create problems in the long term.
A production orientation does not necessarily doom a
firm to failure, especially not in the short term. Sometimes a
firm is very fortunate and what it can best produce is exactly
what consumers (the market) want at the time. For example,
when personal computers first came on the market, most
DOS-based software programmes were not particularly
user-friendly. Yet the marketers of word-processing software
programs such as MultiMate were very successful for a
while. Why? Because the word-processing programmes at
the time used production technologies that were a huge
improvement on the old electric typewriters, and
competition was weak. Despite their user-unfriendliness,
consumers still bought these programmes because they
offered considerable advantages over the competing
products, such as electric typewriters. When competition is
weak or demand exceeds supply, a production-orientated
firm can survive and even prosper.
EXAMPLE >> When Xerox introduced the first plain paper copier, it
had a production capability that was unique. Because of this unique technology
Xerox was very successful mostly because it did not face serious competition for
several years after the launch. While competition was weak and fragmented Xerox
prospered despite its production orientation. But things soon changed. Once the
competition (especially from Japanese firms) gained access to the copier
technology and improved on it, especially in the areas of product quality and
customer satisfaction, Xerox rapidly lost market share.
Most of the firms that succeed in competitive markets have a
clear understanding that they must first determine what

customers want and then produce it, rather than focus on
what managers think should be produced. The banking
group Absa now defines its business as meeting customers
personalised financial needs as opposed to an institution
that stores money because they realised that a production
orientation will not serve them well in the modern-day
banking environment where consumer needs are changing.6
The Visa card is no longer a card brand, but a provider of a
large number of payment solutions. In other words, a
production orientation is inadequate because it does not
consider whether the goods and services that the firm
produces most efficiently meet the needs of consumers.
5.2 Product orientation

The product orientation era started once most firms had
sorted out their production-related problems (that is,
introduced some form of mechanisation) and consequently
shifted their attention from improving production processes
to improving product features and product quality.
Firms with a product-orientation philosophy believe that
they will be successful if they manufacture good-quality
products, regardless of the impact of other influences.
Superior-quality products and special product features are
the focus of these firms, and they assume that these
attributes are all consumers are interested in. They do not
conduct research to understand what consumers want in a
product or try to involve customers in the design process.
These types of firms do not pay much attention to the
activities of their competitors either. They are so fixated on

the products they manufacture and their features, that all
else pales in significance.
The problem with a product orientation is that ignoring
customer needs is often fatal. Consumers buy products to
satisfy their needs. If products are manufactured with
features that are impressive, but the products do not satisfy
needs, consumers will simply not buy them. Consider the
example of PPG Industries:
EXAMPLE >> Throughout the 1980s, researchers at PPG spent

considerable time, effort and money developing a bluish motor vehicle
windscreen that would let in filtered sunlight but block out the heat. Scientists
were convinced that this new product would be significantly better than existing
windscreens. However, when the new windscreen was introduced, the motor
vehicle manufacturers refused to buy it. They didnt like the colour or the price.
We developed a great mousetrap, but there were no mice, said Gary Weber, vice
president for science and technology at PPG at the time.7
PPG paid a heavy price for thinking in terms of its products features instead
of the needs of its customers. But even if the windscreen had enjoyed success,
PPG would soon enough have come up against another problem associated with
a product orientation: product features are often easily copied by competitors. So
what is new and impressive now may not be so for long before competitors are
marketing products with similar features. For example, the security firm Maxidor
was hugely successful when it first produced security doors with its unique slam
lock. This door locked itself when slammed shut. The advantage was soon lost,
however, when it was copied by other security firms, such as Trellidor.
Another South African firm that quickly realised that a product orientation was
bound to fail was Nandos (the Portuguese flame-grill fast-food chain). Nandos
strategist, Josi McKenzie, says the focus has shifted from marketing Portuguesestyle peri-peri chicken to what customers really wanted the Nandos
experience.8 Another example is Nedbanks retail division which been is disarray

for many years and the reason is believed to be that fact that Nedbank is too
product focused.9
5.3 Sales orientation

The sales orientation era started when business firms
improved their production capabilities and increased their
production capacity to such an extent that they ended up
with surplus goods they could not sell the result of mass
production. So buyers had to be found for the mounting
inventory in many warehouses.
A sales orientation is based on the idea that people will buy
more goods and services if aggressive sales techniques are
used, and that high sales volumes result in high profits. Not
only are sales to the final buyer emphasised, but
intermediaries, such as retailers, are also encouraged (even
pressurised) to push manufacturers products more
aggressively. To sales-orientated firms, marketing means
selling things and collecting money. Johann Rupert,
chairman of Richemont says: Weve got to sell. If we do not
sell the cost kills us and thats what keeps me awake at
night. 10 Insurance salespeople sometimes exhibit a sales
orientation by using hard sell techniques. Alexander
Forbes is a case in point. The group has been described as
aggressive sellers. Its former group CEO, Graeme Kerrigan,
said that this is a deliberate strategy. He is quoted as saying:
We employ people with enthusiasm, energy and
excitement. And we encourage a bit of hard sell. 11
A firm that blames its current hardship on being too salesorientated is the financial services firm Liberty Holdings.
Historically, Liberty was a sales-led company and as a result
certain systems, processes and remuneration practices [of
sales consultants] emphasised sales rather than retention [of
customers], says CEO of Liberty Holdings, Bruce Hemphill.
We have lost touch with our customers, he says. 12
The fundamental problem with a sales orientation, as
with a production and product orientation, is a lack of
understanding of the needs and wants of consumers. Salesorientated firms often find that despite the quality of their
sales force, they cannot convince people to buy goods or
services that are neither wanted nor needed. The business
publication Financial Mails sales steadily declined from
about 33 000 per week in the middle of 2000 to about 26 000
by the beginning of 2004. The reason? Management
admitted that it had concentrated too much on circulation
figures and had lost track of the needs of its readers. Sales
targets can never replace satisfying customer needs.
5.4 Consumer orientation

A consumer orientation, which is the foundation of
contemporary marketing philosophy, is based on an
understanding that a sale depends not simply on excellent
production facilities or on an aggressive sales force, but
instead on a thorough understanding of consumers needs.
A consumer orientation assumes that consumers do not buy
products for the sake of having them, but because of the
need-satisfying properties that the products have. Some buy
a motor vehicle to get from A to B. Others buy the same

vehicle to impress their friends. Still others buy the same
vehicle for racing purposes. They all buy a motor vehicle,
but they do so to satisfy different needs. The basis of a
consumer orientation is identifying, understanding and
satisfying the needs of consumers.
Consumer orientation is based on a philosophy referred
to as the marketing concept. The marketing concept is
simple and comprises an intuitively appealing approach to
marketing. It suggests that the social and economic
justification for a firms existence is the satisfaction of
consumer needs and wants while meeting the firms
objectives. The marketing concept is based on three pillars:
First and foremost, customer satisfaction by focusing

on customer needs and wants
Integrating all the firms activities, including production,
to satisfy these needs and wants
Realising long-term goals, such as sustained profitability,
by satisfying customer needs and wants legally and
responsibly
The marketing concept is based on the recognition that

customer-need satisfaction is the key to successful
marketing. The importance of need satisfaction is
acknowledged in the majority of definitions of marketing.
Without need-satisfying characteristics, no sale will occur,
which suggests unsuccessful marketing. In short, a firm
must provide what the customer wants not what the firm
thinks customers want or should want.
The second pillar of the marketing concept is the
integration of all the firms activities to ensure customer

satisfaction. This requirement implies that customer
satisfaction is not the sole responsibility of the marketing
department. In other words, everyone in the firm has to
work towards the goal of customer satisfaction, and the
entire firms people, processes, leadership and, indeed, its
culture, must be geared towards this primary goal.
The third pillar of the marketing concept is an
acknowledgement that firms cannot survive and prosper if
their marketing activities are illegal or unethical. One can
extend this line of thinking by arguing that business firms
should make a positive contribution to ensure the
enhancement of the business environment in which it does
business.
Although the philosophy of the marketing concept is
simple and intuitively appealing, it is often surprisingly
difficult to implement. Some firms have unfortunately learnt
this the hard way.
EXAMPLE >> Afribrand, a firm that used to specialise in marketing

products to street hawkers, was mystified when the new biscuits it supplied were
simply not bought. After a while, the reason became clear. Street hawkers
traditionally bought broken, rejected biscuits from biscuit factories, so the new,
whole, unscathed biscuits did not satisfy their needs. As a result, they simply did
not buy them. To be able to sell their biscuits, Afribrand had to break them before
selling them to the street hawkers! In other words, Afribrand realised that for
exchange (sales) to take place, they had to satisfy the needs of their customers.
Customer satisfaction is a positive reaction to a purchase
decision or product after purchase. In other words, it is the
result of a purchase, and is in essence an assessment of need
satisfaction. The objective of all marketers ought to be

customers who are satisfied with their purchase(s) because
that will show that the firm has successfully implemented
the marketing concept.
Today, most types of firms, at least in theory, subscribe to
the marketing concept. For example, Spar has become one
of the leading retailers in South Africa by focusing on what
most grocery shoppers want: good-quality products,
reasonable prices, a clean and spacious environment and
quick service.
While accepting the philosophy of the marketing concept,
marketers have realised over time that there are two
additional requirements for successful long-term marketing.
The first is that marketing must be executed in such a
manner that the society in which the firm operates benefits
from the firms activities. The second requirement is that
marketing should not be a once-off activity: instead, it ought
to lead to a long-term relationship and mutual loyalty
between the firm and the customer. These requirements
have led to two further developments in marketing thought,
namely a societal marketing orientation and a relationship
marketing orientation.
5.5 Societal marketing orientation

One reason a marketing-orientated firm may choose not to
deliver the benefits sought by consumers is that these
benefits may not be beneficial to individuals or society.
There is obviously demand for products such as cannabis
and unlicensed firearms, but they are illegal. Other products
are legal but are subject to ethical constraints. This

important refinement of the marketing concept, called the
societal marketing concept, acknowledges that a firm exists
not only to satisfy consumer needs and wants, and to meet
the firms objectives, but also to preserve or enhance
individuals and societys long-term best interests.
Marketing environmentally friendly products and

packaging, for instance, is consistent with a societal
marketing orientation. Absa Banks sponsorship of some of
the initiatives of the Kruger National Park is one such
example. Absa says: Were always ready to lend a hand by
investing in the preservation of the environment in which
we all live, which will continue to make our country a better
place. This comes as second nature to us. Vital, a marketer
of health products, donates one Rand from the price of every
pack of Vital vitamins sold in South Africa to a fund fighting

the scourge of women and child abuse.
Acceptance of the societal marketing orientation is an
acknowledgement by marketers that business firms do not
do business in isolation and must make a contribution to the
society in which they function.
A more recent manifestation of societal marketing is socalled green marketing. The retailer Woolworths, for
instance, has launched its Farming-for-the-future project
to help farmers who supply them with fresh produce to
reduce their dependence on artificial chemical fertilisers
(and use compost and organic fertilisers instead), and
pesticides and herbicides. Healthy soil requires less
irrigation because it retains water better, mitigates the
effects of global warming and reduces the loss of topsoil to
erosion. Julian Novak, who heads Woolworths food group,
says: In our trial we have seen crop yields increase, we have
seen indigenous wildlife and birdlife return. The
environment is returning to health.13 In a similar vein, the
bread manufacturer Albany has launched South Africas first
biodegradable bread bags.
READER 2 >> Bottled Water: Not an environmentally

friendly product?
Traditionally bottled water has been considered a bland commodity and it is
therefore surprising that there is such huge growth predicted for this market.
To illustrate this point, consider that in 2006 the value of bottled water sold
globally reached a value of US$60 938 million which comprised a volume of
115 393,5 million litres. In spite of these impressive figures, the bottled water
market is forecast to increase by 2011 (from 2006) in value by some 41,8 per
cent to US$86 421,2 million and in volume by 51 per cent to 174
286,6 million litres.
There have, however, been a number of criticisms levelled at the
manufacturers of bottled water and these are mostly surrounding the impact
that this industry is having on the environment. A major concern is the
material which is used to package the water, much of which is not recycled
and ends up as litter or goes into landfill sites. Similarly, recent concerns
about the carbon footprint associated with the harvesting, bottling and
transportation of water has resulted in a consumer backlash against the
consumption of bottled water. For example, in the small rural Australian town
of Bundanoon, residents were angry about the plans of a company to build a
water extraction plant in the town, transport the water to a bottling plant 150
km away for processing and then selling it back to them. The residents
responded by banning the sale of bottled water in the town. This incident has
been regarded by some environmental activists as indicative of a worldwide
trend.
SOURCES: Australian town bans bottled water. Guardian.co.uk, 9 July 2009;
http://www.theguardian.com/environment/2009/jul/09/australian-bottled-water-ban
http://en.wikipedia.org/wiki/Web_2.0; King, M. 2008. Bottled Water - Global Industry Guide, PRinside.com, 7 July 2008
5.6 Relationship marketing orientation

The realisation that customer loyalty is an important
consideration in long-term marketing success has been the
most recent refinement of the marketing concept.
Enlightened marketers have realised that they need to focus
on building long-term relationships with their customers
rather than on short-term transactions. The relationship
marketing philosophy emphasises forging long-term
partnerships with customers. Firms build relationships with

customers by offering value and providing satisfaction on a
consistent basis. Firms that successfully implement
relationship marketing benefit from repeat sales (loyalty)
and referrals, which lead to increases in sales, market share
and profits. Costs fall because it is less expensive to serve
existing customers than to attract new ones. Keeping a
customer costs about a quarter of what it costs to attract a
new customer, and the probability of retaining a customer is
more than 60 per cent, whereas the probability of attracting
a new customer is often less than 30 per cent.14
Customers also benefit from stable relationships with
business firms. For example, a bank teller who knows her
clients needs is surely in a better position to provide a
quicker, more efficient, more personalised and needsatisfying service than a bank teller who serves a stranger
whom she does not know at all.
EXAMPLE >> Airlines frequent-flyer programmes (such as South African

Airways Voyager programme) are an example of financial incentives offered to
consumers in exchange for their continued loyalty. After flying a certain number of
miles or flying a specified number of times, the frequent-flyer programme
participant earns a free flight or some other award, such as free accommodation.
Frequent-flyer programmes encourage customers to become loyal to specific
airlines and reward them for this behaviour. The banking group First Rands
eBucks programme (First National Bank and RMB Private Bank) is arguably one of
the most successful loyalty programmes in South Africa (it has more than
1 million members). First Rand customers earn eBucks when they use their credit,
debit or cheque accounts and can spend the rewards (they get 10 eBucks for
every rand they spend) on a variety of products and services.
Many firms acknowledge the importance of long-term

relationships, and convey this orientation in their
advertising. Mutual and Federal says: There is nothing short
term about our relationship with our policyholders.
A sense of well-being occurs when one establishes an
ongoing relationship with a firm or service provider, such as
a retailer, doctor, bank teller, hairdresser or accountant. The
social bonding that takes place between provider and

customer ensures personalisation and customisation of the
relationship. Firms can enhance these bonds by, for
instance, being reliable, referring to customers by name and
providing continuity of service through the same employee,
such as a personal banker.
Although different marketing orientations have
predominated at different times, this does not mean that
nowadays all business firms actually implement the latest
thinking in their daily marketing activities. Unfortunately, in
South Africa the ideal of a consumer orientation based on
need satisfaction, long-term customer relationship-building
and due regard for the environment is often a pipe dream.
One has only to read the letter columns of magazines and
newspapers to find confirmation of that. A letter writer
recently wrote: The saga of poor service from the Post Office
continues. The Post Office is costing us a fortune through
late deliveries of accounts and payments. A regular moviegoer recently said that he has stopped going to movies
because of the movie starting out of focus, booking the ideal
seat only to find it broken, inadequate legroom, poor sound
quality, continual latecomers, cellphones ringing, doors left
open letting in noise and light and patched screens painfully
visible.
Successfully implementing the marketing concept is
easier said than done. Unfortunately, the focus is too often
on sales rather than on customer satisfaction and building
relationships with customers.
5.7 Differences between sales and consumer

LO5
orientations
As noted at the beginning of this chapter, many people
confuse the terms sales and marketing. These
orientations are substantially different, however. Table 1.1
compares them in terms of five characteristics: the firms
focus, the firms business, the firms primary objective, the
tools the firm uses to achieve its objectives and those at
whom the product is directed. Table 1.2 demonstrates the
differences between the two types of orientations by using
actual examples of three firms.
5.7.1 The firms focus

Table 1.1 shows that the staff of sales-orientated firms tend
to be inward-looking, focusing on selling what the firm
makes rather than making what the market wants (an
outward or external focus). Many of the historic sources of
competitive advantage technology, innovation, economies
of scale allowed firms to focus their efforts internally and to
prosper. The accounting profession or the computer
software industry are good examples of this reality. Today,
most successful firms have shifted to an external, consumerorientated focus. This focus acknowledges that no amount
of technical superiority will bring success in the long term
unless customer needs are satisfied.
As Alex Trotman, ex-chairman of Ford Motor Company,
once said, The customer, not Ford, determines how many
vehicles we sell. 15 Raymond Ackerman, the chairman of
Pick n Pay, refers to the supremacy of the customer. 16 He
has coined the phrase Treat the customer like a queen and
she will make you a king to illustrate Pick n Pays marketing
philosophy. 17
A decision on the firms focus leads to the question What
business are we in? This question is discussed in more
detail when we discuss this topic under the heading The
firms business of this chapter.
5.7.2 The firms primary goal

As Table 1.1 illustrates, a sales-orientated firm pursues
profitability by growing sales volume and tries to convince
potential customers to buy, even if it knows that the
customers needs and the products benefits may be
mismatched. Sales-orientated firms place a higher premium
on making a sale than on developing a long-term
relationship with a customer. By contrast, the ultimate goal
of most consumer-orientated firms is to make a profit by
creating customer value, ensuring customer satisfaction and
building long-term relationships with customers.
5.7.3 Tools the firm uses to realise its goals

Sales-orientated firms try to generate sales volume by using
intensive promotional activities, mainly personal selling and
advertising. By contrast, consumer-orientated firms
recognise that promotion decisions are only one of several
basic marketing-strategy decisions that have to be made.
These include decisions on the so-called four Ps: product
decisions, place (or distribution) decisions, promotion
(marketing communication) decisions, and pricing
decisions. Chapters 8 to 12 focus on these topics. A
consumer-orientated firm recognises each of these four

components as important. On the other hand, salesorientated firms view advertising and promotion as the
primary means of realising their goals.
Table 1.1 Differences between sales and consumer orientations
Table 1.2 Illustrating the differences between product and consumer orientated
approaches
Company
Product
orientated
Consumer orientated
Revlon
We make
cosmetics
We sell lifestyle and self-expression; success

and status; memories; hopes and dreams.
Xerox
We make
copying, fax
and other
ofice
machines
We make business more productive by helping

them scan, store, retrieve, revise, distribute,
print and publish documents.
RitzCarlton
Hotels
We rent
rooms
We create the Ritz-Carlton experience one

which enlivens the senses, instills well-being,
and fulfills even the unexpressed wishes and
needs of our guests.
5.7.4 Those at whom the product is directed

A sales-orientated firm targets its products at everybody or
the average customer. A consumer-orientated firm targets
specific groups of people. The fallacy of developing products
targeted at the average user is that relatively few average
users actually exist. Typically, populations are characterised
by diversity. An average is simply a mid-point in some set of
characteristics. Because most potential customers are not
average, they are not likely to be attracted to an average
product marketed to the average customer often by a
below-average marketer!
Consider, for example, the market for shampoo. There
are shampoos for consumers with oily hair, dry hair and for
those suffering from dandruff. There are shampoos for
permed hair, coloured hair, heat-damaged hair. Some
shampoos enhance the hairs colour. Special shampoos are
marketed for infants and elderly people. There are frequentuse, all-in-one and family shampoos but nowhere will you
find a shampoo that admits to catering for the average
customer.
A consumer-orientated firm recognises that different
customer groups exist and that their needs are different. It
may, therefore, need to develop different goods, services
and promotional appeals for different customer groups. A
consumer-orientated firm carefully analyses the market and
divides it into groups of people who are fairly similar in
terms of selected characteristics (referred to as market
segmentation). Then the firm develops marketing strategies
that will bring about mutually satisfying exchanges with one
or more of those groups or segments.

Caxton Magazines, for instance, has a very good idea who
reads its different magazines (such as Bona, Style, South
African Country Life, Living and Loving, Garden and Home
and Farmers Weekly) and knows what their needs are.
Paying attention to the customer is not exactly a new
concept. Back in the 1920s, General Motors Corporation
helped write the book on customer satisfaction by designing
cars for every lifestyle and pocket. This consumer-orientated
approach was a breakthrough for an industry that had been
largely driven by production needs ever since Henry Ford
promised consumers they could have any car colour they
wanted as long as it was black. Chapter 6 explores the topic
of analysing markets and selecting and focusing on those
segments that appear to offer the most promising
opportunities.
6. A word of caution
This comparison of sales and consumer orientations is not
meant to belittle the role of marketing communication or
personal selling in the marketing mix. In fact, consumers
cannot buy products of which they are unaware. Marketing
communication (some prefer the term promotion) is the
means by which firms communicate with present and
prospective customers about the merits and characteristics
of their firm and products. Effective marketing
communication is an essential part of effective marketing.
Salespeople who work for consumer-orientated firms are
generally perceived by their customers to be problemsolvers and important links to supply sources and new
products.
7. Implementing the marketing concept in

LO6
existing firms
In an established firm, changing to a consumer-driven
organisational culture must occur gradually. Furthermore,
middle-level managers alone cannot effect a change in
corporate culture; they must have the total support of the
CEO and other top executives. According to Thomas J.
Pritzker, former president of Hyatt Hotels, the notion that a
customer orientation can just be turned on is a fallacy:
Management has to set a tone and then constantly push,
push, push. 18
EXAMPLE >> The success of Nordstrom, an American retailer,

illustrates the results of strong management support for customer-orientated
service. Nordstrom employees will do almost anything to satisfy shoppers. One
story, which the firm does not deny, tells of a customer who got his money back
on a car tyre, even though Nordstrom doesnt sell tyres. It is therefore not
surprising that Nordstrom received the highest overall customer satisfaction
rating from 2 000 shoppers who participated in a study ranking convenience and
quality of offerings.19
7.1 Changes in authority and responsibility

Changing from a product or sales orientation to a consumer

orientation often requires major revisions in relationships
within the firm. Non-marketing employees, such as
production managers who have been making marketing
decisions, may suddenly lose their authority. Staff in such
areas as marketing research may find that they have gained
considerable authority. One way of winning acceptance for
implementing the marketing concept is to get everyone who
will be affected by the change to participate in the planning
process. It is important to remember, however, that during a
period of change, some problems relating to human
relations are inevitable. Implementing the marketing
concept slowly rather than in a revolutionary fashion will
smooth this transition.
EXAMPLE >> Saki Macozoma, the ex-managing director of Transnet,

said converting Transnet into a consumer-orientated firm was difficult: Previously
the mindset was that we run a train service between Johannesburg and Cape
Town and if you want to, you can put your goods aboard. He acknowledged that
Transnet was highly competent technically, but that there was no business
culture. Today, Transnet regards its core business as bulk freight
transportation.20
Namibian Breweries acknowledges that it has been a sales-orientated firm up
to now. Its whole marketing effort has been focused on its distributors (retail
sales outlets such as liquor stores, supermarkets, restaurants and shebeens)
instead of on its consumers. To compete with South African Breweries in the mass
beer market, Namibian Breweries had to convert to a market-driven firm, said the
then general manager of Namibian Breweries in South Africa, Andr Homann.
Without a consumer we have no business, he added.21
7.2 The importance of new opportunities
LO7
It was pointed out earlier that the marketing concept is

based on three pillars, one of which was customer
satisfaction achieved by focusing on customer needs and
wants, and more importantly anticipating and satisfying
customer needs and wants. To realise this objective, the firm
must constantly scan the environment for potential
opportunities that it can utilise (environmental scanning is
discussed in more detail in Chapter 2), and then decide
whether and how to utilise the potential opportunity. There
are many examples of firms whose market and strategic
planning processes and culture are strongly market-focused.
General Electric, Wal-Mart, Sony, Toyota, Honda, and
Microsoft are a few examples. All of these firms have track
records of driving market focus toward opportunities where
they can create both wide buyer choice and high cash flows.
They also share the ability to quickly exit ventures that
cannot create high, long-run net cash flow. A different story
is that of GM whose historical financial metrics have focused
on growing market share and revenue, rather than on
creating and sustaining positive net cash flow. However, the
loss of market focus on the scale and scope of GMs, in the
long run, inevitably lead to huge cash losses. As a result
General Motors is running out of cash, desperately seeking
government support to survive. 22
Although there are other considerations, such as the
objectives of the firm and its strengths and weaknesses
(these are discussed in more detail in Chapter 14), there are
three very important steps in evaluating new opportunities.
The questions that must be addressed are:
What business are we in?

Does this apparent opportunity fall inside or outside the
scope of our business?
If we pursue this opportunity will we have a sustainable
competitive advantage?
It is very important that firms are constantly on the lookout

for new opportunities to ensure that they survive in a
competitive environment and that competitors do not steal
a march on them by being first with, say, a new product. For
instance, Langeberg allowed Royco to be the first firm in the
market with a potato bake product, which allowed Royco to
capture a significantly larger market share. Langeberg now
has to play catch-up. Media24, on the other hand, was
quick to spot the opportunities offered by the growing home
improvement and do-it-yourself market and launched Tuis
magazine in Afrikaans and Home in English to fill the gap in
the market.
The second step (considering whether the firm should
pursue the opportunity) involves several decisions about an
appropriate marketing strategy, marketing plans and
marketing programmes and we will return to them later.
First we have to consider the question: What business are
we in?
7.3 The firms business
LO8
How a firm perceives the business it is in often reflects the

degree of its commitment to the marketing concept. As

Table 1.1 shows, a sales-orientated firm defines its business
(or mission) in terms of goods and services. A consumerorientated firm defines its business in terms of the benefits
its customers seek. Consumers who spend their money, time
and energy expect to receive benefits, not just goods and
services. This distinction has enormous implications.
There are two ways of defining a firms business, or the
market in which it competes, namely in generic terms or in
product-market terms. Defining the firms business as
competing in a product market involves answering four
questions: 23
What? (product type)

To meet what? (the customer need satisfied)
For whom? (customer types)
Where? (geographic area)
Consumers in a product market will have very similar needs,

and competing firms will offer close substitutes to satisfy
those needs. If Ster Kinekor defines its business as
supplying films to film theatres to satisfy the film-watching
needs of private individuals in South Africa it is a productmarket definition. The definition implies that consumer
needs are very much the same (watching films) and all
competitors will do exactly the same supply films to film
theatres. It is also a very narrow definition, because it does
not allow for options other than supplying films. The danger
here is that too narrow a definition may result in the firm
missing market opportunities to serve customers whose
wants could be met by a wider range of alternative product
offerings such as videos, DVDs and videos on demand (via

the Internet).
Instead, it has defined its business in generic market
terms We are in the entertainment business. A generic
definition implies a wider range of competitors (in this case
any provider of any form of entertainment), but also opens
up a wider range of potential opportunities to satisfy the
needs of consumers. Most importantly, however, a generic
definition of a firms business focuses on customer needs
and the benefits customers seek. As Charles Revson, the
founder of Revlon, says: In the factory we make cosmetics.
In the store we sell hope. The telecommunications firm
Neotel says they are in the business of connecting
enterprises and people.
Malcolm Searle, the brand-development manager of the
food manufacturer Tiger Brands, the owners of, among
others, the Tastic rice brand, says: People are not buying a
set of ingredients. They ask, What are we going to have for
dinner tonight? not What rice am I going to eat? We are
not in the rice business but in the business of understanding
what people consume at mealtimes. We thought we were in
the peanut butter and jam business. But we are in the
spreads and toppings business, competing with honey, fish
paste and cheese spreads.24 How a firm defines its business
consequently also impacts on the competition it faces.
A firm describing its market in generic terms would then
refer to a personal expression market rather than a
Christmas card market, a home-decorating market rather
than a paint market, a family-security market rather than an
insurance policy market and a transportation market rather
than a motor vehicle market.

Answering the question what is this firms business? in
terms of the benefits customers seek instead of goods and
services has at least three important advantages:
1
It ensures that the firm keeps focusing on customers

needs and avoids becoming preoccupied with the
physical attributes and features of its products, or with
the firms own internal needs.
It encourages innovation and creativity by reminding
people that there are many ways to satisfy customer
needs and wants.
It stimulates an awareness of changes in customer
needs, wants and preferences, so that product offerings
are more likely to be adapted to remain relevant.
EXAMPLE >> An example of a firm that did not get the definition of its
business right is Encyclopedia Britannica. In 1990, Encyclopedia Britannica
earned more than R240 million after taxes. Just four years later, however, after
three consecutive years of losses, the sales force had collapsed. How did this
respected firm sink so low? Its managers saw that competitors were beginning to
use CD-ROMs to store huge masses of information, but chose to ignore the new
computer technology25 because they thought of themselves as being in the bookpublishing business. It is not hard to see why parents would rather give their
children an encyclopedia on a compact disc than a printed one. A full set of the
Encyclopedia Britannica costs a minimum of R9 000, weighs 269 kilograms, and
takes up almost 2 metres of shelf space.26 The CD versions sold by other
publishers cost less than R2 400. If Britannica had defined its business in generic
terms as providing information instead of publishing books, it might not have
suffered such a precipitous fall. In desperation the firm now gives its content
away on its web site for free and hopes to make some money by selling
advertising space. Another example is Kodak. Its demise can be attributed to the
fact that it saw its business as we make films instead of regarding its business
as we create storage possibilities for memories.
Marketing myopia is the term used to describe
managements failure to recognise the scope of its business.
Defining the scope of business too narrowly can lead to lost
opportunities. Defining the scope of business too broadly,
on the other hand, can lead to the sub-optimal use of
resources as the firm gets involved in business it should not.
EXAMPLE >> The mass retailer Massmart is very conscious of the

problems that marketing myopia can cause. Massmart has made it clear that it
will not pursue marketing opportunities outside the African continent, outside
fashion markets, in micro-marketing activities (as opposed to mass marketing) or
where credit has to be extended to customers.27 By redefining its business as
document solutions, Xerox has been able to use cutting-edge technology, digital
hardware and sophisticated software to exploit new opportunities in documentflow management to solve its customers need for efficient document distribution,
despite fierce competition.
Firms that have not evaluated apparent opportunities
appropriately in terms of their business definitions have
paid a heavy price. The construction firm Stocks and Stocks
became insolvent in 2000 and had to be delisted from the
Johannesburg Securities Exchange. The reason? Stocks and
Stocks got involved in property development and
management (Kwa Maritane resort near Sun City and
Brookes Hill in Port Elizabeth, among others), which is
outside their traditional business, namely building
construction. What appeared to be an opportunity turned
out to be a disaster as the firm got deeper and deeper into

debt in pursuit of wrong markets that eroded its focus.28
Sun International, on the other hand, has remained
tightly focused on its core business despite apparent
opportunities elsewhere. The managing director of Sun
International, Peter Bacon, says: We do not want to become
a rag-tag of dissimilar operations. We have to make the
fullest possible use of the companys impressive bank of
skills, professional knowledge and capability and develop
operations within the broad range of our facilities [We do
not] want to become an operator of limited-service hotels.
Our role is to stay inside our proven area of ability and that
is to operate high-quality, full-service resorts in prime, highdemand locations. 29
Failure to adapt to a focus on customer needs and on the
way customers define their business may have serious
consequences for many firms. The retailer Woolworths is a
firm that has often paid the price for not adequately aligning
its business with its customers needs. A customer once
wrote:
the reason Woolworths lost clothing shoppers is that it
lost the plot, in particular in its womens range. Woolworths
was where we shopped for good-quality and competitively
priced basics: the well-cut blazer, quality shirt, plain black
shoes. Truworths and Edgars were where we went for in
today, out tomorrow fashion items. Today, Woolworths is a
mishmash of everything and nothing. We still support
Woolworths food halls, but until it loses the imitation
snakeskin shoes and high-fashion blouses, we will shop
elsewhere for clothes. 30
However, the firm has done a lot to become more

consumer orientated (see the Reader 3 Concerns are
noted).
READER 3 >> Concerns are noted

Sir I wish to respond to Tim Andersons letter (Keep shelves stocked, May
14). We appreciate Mr Andersons continued feedback to Woolworths and
regret that we have not entirely met his expectations. As a customer, his
feedback is vital and we have work to do to overcome the shortfalls he has
highlighted.
Our customers expect to find the product they want, when they want it, in
our stores. I would like to acknowledge Mr Andersons concern that some fresh
produce is not available when he needs it. Improving availability is a high
priority in our business. We work very closely with our suppliers, whether they
are based locally, in neighbouring countries or abroad, and we deal only with
suppliers that meet our quality, environmental and ethical standards. If the
products do not meet our standards, they will not make it to our shelves.
Through our dedicated head-office team, improvements are being made to
planning and distribution systems and we believe that some customers are
already seeing improvement. We have also investigated and addressed Mr
Andersons concerns about the fruit he bought in our store.
We rely on customers such as Mr Anderson to make sure the right
products and services are available to meet customers needs. Woolworths is
making every effort to improve the concerns Mr Anderson has raised.
SOURCE: Letter to the Editor of Business Day from Paula Disberry, Woolworths Group Director, Retail
Operations. Business Day, 21 May 2014, p. 8
The marketing concept and the idea of focusing on

consumer needs and wants do not mean that consumers
will always receive everything they want. It is not possible,
for example, to profitably manufacture and market for R50

each car tyres that will last for 100 000 kilometres.
Furthermore, customers preferences must be mediated by
sound professional judgement as to how to deliver the
benefits they expect. As one adage suggests, People dont
know what they want they only want what they know. In
other words, consumers have a limited set of experiences.
They are unlikely to request or expect anything beyond
those experiences because they are not aware of benefits
they may gain from other potential market offerings. For
example, before Henry Ford started building motor vehicles,
people knew they wanted quicker, more convenient
transportation, but could not express their need for an
affordable family car. In what is probably an urban legend of
sorts Ford allegedly said: Had I asked them what they want,
they would have said a faster horse. Similarly, if researchers
had asked housewives years ago,31 many would have been
able to say that a speedier way to cook meals and warm-up
and defrost food would be very convenient. No one would,
however, have been able to say: What I need is a microwave
oven. The ability to utilise new opportunities by
anticipating consumer needs ahead of competitors can yield
an important competitive advantage for business firms.
7.4 The importance of a competitive

advantage
LO9
Once a firm has identified a potential opportunity, and

decided that this opportunity falls within its scope of
business, the next step is to consider whether it can establish
a competitive advantage in the market it hopes to target.

Most industries and sectors in South Africa are fairly
competitive. Of course, there are industries that are
dominated by large (often public sector) organisations, such
as electricity (Eskom), fixed telephone lines (Telkom) and
airports (the Airports Company). In the private sector, South
African Breweries dominates the beer market, for example.
Although these dominant firms do not face much direct
competition, they often have to contend with indirect
competitors. For instance, if you are thirsty, you do not have
to drink a beer produced by South African Breweries. You
may prefer a Coke or a bottle of mineral water. Similarly, you
can use gas instead of electricity, a cellphone rather than a
fixed-line telephone, or send an e-mail message rather than
post a letter using snail mail.
In most other South African industries, competition is
often vigorous. Examples are banking, car rental, retailing
and airline travel. Competition has an important bearing on
marketing decision-making, especially in a competitive
environment where it is easy for firms to copy each others
product offerings. For instance, the first video machine
manufacturer to market a remote control found that it was
not long before all the other manufacturers had copied the
feature and they all had remote controls. In such an
environment it is difficult to have something special to offer
potential buyers.
Given the level of competition, consumers make a buying
decision based on some rational decision. They select a
Volkswagen Polo above a Toyota Yaris for a reason. They
buy from Woolworths rather than from Pick n Pay for a
reason. They travel with British Airways rather than South

African Airways for a reason. That reason is known as a
competitive advantage. A competitive advantage is
something a firm or product has that competing firms or
products do not have (also called a unique selling
proposition, or USP).
EXAMPLE >> The managing director of Nu-World Industries (a firm

marketing electrical appliances such as kettles, stoves and video machines),

Michael Goldberg, says his firms competitive advantages are the sales forces
knowledge of their products, brands that range from low-cost, entry-level
products to luxury items, and low prices due to effective stock (inventory)
management.32
The shampoo manufacturer Organics saw the need to develop a mousse for
coloured hair. Its Colour Active mousse shampoo is the first mousse shampoo for
coloured hair. The competitive advantage? To keep your hair colour fresher for
longer.
In a highly competitive environment firms must offer
something special to prospective buyers something that no
other firm offers. This reason for buying is a way of
differentiating the firm and its products from those offered
by competitors a competitive advantage. Ideally, a
competitive advantage must be sustainable over time and it
must be based on dimensions or features (such as
durability, user-friendliness or quality) that are important to
consumers. Because high cholesterol levels is a health
concern for many consumers Flora emphasises that using its
margarine will lower users cholesterol levels between 7 and
10 per cent (see the Flora advertisement). Trying to use a
dimension that is not important to consumers as a means of
establishing a competitive advantage will simply not work. A
tyre manufacturer using glossy black rather than a dull black
for its tyres may find that many potential customers simply
do not care. In the UK, a new red wine is now marketed that
is claimed to be good for heart health. The wine has
exceptionally high levels of antioxidants (32 per cent more
antioxidants than comparable red wine), which protect the
human body against the harmful effects of free radicals.
Only time will tell whether this feature is a sustainable

competitive advantage.
Sometimes firms struggle to differentiate themselves from
competitors, especially when they enter a market relatively
late. Many of the cellphone operator Cell Cs financial woes
are attributed to its inability to properly differentiate itself
from competitors Vodacom and MTN. 33
Even in industries where it may appear to be difficult to
establish a competitive advantage, some firms have come up
with novel ways to differentiate themselves. Examples are
new methods of processing milk to enhance its shelf life in
the refrigerator and a car tyre that cannot puncture
(Goodyears claim).
There are many ways in which firms can differentiate
themselves to establish a competitive advantage. We will
refer to them throughout this book. In this chapter, we will
discuss a few of these ways, namely service quality, creating
customer value, maintaining customer satisfaction, having
customer-orientated employees, superior training of
employees, empowerment and teamwork.
7.4.1 Service quality as competitive advantage

In industries where physical products form the core of the
market offering such as electrical appliances, motor
vehicles, computers, groceries, sports goods, and the like it
is difficult to establish a competitive advantage that can be
sustained. Remote controls on a video machine were a
competitive advantage for a while. A small, fuel-efficient
car was a competitive advantage for a while. User-friendly
computer software was a competitive advantage until all
competitors made their software user-friendly. As business

consultant Terry Behan says, very few companies have a
genuine technical competitive advantage or a unique selling
proposition. And even if it is the case, without an optimal
service delivery none of that matters. 34
As services are delivered by people, their quality is
intangible and, therefore, a lot more difficult to copy. Many
believe that service quality is the only competitive advantage
that is sustainable over the long term. Firms such as British
Airways have realised that many international airlines also
offer safe, reliable air transport with a wide selection of
international routes and destinations. British Airways
argued, however, that although many airlines can offer the
core, basic product (that is, what they offer), not all airlines
will offer it in the same manner (how it is offered). British
Airways has decided to differentiate itself by means of how
its product is offered excellent service quality. No one can
argue that they have not been successful!
Besides being difficult to copy, service is an excellent
means of establishing a competitive advantage because it is
an important buying consideration for consumers. Research
done by Caltex, for instance, has shown that their customers
want fast, friendly service at the pump,35 and Caltex tries to
compete with other petroleum companies service because
they know that that is important to consumers.
Sadly, in South Africa, service quality is often of a low
standard.36 The poor level of service offered by many
government departments has been acknowledged by the
Department of Public Service Administration. In an attempt
to rectify the situation, a programme called Batho Pele
(Sotho for people first) has been introduced in an attempt

to improve service delivery. South African firms also tend to
perform poorly on the dimensions of service quality that are
relatively important to consumers, such as reliability in
service delivery, but perform well on dimensions that are
not important to consumers, such as tangibles (the physical
appearance of employees and facilities).37 Establishing a
competitive advantage based on service excellence offers a
huge opportunity to many South African firms.
WEBSITE
Read how the Durban harbour has

addressed the needs of exporters to
decrease the time, cost, and red tape
when shipping to international markets.
As such South Africas competitive
advantage in the developing world has
improved substantially.
(http://www.mediaclubsouthafrica.com/economy/3676
south-africa-s-competitive-advantage-inthe-developing-world) (Accessed on
31 January 2014).
7.4.2 Customer value as competitive advantage

Customer value is the ratio of benefits to the sacrifice
necessary to obtain those benefits. The customer
determines the value of both the benefits and the sacrifices.
The sacrifices customers make include monetary costs (how
much I pay), time costs (how long I take to get there, or how
long I have to wait) and energy costs, and customers
typically try to minimise these sacrifices. The benefits
customers pursue could be product-related (e.g. a fast car),
service-related (e.g. reliable after-sales service) or image"****** DEMO - www.ebook-converter.com*******"
related (e.g. I drive a BMW). The customer tries to minimise

the sacrifices and maximise the benefits and in so doing
maximise the value he or she will get. In any buying
situation the customer compares the sacrifices with the
likely benefits and decides whether the value proposition is
sufficient for him or her to buy.
The marketer also tries to maximise the value the
customer receives and can do so by either lowering the
customers costs (e.g. we will deliver for you; or if you buy
two we will give you a discount) or by increasing the benefits
(e.g. improved product design; more options; more legroom
in the case of British Airways). However, marketers are
constrained in many ways. The value a marketer offers
cannot exceed the cost of the product, for instance.
Some firms think a bit broader about what constitutes
value to a customer. Michael Dell build a very successful
computers business by allowing customers to design their
own computers online. Toyota has cottoned on this idea and
also allows customers to design their own cars on a web site
or at a terminal inside a showroom by selecting from a menu
of on-screen options. Once designed the order is sent
straight to the factory.
7.4.3 Customer satisfaction as competitive advantage

As pointed out earlier, customer satisfaction is the feeling
that a product has met or exceeded the customers
expectations. Many authors refer to the so-called
Disconfirmation Paradigm when describing customer
satisfaction (see Figure 1.1, p. 5). According to this
paradigm, consumers have pre-purchase expectations and
then they evaluate the actual buying experience (a

performance evaluation). If the pre-purchase expectations
are met or exceeded, the customer is likely to be satisfied. If
performance is below expectations, dissatisfaction will be
the result.
Customer satisfaction is a critical requirement for

successful marketing, and successful firms the world over
have got it down to a fine art. They make sure that they know
what their customers want (by doing research) and they
then make sure that they satisfy those needs well. These
firms do not pursue once-off transactions, however. They

cultivate long-term relationships by ensuring sustained
customer satisfaction, and customer-orientated personnel
play a key role in realising this objective.
>>Strategy
Paper producer Sappi drives customer satisfaction
through technology and innovation, which they regard
as a fundamental driver of competitive advantage. They
focus on extracting value from existing and new
technology to develop new products, markets and
processes; and generate greater returns in all aspects of
our business. Research and development (R & D) takes
place at technology centres in each region of the
respective countries they do business in. 38
7.4.4 Customer-orientated employees as competitive

advantage
For a firm to be focused on customers, employees attitudes
and actions, it must be customer-orientated. An employee
may be the only contact a particular customer has with the
firm. In that customers eyes, the employee is the firm. Any
person, department or division that is not customerorientated weakens the positive image of the entire firm. For
example, a potential customer who is treated discourteously
may well assume that the employees attitude represents
that of the whole firm. Firms that allow that type of
behaviour are violating the integration principle of the
marketing concept.
EXAMPLE >> Marriott International Hotels says: Our basic philosophy

is to make sure our associates (employees) are very happy and that they work to
go the extra mile take care of customers and have fun doing it.39 Every
employee is cross-trained to handle all major guest services. Many other
successful firms are making sure their employees focus on customers needs. Pick
n Pay, for instance, acknowledges the central role of employees in its customersatisfaction efforts by using the slogan Our people make the difference in its
advertising.
7.4.5 Well-trained employees as competitive advantage

Leading marketers recognise the role of employee training
in customer service. For example, all new employees at
Disneyland and Walt Disney World must attend Disney
university, a special training programme for Disney
employees. They must first pass Traditions 1, a daylong
course focusing on the Disney philosophy and operational
procedures. Then they go on to specialised training.
EXAMPLE >> Pick n Pay has made use of the Disney facility and can
vouch for its effectiveness. Similarly, McDonalds has Hamburger University.
Nandos also has a university where line employees and managers learn how to
treat customers, because, as managing director, Brian Sacks, says, people are
the make-or-break factor in any service industry.40 There is an extra pay-off for
firms such as Disney, McDonalds and Nandos that train their employees to be
customer-orientated. When employees make their customers happy, the
employees are more likely to derive satisfaction from their own jobs. Having
contented staff who are committed to their jobs leads to better customer service
and greater employee retention.
7.4.6 Employee empowerment as competitive advantage

In addition to training, many consumer-orientated firms are
giving employees more authority to solve customer
problems on the spot without having to get permission from
a manager to solve the problem. The term used to describe
this delegation of authority is empowerment. The American
firm Federal Expresss customer-service representatives are
trained and empowered to resolve customer problems
quickly. Although the average Federal Express transaction in
America costs only $16, the customer service representatives
are empowered to spend up to $100 to resolve a customer
problem. 41 The benefits of employee empowerment are: 42
Quicker response to customer needs

Employees experiencing a higher sense of job
satisfaction
It translates into a source of information about customer
needs
Improved customer satisfaction.
Nedbank uses the empowerment of its staff as a competitive

advantage. Its AskOnce campaign says: No matter who you
are, or where you bank, its frustrating to be pushed from
pillar to post to get a response. This is why Nedbank has
introduced AskOnce: our commitment that the person you
speak to will take responsibility for your request and ensure
that the matter gets resolved.
Empowerment gives customers the feeling that their
concerns are being addressed, and gives employees the
feeling that their expertise matters. The result is greater
satisfaction for both employees and customers an
excellent competitive advantage if properly executed.
7.4.7 Teamwork as competitive advantage

Many firms that are frequently noted for delivering superior
customer value and providing high levels of customer
satisfaction such as British Airways and Toyota assign
employees to teams and teach them team-building skills.
Teamwork entails collaborative efforts to accomplish
common objectives. Job performance, company
performance, product value and customer satisfaction all
improve when people in the same department or work
group begin supporting and assisting each other, and
emphasising co-operation.43
EXAMPLE >> Johnson Control Automotive Ltd, and Uitenhage-based

car-seat manufacturer, has become the first firm in South Africa to have been
awarded the sought-after German VDA 6.1 Quality Management System
Certification, QS 9000 Certification and an A rating in accordance with VDA 6.1
simultaneously. The firm manufactures car seats for the Volkswagen factory in
Uitenhage and this achievement was due entirely to teamwork, according to the
plant manager, Ian Dickerson. Everyone worked very hard to achieve this. The
commitment shown by the people was phenomenal, he said.44
On the other hand, it took the Dutch beer brewer Heineken six years to get to
the point that Heineken beer was available in cans. What was the reason for the
long delay? The production and marketing departments were practically at war at
the time. An ex-editor of the newspaper the Sunday Times, Mike Robertson, once
admitted that continuous conflict between the editorial and advertising
departments at the newspaper harmed the newspapers performance: Once we
accepted our interdependence things improved and we enjoyed the most
profitable financial year in the newspapers history.45
Performance is enhanced when people in different areas of

responsibility, such as production and sales, or sales and
service, practise teamwork, with the ultimate goal of
delivering superior customer value and satisfaction. In other
words, it implies integrating the firms customer needsatisfying activities, as called for by the marketing concept.
The above is not an exhaustive list of strategies that can
be used to establish and maintain a competitive advantage.
The list is endless, but the following can also be considered:
Cost Shoprite Checkers competes in the grocery

market on price, which implies keeping its own costs as
low as possible.
Quality A strategy used by Woolworths and MercedesBenz, among others.
Flexibility Some will argue that taxis in South Africa
offer a flexible transport service unaffected by bus
schedules, rigid bus-stop locations or even traffic rules!
Location A retail location in an area of high customer
traffic, such as the Waterfront in Cape Town, or a Shell
Ultra City can be a significant competitive advantage.
Most spaza shops compete successfully for business with
much larger competitors owing to their favourable
location.
Safety Mercedes-Benz advertising often suggests that it
is a particularly safe vehicle to drive.
Image A strategy used by many firms, including RayBan sunglasses and Mont Blanc pens.
Product A strategy used by firms that believe they have
a superior product. Doom insect killer is an example.
Design Schick advertising for its Protector razor says:
The only razor with micro-fine safety wires between you

and the blades, protecting you from nicks, cuts and skin
irritation.
Distribution Pick n Pay has enhanced the quality and
freshness of the fruit and vegetables in its Gauteng stores
by improving its distribution. The time it takes to move
fresh fruit and vegetables from the farm to the shelf has
been reduced by 50 per cent, thanks to this new
distribution system.
Once a firm has identified a potential opportunity, decided

that the opportunity falls within the scope of the firms
business and determined that it will be possible to establish
a competitive advantage that is both sustainable and
important to the target market, then the marketing process
can be initiated.
8. The marketing process
LO10
Marketing is not a one-night stand it is a process.

Marketing managers are responsible for a variety of
activities that together represent the marketing process.
These include:
Understanding the firms business and mission and the

role marketing plays in realising that mission
Setting marketing objectives
Collecting, analysing and interpreting information about
the firms situation, including its strengths and
weaknesses, as well as opportunities and threats in the

environment
Developing a marketing strategy by deciding exactly
which wants and whose wants the firm will try to satisfy
(target-market strategy), how the firm wants to be
positioned relative to competing firms and by
developing appropriate marketing activities (the
marketing mix) to satisfy the desires of selected target
markets. The marketing mix combines product,
distribution, marketing communication and pricing
strategies in a way that creates exchanges that satisfy
consumers and the firms needs
Implementing the marketing strategy
Designing marketing performance measures
Periodically evaluating marketing efforts and making
changes if needed.
These activities and their relationships with each other form

the foundation on which the rest of this book is based.
An important concept to grasp at this stage is the
marketing strategy. In broad terms, a marketing strategy is
formulated to pursue a marketing opportunity. The
marketing strategy will consist of an objective, a description
of the market that will be targeted, the competitive
advantage of the product, brand or firm, how the product,
brand or firm will be positioned and how the marketing mix
elements or four Ps (product, place/distribution,
promotion/ communication and pricing strategies) will be
combined to achieve the objective of the marketing strategy.
A marketing plan, on the other hand, consists of a
marketing strategy, but has the added dimensions of
allocating resources and responsibility for implementation.

Control measures (how performance will be evaluated) and
a time scale are also included. Another important
distinguishing feature is that a marketing plan is a written
document.
A marketing programme is a combination of several
marketing plans. Unilever SA may, for instance, have a
marketing plan for each of its skincare brands Dawn,
Ponds and Vaseline but also a combined marketing
programme for skincare products as a whole.
To implement the process of marketing effectively the
position and role of marketing in the firm must be
considered.
9. The position and role of marketing in

LO11
the firm
The marketing function is one of eight business functions
(or departments) typically found in medium-sized and large
firms (the others being production, finance, purchasing,
public relations, information management, human
resources and general management). Although some would
argue that marketing is the most important function of all
because of its intimate involvement with the market and
consumers, the eight functions are typically (but not always)
given equal status in an organisational chart, and all of them
have to contribute to realising the firms objectives. It is
important to understand, however, that regardless of the
nature of the organisational structure, the tasks that the

marketing function or department is expected to perform
will remain the same.
Assuming that you accept that marketing is all about
satisfying consumer needs at a profit based on an integrated
approach while ensuring that societal well-being is
enhanced, we now turn our attention to the management
tasks of marketing. Marketing will not happen by itself. To
play its due role in the firm all marketing activities must be
properly managed. We thus turn our attention to the four
basic tasks of management, namely planning, organising,
leading and control.
Planning refers to:

> identifying marketing opportunities, e.g. Afribrand
saw supplying products to street hawkers as an
opportunity
> setting marketing objectives, e.g. Volkswagen may set
itself the objective to be the market leader in the
passenger vehicle market, or to raise profitability to
20 per cent return on investment
> deciding how to use the marketing instruments (the
four Ps), e.g. Volkswagen decided to use product
and price as key components in its strategy when it
marketed the Polo Playa as a relatively inexpensive
vehicle (price) without compromising quality
(product)
Leading refers to providing leadership in planning and
the implementation of marketing strategies
Control (evaluation) refers to an objective assessment of
the marketing strategy against the background of the
marketing objectives. In other words, did we achieve

what we set out to achieve?
To summarise, marketing will not happen by itself. It needs
to be managed by means of effective planning, organising,
leading and control.
10. Why are there critics of marketing? LO12

As with most other things in life, marketing is not beyond
criticism. Much of this criticism has been targeted at the role
of intermediaries (retailers and wholesalers) in marketing,
and on the role of advertising. Critics argue that
intermediaries simply add costs to a final product without
adding any value to the process of getting products to
consumers. Advertising is criticised for making consumers
buy products they do not really need, and for often being
misleading and untruthful. For instance, more than a third
of the complaints received by the Advertising Standards
Authority of South Africa (for additional reading refer to
http://www.asasa.org.za/) accuse advertisers of misleading
claims. Others have argued that packaging and labelling are
often deceptive and that packaging pollutes the
environment.
Those who do appreciate the value of marketing in an
economy respond by pointing out that marketing creates
utility for consumers. Utility refers to the value being created
by marketers by satisfying consumer needs that would not
otherwise have been possible. They also point out that
marketers overcome a number of discrepancies and

separations (or gaps) in an economic system, leading to
further value creation. These discrepancies and gaps are: 46
Discrepancy of quantity. To realise the benefits of

economies of scale in production, producers produce
products in large quantities. A bicycle factory may
produce batches of 400 units at a time, but consumers
obviously cannot buy them all at once. They want to buy
one at a time. To overcome this discrepancy, wholesalers
and retailers buy in bulk from manufacturers, which they
break down into the smaller units consumers prefer to
buy.
Discrepancy of assortment. Producers normally
produce a narrow assortment of products. A producer of
golf clubs may produce only golf clubs. Golf players,
however, need more than that to play a round of golf.
They also need special shoes, gloves, balls, a carry bag,
and so on. Retailers, in this case, sports shops, buy
different products from a variety of producers and
suppliers and combine them all into a combination that
consumers desire.
Spatial separation. Producers produce where
production cost is at its lowest but consumers are widely
dispersed. A farmer produces milk on his farm, but the
consumers who drink it are far from the farm. The farmer
needs to get the milk to within reach of those who want
to consume it. Intermediaries (wholesalers and retailers)
overcome this spatial separation through the transport
function. Marketers, therefore, create place utility for
consumers by making products available where they are
needed.
Separation in time. Consumers are not always ready to
consume products when they have been produced, and
production may exceed demand. Excess products or
surpluses, therefore, have to be stored a function that
intermediaries perform for consumers. For example, a
farmer produces mealies that are harvested during the
winter. Consumers, however, do not eat porridge only
during the winter. To ensure that they can eat porridge
all year round, marketers have to overcome the
separation in time. By using their storage facilities,
marketers create time utility for consumers.
Separation of information. Consumers are often not
aware that products exist that may satisfy their needs. In
other words, they lack information because of an
information gap. Marketers attempt to overcome the
information gap by providing consumers with
information on need-satisfying products by using,
among others, advertising (information utility).
Separation in ownership. Most consumers do not own
all the products to satisfy all their needs. In other words,
there is a gap between what they want (I want my own
car) and what they have (I do not own a car). Marketers
try to overcome this gap by selling need-satisfying
products to consumers. By overcoming the separation
gap and giving consumers the opportunity to use or
consume products, marketers create possession utility.
Separation in value. Consumers often disagree on the
value of a product. For example, a consumer may say
that R20 for a two-litre Coke is too expensive, and she
will not buy it. In other words, the buyer and the seller
disagree about the value of the product. Marketers have

to convince buyers that their products represent value
(or value for the money spent), otherwise buyers simply
will not buy. Also, by using the pricing mechanism,
marketers establish a monetary value for a product that
will recover the manufacturers production cost while
also representing a realistic price that the target market
will be prepared to pay. In other words, marketers
establish equilibrium between manufacturers (who want
as high a price as possible for their products) and buyers
(who want to pay as little as possible).
Marketers also create two other forms of utility. By ensuring
that they interpret consumer needs correctly, marketers
help to ensure that need-satisfying products are
manufactured by the firms production department or
factory. Therefore, marketers play a role in creating form
utility. Additionally, task utility is created by marketers who
perform certain functions on behalf of consumers. A motor
mechanic who repairs a car for a customer creates task
utility.
In summary, those who want to defend the role of
marketing in a firm or an economy will point to the value the
marketing function creates for consumers by overcoming
several gaps that would be impossible or prohibitively
expensive for consumers to overcome themselves.
Therefore, marketing creates utility for consumers by
performing activities or functions of value on their behalf.
11. Why study marketing?
LO13
Now that you understand the meaning of the term

marketing, why it is important to adopt a marketing
orientation and how firms implement this philosophy, you
may be asking, Whats in it for me? or Why should I study
marketing? These are important questions regardless of
whether you are majoring in a business field other than
marketing (such as accounting, finance or management
information systems) or a non-business field (such as
journalism, economics or education). There are several
important reasons to study marketing: marketing plays an
important role in society; marketing is important to
businesses; marketing offers outstanding career
opportunities; and marketing affects your life every day.
11.1 Marketing plays an important role in society

The University of South Africas Bureau for Market Research
estimates the total population of South Africa at about
52 million. Consider how many transactions are needed
each day to feed, clothe and shelter a population of this size.
The number is huge. And yet it all works quite well, partly
because our well-developed economic system is reasonably
efficient at distributing the output of farms and factories to
consumers. A typical family can consume up to 2,5 tonnes of
food a year. Marketing makes food available when we want
it, in desired quantities, at accessible locations and in
sanitary and convenient packages and forms (such as
instant and frozen foods).
11.2 Marketing is important to businesses

The fundamental objectives of most firms are survival,
profits and growth. Marketing contributes directly to
realising these objectives (see the Reader 4 Marketing seen
as key to profitability, below). Marketing includes the
following activities, which are vital to business firms:
assessing the needs, wants and satisfaction of present and
potential customers; designing and managing product
offerings; determining prices and pricing policies;
developing distribution strategies; and communicating with
present and potential customers.
All businesspeople, irrespective of their specialisation or
area of responsibility, need to be familiar with the
terminology and fundamentals of accounting, finance,
management and marketing. People in all business areas
need to be able to communicate with specialists in other
areas. Furthermore, marketing is not just a job done by
people in a marketing department. Marketing is a part of the
job of everyone in the firm. As David Packard of Hewlett
Packard puts it: Marketing is too important to be left to the
marketing department. 47
Pierre van Tonder, the managing director of the Spur
Group, describes the importance of marketing as follows:
The importance of marketing to a company should never be
underestimated. Nor should one make the mistake of
thinking that marketing is just about expensive and flashy
advertising and public relations campaigns there is a
marketing aspect to almost everything any company does.48
Therefore, a basic understanding of marketing is
important to all employees and all businesspeople.
READER 4 >> Marketing seen as key to profitability

European pharmaceutical firms could add up to 10 per cent to their pre-tax
profits by investing in key marketing and sales operations, according to a new
study by Accenture, a management consultant firm. The report, based on
interviews with 77 executives from 20 Europe-based drug groups, found that
marketing and sales play a crucial part in the financial success of firms. They
account for 70 per cent of the difference in the return on sales between the
firms studied, Accenture concludes.
The study concludes that firms should focus on just four key marketing and
sales functions in order to improve their financial performance: obtaining
information about doctors needs; developing a good relationship with them;
improving sales-force effectiveness by linking rewards to performance; and
having a good mix of drugs to sell.
The study calculated that an average European pharmaceutical firm with
annual sales of $300 million (210 million) could add $43 million to
operating revenues and up to 10 per cent in profits by improving these four
marketing functions. Of the four, having effective information on doctors
needs is the most important. An improvement in this field can add up to
$19 million to the operating revenues of the average European drug group.
Doctor relationships came a close second, with $13 million; the performance
of the workforce could add $8 million; and the right mix of products
$3 million.
SOURCE: Guera, F. 2001. Marketing seen as key to profitability. Financial Times, 13 August 2001, p.
14
11.3 Marketing offers outstanding career

opportunities
A cursory glance at the job advertisements in the Sunday
Times will show that marketing offers great career
opportunities in such areas as professional selling,
marketing research, advertising, retail buying, distribution
management,
product
or
brand
management,
merchandising, product development and wholesaling.
Marketing career opportunities also exist in a variety of nonprofit organisations, including hospitals, museums,
universities, the armed forces and various government and
social-service agencies.
As global markets become more challenging, South
African firms of all sizes are going to have to become better
marketers as more and more overseas firms enter the South
African market. For instance, in the mid-eighties there were
only 7 motor vehicle brands available in South Africa. By
1995 there were 15 and by 2006 there were 26 brands. Today
there are 58 different motor vehicle brands competing in the
South African market.49 The number of bottled water brands
increased from zero to 140 in just a few years. At least 12
foreign international banks entered the South African
market in recent years. As the levels of foreign competition

increase, South Africans will have to become better
marketers and marketing will become a highly valued skill,
which will enhance the career prospects of those who
possess those skills.
11.4 Marketing influences your life every day

Marketing plays a major role in your everyday life. You
participate in the marketing process as a consumer of goods
and services every day. About half of every rand you spend
pays for marketing costs, such as marketing research,
product development, packaging, transportation, storage,
advertising and sales expenses. By developing a better
understanding of marketing, you will become a betterinformed consumer. You will also better understand the
buying process (including your own) and be able to
negotiate more effectively with sellers. Moreover, you will be
better prepared to demand satisfaction when the goods and
services you buy do not meet the standards promised by the
manufacturer or the marketer.
LOOKING AHEAD >>>

This book is divided into 16 chapters, organised into three
major parts. All the chapters are written from the marketing
managers perspective, as our ultimate goal is to equip you
with the required skills to become an effective marketing
manager. Each chapter begins with a brief list of learning
outcomes followed by a short extract (Marketing in
practice) about a current marketing situation faced by a

firm or industry. At the end of each of these opening readers,
thought-provoking questions link the story to the material
discussed in the chapter.
End-of-chapter materials include a final comment on the
opening reader, a summary of the major topics examined, a
list of the key concepts introduced in the chapter and
discussion and writing questions. All these features are
intended to help you develop a more thorough
understanding of marketing and add to your enjoyment of
the learning process.
<<< LOOKING BACK

The opening reader explores the car rental firm Europcars
approach to customer satisfaction. Europcar acknowledges
the importance of keeping its customers satisfied and
regularly measures and quantifies its performance by
means of survey research. The skill of its employees, their
product knowledge as well as the efficiency of its equipment
are regarded as important drivers of customer satisfaction.
Another important consideration in their endeavours to
ensure customer satisfaction is the emphasis placed on
touch points. In other words, every time the customer deals
with the firm, whether it is its web site, a telephonic
conversation, collecting the vehicle or when having an
emergency, the interaction at all touch points can
influence customer satisfaction.
SUMMARY
The term marketing. The ultimate goal of all marketing

activities is to facilitate mutually satisfying exchanges
between parties. The activities of marketing include the
conception, pricing, promotion and distribution of ideas,
goods and services.
The relevance of customer satisfaction and loyalty.
Customer satisfaction is the feeling that a product has
met or exceeded the customers expectations and this
should be the primary aim of any marketer. Satisfactory
exchange should lead to loyal customers who maintain a
long-term relationship with the firm to the mutual
benefit of both parties.
The concept of exchange. Satisfactory exchange
between parties (a seller and a buyer) is one of the key
terms in the definition of marketing. It means that
people give up something of value to a seller to receive
something they would rather have, using money as the
medium of exchange. We give up money to get the
goods and services we want from a seller.
Marketing-management philosophies. The role of
marketing and the character of marketing activities
within a firm are strongly influenced by its philosophy
and orientation. A production-orientated firm focuses on
the internal capabilities of the firm rather than on the
desires and needs of the consumers. A product
orientation emphasises product features at the expense
of customer needs. A sales orientation is based on the
belief that people will buy more products if aggressive
sales techniques are used, and that high sales volumes
produce high profits. A consumer-orientated firm
focuses on satisfying customer wants and needs while

meeting the firms objectives. A societal marketing
orientation goes beyond a marketing orientation to
include preserving or enhancing individuals and
societys long-term best interests. A relationship
marketing orientation is geared towards customer
loyalty over the long term.
5 Sales and consumer orientations. First, salesorientated firms focus on their own needs, whereas
consumer-orientated firms focus on customers needs
and preferences. Secondly, sales-orientated firms
consider themselves to be deliverers of goods and
services, whereas consumer-orientated firms view
themselves as satisfiers of customers. Thirdly, salesorientated firms direct their products at everyone, while
consumer-orientated firms aim at specific segments of
the population. Finally, although the primary objective
of both types of firms is profit, sales-orientated firms
pursue maximum sales volume through intensive
promotion, whereas consumer-orientated firms pursue
customer satisfaction through co-ordinated marketing
activities.
6 The implementation of the marketing concept. To
implement the marketing concept successfully,
management must enthusiastically embrace and
endorse the concept and encourage its acceptance
throughout the firm. Changing from a production or
sales orientation to a consumer orientation often
requires changes in authority and responsibility and
front-line experience for management.
7 New opportunities. It is important that firms are
constantly on the lookout for new opportunities to

ensure their survival in a competitive environment and
to ensure that competitors do not edge them out of a
market with, for instance, a new product.
8 The scope of the firms business. Marketing myopia is
the term used to describe managements failure to
recognise the scope of its business. Defining the scope of
business too narrowly can lead to lost opportunities.
Defining the scope of business too broadly can lead to
the sub-optimal use of resources, as the firm gets
involved in business it should not (e.g. South African
Breweries getting involved in retailing).
9 Establishing and maintaining a competitive
advantage. A competitive advantage is something a firm
or product has that competing firms or products do not
have (also called a unique selling proposition, or USP).
Various things can be used to establish and maintain a
competitive advantage, including a unique product
feature, excellent service, a well-trained sales force, and
so on.
10 The marketing process. The marketing process includes
understanding the firms mission and the role marketing
plays in fulfilling that mission; setting marketing
objectives; scanning the environment; developing a
marketing strategy by selecting a target-market strategy;
developing and implementing a marketing mix;
implementing the strategy; designing performance
measures; evaluating marketing efforts; and making
changes if needed. The marketing mix combines
product, distribution (place), promotion and pricing
strategies in a way that creates exchanges satisfying to
individuals and fulfils the firms objectives.

11 The role of marketing in the firm. The marketing
function is one of eight functions typically found in
medium-sized and large firms. The eight functions are
normally (but not always) given equal status in an
organisational chart, and all have to contribute to the
realisation of the firms objectives. Irrespective of the
nature of the organisational structure, the tasks that the
marketing function or department is expected to
perform will remain the same.
12 Criticism of marketing activities. Much of this criticism
has been focused on the role of intermediaries (retailer
and wholesalers) in marketing and on the role of
advertising. Critics argue that intermediaries simply add
costs to a final product without adding any value to the
process of getting products to consumers. Advertising is
criticised for making consumers buy products they do
not really need and for often being misleading and
untruthful. Others would argue that this criticism is
unjustified if one considers the gaps that marketing must
overcome and the utility that marketing creates.
13 Reasons for studying marketing. First, marketing
affects the allocation of goods and services that influence
a nations economy and standard of living. Second, an
understanding of marketing is crucial to understanding
most businesses. Third, career opportunities in
marketing are diverse, profitable and expected to
increase significantly. Fourth, understanding marketing
makes consumers more informed.
DISCUSSION AND WRITING QUESTIONS

It is sometimes argued that marketing is not of any value

for the consumer. Respond to this assertion and also
consider the benefits of marketing for the performance
of the firm.
Identify an incident in which you were left dissatisfied
after making a purchase. Draft a letter to the CEO of the
business explaining what the firm could do to better
meet your needs and wants and turn you into a satisfied
customer.
Identify South African firms that follow the different
marketing philosophies discussed in this chapter.
Consider how these marketing philosophies are reflected
in their business activities.
Discuss why marketing is important for educational
institutions in South Africa, such as your university.
STRATEGY READER >> FNBs RB Jacobs: Avatar or Bot?

One of the key drivers of customer satisfaction is customer service and while
technology can often contribute to improving the effectiveness of a companys
response to customer complaints and queries, it has its limitations. For
example where portion (or the whole) of the customer service function is
automated by the use of Internet robots (better known as bots) this could
result in inappropriate or irrelevant responses, where bots are programmed to
give predefined responses to certain keywords. On the other hand, the value of
automating elements of the customer service function is that one can be
assured of the consistency of responses and eliminate the unpredictability of
humans.
First National Bank in South Africa (FNB) has embraced the social media
as a tool to improve their customer service through the use of an avatar
known as RB Jacobs. If you raise a query on the Face book page of FNB,
RB responds, and gives appropriate advice. Although RB has a Twitter

account and a profile on LinkedIn, there was some conjecture as to
whether RB was man or machine, but recent events seem to point to
the fact that RB is unequivocally human (or probably more correctly a
number of human beings)there are blunders that only humans can
make.
It all began when Stuart Gormley @gormleystuart asked the bank
where Steve the central character of a long-standing advertising
campaign was. RB responded by saying, Hes somewhere in
Afghanistan, putting a bomb under a wheelchair and telling the cripple to
run for it! See below:
A shocked Gormley responded: This is a highly offensive and
inappropriate response. I am reporting this to the highest level at @fnb.
FNBs Twitter avatar, RB Jacobs, responded by tweeting: Pls accept my
apology it certainly was not my intention to cause any offense I will
promptly remove my response, which RB promptly did. However,
notwithstanding this apology (and others from FNB), the comment went
viral and clients responded with outrage.
While FNB has been innovative by the use of the avatar, RB Jacobs, as a
way of humanising their customer service (and brand), a failure to put
proper strategies in place to manage this unique approach to customer
service has resulted in customer dissatisfaction and consequently
damaged their brand image.
SOURCE: Watson, A. 2014. Twitter bomb backfires on First National Bank, The Citizen electronic
edition, 23 April 2014, (http://citizen.co.za/164424/twitter-bomb-backfires-on-first-national-bank/)
(Accessed on 12 June 2014)
QUESTIONS
1
2
What do you think about FNBs strategy to use the avatar RB Jacobs to
deal with queries on the social media?
What strategies could FNB have put in place to prevent the crisis
discussed in the case occurring?
KEY CONCEPTS
Customer satisfaction: the feeling that a product has met or exceeded the
customers expectations.
Customer value: the ratio of benefits to the sacrifice necessary to obtain those
benefits.
Empowerment: delegation of authority and responsibility to solve customers
problems quickly usually by the first person whom the customer notifies
regarding a problem.
Exchange: the idea that people give up something to receive something else they
would rather have.
Marketing: the process of planning and executing the conception, pricing,
promotion and distribution of ideas, goods and services to create exchanges that
satisfy consumers and the firms objectives.
Marketing concept: the idea that the social and economic justification for a
firms existence is the satisfaction of customer needs and wants while meeting
the firms objectives.
Marketing (or consumer) orientation: the philosophy that assumes that a sale
does not depend on an aggressive sales force, but instead on a customers
decision to purchase a product.
Marketing programme: a combination of several marketing plans.
Product orientation: a belief that good product features and product quality
will lead to success regardless of other influences.
Production orientation: a philosophy that focuses on the internal capabilities of
the firm rather than on the desires and needs of the consumers.
Relationship marketing: a strategy that entails forging long-term partnerships
with customers.
Sales orientation: the notion that people will buy more goods and services if
aggressive sales techniques are used, and that high sales result in high profits.
Societal marketing concept: the idea that a firm exists not only to satisfy
customer needs and wants and to meet the firms objectives, but also to preserve
or enhance individuals and societys long-term best interests.
Teamwork: collaborative efforts of people to accomplish common objectives.
Utility: the value created for consumers by marketers by satisfying their needs.
REFERENCES
1
2
3
4
5
American Marketing Association. Online. www.marketingpower.com

(accessed 8 August 2013).
Leonardi, C. 2007. Business prioritises customer satisfaction. Real Business,
supplement to Business Day, January 2007, p. 1.
California State Parks listen to customers. Quality Digest, May 1996, p. 9.
Nel, J. 2014. Ontevredenheid op banier gelug. Die Burger, 8 November, p. 6.
Annualrd
Kotler, P. 1996. Marketing management (9th edition). Englewood Cliffs:
6
7
8
9
10
11
12
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14
15
16
17
18
19
20
21
22
23
24
25
26
27
Prentice Hall, p. 11.

Eades, J. 2001. Free for all. Future company, supplement to Financial Mail,
23 February 2001, p. 7.
Baker, S. 1995. A new paint job at PPG. Business Week, 13 November 1995, pp.
74, 78.
Nandos Corporate Report, supplement to Financial Mail, 10 April 1998,
p.16.
Mittner, M. 2011. Nedbank revs up retail. Financial Mail, 4 February, p. 20.
Hasenfuss, M. 2012. Furiously flogging frocks, Finanacial Mail, November
23-28, p. 66.
Cranston, S. 2000. Going for the gaps. Financial Mail, 8 December 2000, p.
96.
Finweek, 20 August 2000, pp. 2021.
Sherry, S. 2009. Chemical independence. Financial Mail, 13 November 2009,
p. 52.
Clancy, K.J & Shulman, R.S. 1995. Marketing The ten fatal flaws. The
Retailing Issues Letter, November 1995, p. 4.
Zino, K. 1995. Want to keep you satisfied. Parade Magazine, 1 October 1995,
p. 9.
Pick n Pay Corporate Report, supplement to Financial Mail, 30 May 1997, p.
6.
Ibid. p. 10.
King customer, Business Week, 12 March 1990, p. 90.
Miller, C. 1993. Nordstrom is tops in survey. Marketing News, 15 February
1993, p. 12.
Sikhakhane, J. 1998. In search of a metamorphosis. Financial Mail, 10 July
1998, p. 32; Phasiwe, K. 2005. Unbundled SAA set to fly solo from end of year.
Business Day electronic edition, 11 May 2005.
Namibian Breweries in SA. Food & Beverage Reporter Online, July/August
2001, p. 32.
More, R. 2009. How General Motors lost its focus and its way. Strategy,
May/June (http://iveybusinessjournal.com/topics/strategy/how-generalmotors-lost-its-focus-and-its-way#) (Accessed on 20 March 2014)
McCarthy, E.J. & Perreault, W.D. 1996. Basic marketing (12th edition).
Chicago: Irwin, p. 89.
Koenderman, T. 2001. A new breed of tiger. Financial Mail, 21 September
2001, pp. 8384.
Samuels, G. 1994. CD-Roms first big victim. Forbes, 28 February 1994, pp.
4244.
Ibid., p. 42.
Holcim Re-sellers Conference, Hilton Hotel, Johannesburg, 11 April 2005.
28 Mthimkhulu, P. 2000. Brick by brick, proceeds will be thrown on a debt pile.

Financial Mail, 18 February 2000, pp. 7071.
29 Sun International Corporate Report, supplement to Financial Mail, 18
January 2000, p. 6.
30 Linda Barron and friends, Letters to the editor. Financial Mail, 7 September
2001, p. 11
31 Boshoff, C. 2000. Unpublished research.
32 Nu-World Corporate Report, supplement to Financial Mail, 31 October 1997,
p. 4.
33 Mwanza, C. Herdbers hard talk. Finweek, 29 March 2007, p. 62.
34 Customer-focused companies will shine, Bizcommunity, 25 October 2007.
35 Caltex Corporate Report, supplement to Financial Mail, 3 October 1997, p.
17.
36 IMD World Competitiveness Yearbook, 1997. Lausanne: IMD.
37 Boshoff, H.C. 1990. Perceptions of service quality in three selected service
industries. Unpublished PhD dissertation, University of Pretoria.
38 Driving customer satisfaction through technology and innovation.
(http://sappi.investoreports.com/ sappi_sdr_2009/prosperity/drivecustomer-satisfaction/) (Accessed 28 March 2014).
39 Malcolm Fleschner with Gerhard Gschwandtner, The Marriott Miracle.
Personal Selling Power, September 1994, p. 25.
40 Nandos Corporate Report, supplement to Financial Mail, 10 April 1998, p.
24.
41 Berry, L.L. & Parasuraman, A. 1991. Marketing services. New York: The Free
Press, p. 49.
42 Bowen, D.E. & Lawler, E.E. 1992. The empowerment of service workers:
What, why, how and when? Sloan Management Review, spring, pp. 3138.
43 Customer comes first with bank that cares. Business Times, 12 July 1998, p. 8.
44 Sundstrom, K. 1998. A deep-seated commitment to quality. Business Post, 11
July, p. 1.
45 Team effort propels Sunday flagship. Adfocus, supplement to Financial Mail,
24 May 2002, p. 106.
46 McCarthy, E.J. & Perreault, W.D. 1996. Basic marketing (12th edition).
Chicago: Irwin, p. 23.
47 Kotler, P. 1996. Marketing management (9th edition). Englewood Cliffs:
48 The role of marketing in growing a business. Business Day, 10 August 2007, p.
16.
49 Kruger, C. 2014. Presentation at the 26nd Annual Conference of the Institute
of Management Sciences, Riverside Sun Resort, 15 September.
CHAPTER
02
Analysing the external

environments influence on
marketing
LEARNING OUTCOMES
1
2
3
4
5
6
7
8
9
Discuss the nature of marketings external environment and

explain how it can affect the marketing efforts of a firm.
Discuss the methods and information sources typically used for
environmental scanning.
Describe the nature of market opportunities and threats.
Illustrate your understanding of the importance of identifying
opportunities and threats in the external marketing environment.
Identify examples of potential opportunities and threats for South
African firms.
Describe the potential impact of social factors on marketing in
South Africa.
Analyse the impact of demographic trends on marketing in South
Africa.
Describe the value of the Living Standards Measurement (LSM)
for South African marketing decision-makers.
Discuss the relevance of the economic environment for marketing
decision-making.
10 Explain how marketers can utilise or overcome the opportunities

or threats associated with inflationary and recessionary economic
conditions.
11 Discuss the relevance of the technological environment for
marketing decision-making.
12 Elaborate on the likely impact of the Internet on marketing
practices now and in the future.
13 Analyse the role that variables in the political environment can
play on marketing decision-making.
14 Describe the attitude firms should exhibit towards legislation.
15 Identify South African legislation that can have an impact on
marketing decision-making.
16 Explain what impact the formal trade agreements to which South
Africa is a signatory will have on marketers.
17 Discuss the relevance of the competitive environment and
physical forces for marketing decision-making.
18 Illustrate your grasp of the theory discussed in this chapter by
above outcomes.

Video on demand
With the introduction of PVRs (Personal Video
Recorders) the way in which TV viewers decide which
shows to watch, and when they watch them, is
changing radically. South Africas first video-on"****** DEMO - www.ebook-converter.com*******"
demand (VOD) service, DStv BoxOffice, allows

subscribers to rent and view digital copies of movies
without leaving their homes. The satellite-based VOD
service lets you rent up to 15 movies from about 150
available movies at R25 each (including HD movies) for
48 hours. DStv has set 15 movies as a maximum due to
storage limitations on the PVRs. PVRs let audiences
create their own schedules, tailored to their mood. It
also allows consumers to eliminate commercials with
the push of a fast forward button, which necessitates a
fresh approach to advertising.
The service is available only to DStv Premium
subscribers who have PVR decoders. They can
download movies and store them on their PCs. To
avoid piracy, the movie will automatically be deleted
after 48 hours. Movies will be available on the same day
as the official DVD launch in SA. One can prepay or pay
by credit card or debit order.
SOURCE: Adapted from Muthelwana, M. Video on demand. Financial
Mail, 5 August, p. 30
QUESTIONS
1
2
3
What are the implications of DStvs entry into the video market?
Who will benefit from the decision?
What impact does PVRs have on the media and advertising
environment?
1. Introduction
In Chapter 1 we emphasised the importance of identifying

opportunities that entrepreneurs and firms can utilise.
When an entrepreneur starts a new business it is usually an
attempt to take advantage of a market opportunity. In other
words, there are consumer needs that are not adequately
satisfied or, as some people would describe it, a gap in the
market (see Reader 5 Doing the shuttle shuffle). Mark
Zuckerman founded Facebook when he realised that many
people have a need to communicate electronically with
several people simultaneously (and almost constantly).
Riaan Stassen spotted a gap in the banking market for
consumers who want a simple, uncomplicated banking
service at a reasonable price and founded the remarkably
successful Capitec Bank.
Existing firms also have to be on the lookout for new
opportunities to realise their objectives. For example,
Media24 spotted a gap in the magazine market for a
magazine focusing on makeovers featuring before-andafter stories and pictures of women whose appearances
have been improved and launched You-Makeovers. Such an
opportunity for an existing firm is crucial to ensure their
long-term survival. Long-term survival is the most
fundamental goal of any firm, and can only be realised if it is
profitable. Other objectives that business firms typically
pursue include growth objectives, sales or market-share
objectives, productivity objectives and socio-economic
objectives.
To survive in the long term, a firm must, at the very least,
perform some useful activities. In other words, it must add
value for instance, by satisfying needs. To that end, the
firm needs to organise itself by creating an organisational

structure geared towards need satisfaction and survival. If
properly executed, a proper organisational structure ought
to lead to profitability. Without profitability, no firm can
survive in the long term.
Business firms formulate goals and objectives at different
levels. The overall goals of the firm, sometimes called
corporate goals such as being a market leader, earning 20
per cent return on investment or achieving 75 per cent
occupancy of hotel rooms are supported by functional
objectives (marketing objectives, financial objectives,
production objectives, and so on). The marketing
department will refine the marketing objectives (for instance
to be the market leader we need to gain 35 per cent market
share) and set objectives for each of the four Ps. Examples
could include:
Promotion (marketing communication) to be the

market leader we need to increase brand awareness to 50
per cent in the target market
Place to be the market leader we need to ensure
product availability at all computer retailers in South
Africa
Price to be the market leader we need to offer the best
value for money products on the market
Product to be the market leader we need to market the
most user-friendly software on the market.
The opportunities to realise these, and other, objectives are

found in the firms external environment. This chapter
analyses the elements of the external environment and more
specifically the macro-environment, and how they influence

the marketing activities of a firm. Figure 2.1 provides an
overview of the place of a firms marketing environment in
the external environment. Two of these elements, however,
are worthy of special attention, and a whole chapter is
devoted to each of them namely consumers and their
buying behaviour (Chapter 3) and competitors and their
activities (Chapter 4).
READER 5 >> Doing the shuttle shuffle

Valerie Graunke was working as an administrator at a nursery school in
Fourways when she first had the idea of starting a lifting service for school
children whose parents worked. More than 60 per cent of the mothers were
working mothers who were battling to pick up their children from school, she
says. Graunke bought a second-hand minibus, trained a driver and kicked off
school link shuttle service in 2004. Seven years later it has grown into a
business transporting more than 600 children a day, with a fleet of more than
18 minibuses serving around 50 schools across Johannesburg. The number of
working mothers has increased and more children need transport to and from
school, she says. Making use of this service allows parents to continue the
work day uninterrupted. The success of the business has been ensuring that
drivers are properly trained and that each bus has a female assistant to allow
the driver to focus on driving. Our busses are all satellite tracked and parents
receive a notification of their childrens drop off. She says one of the most
challenging aspects of running the business is the logistical complexity of
working out bus routes in different areas. In areas where parents can afford
the service, the return on investment can be very good, she says.
SOURCE: Pile, J. 2011. Doing the shuttle shuffle. Financial Mail, July 1, p. 27
2. The marketing environment

The environment in which marketing managers must make
decisions can be divided into an external environment and
an internal environment (Figure 2.1). It is here where the
threats that marketers try to avoid as well as the
opportunities they pursue, can be found. Marketing
managers create a unique marketing mix by combining
product, distribution (place), marketing communication
(promotion) and price strategies. The marketing mix is
controlled by the firm and is designed to appeal to a specific
group of potential buyers the target market.
A target market is a defined, fairly homogeneous group of
consumers that marketing managers feel are most likely to
buy a firms product or products. Over time, marketing
managers are often required to alter the marketing mix
because of changes in the environment in which consumers
and particularly those who make up the target market
live, work and make purchasing decisions.
For example, until the mid-1970s, motor vehicle
manufacturers produced mainly large passenger vehicles.
The small-vehicle market was almost totally ignored. During
those days, petrol was cheap. How economical a car was in
terms of petrol consumption was of little interest to most
potential buyers and therefore also to vehicle
manufacturers. The oil crisis of the mid-1970s changed all
that. Together with the decreasing value of the rand, petrol
became very expensive in South Africa. As a result, a
demand for smaller, fuel-efficient cars developed almost
overnight. To satisfy this demand, marketing managers
competing in the motor vehicle market have been forced to

change their marketing mix completely.
READER 6 >> Fuel-efficient luxury cars

Forward-thinking vehicle manufacturers such as Audi has risen to the
challenge to manufacture more cost efficient cars with a host of innovations
and cutting edge advancements geared towards ultra-efficient driving. Every
aspect of a vehicle is designed with fuel efficiency in mind. Construction
materials, engines and electronic equipment are optimised and even reimagined in the creation of fuel efficient luxury cars. Cutting down on vehicle
weight can go a long way towards fuel efficiency. Innovative vehicle
manufacturers have tapped into the potential of lightweight design through a
combination of steel and aluminium. Engineers are able to make front casings
for a suspension unit out of die cast aluminium before thermoformed steel is
combined to provide hardness and sturdiness that far surpasses that of
conventional high-strength steel. Luxury vehicle bodies that are far lighter than
previous models are the result of this ground breaking process. The lowered
vehicle weight means that there is a marked reduction in fuel consumption.
These innovative and forward thinking vehicle manufactures have made great
strides towards designing the most economical vehicles todays roads have
ever seen. From lightweight aluminium construction materials to cutting edge
efficiency technologies and precisely harnessed engine power, fuel efficient
luxury cars are the very essence of sustainable mobility.
SOURCE:
Adapted
from
http://www.audi.co.za/za/brand/en/company/additional_information/fuel_efficient_
Whereas luxury and comfort were a competitive
advantage during the pre-oil crisis days, economy and cost
efficiency are now the dominating factors. Not only the
product itself (i.e. smaller, fuel-efficient, entry-level models,

such as the Opel Corsa and Ford Focus), but also vehicle
manufacturers pricing, distribution and promotion
strategies have changed as a result of uncontrollable
developments in the external marketing environment.
Failure to adapt the marketing strategy when environmental
conditions demand it can be disastrous.
Consider the impact technology has had on Switzerlands
domination of the international watch-making market.
Conventional Swiss watchmakers dominated the watch
market for many years. Then all of a sudden a new
technology emerged and microchips could be
manufactured quickly and cheaply. Some entrepreneurs
spotted the opportunity to use the new technology to
manufacture digital watches while the Swiss watchmakers
were looking the other way. Very quickly Switzerlands share
of the global market had dropped from 80 per cent to about
10 per cent. During 2014 Google introduced a new version of
its Android operating system software made for
smartwatches, amid speculation that Apple was also set to
enter the wrist wars soon with a product that industry
followers have already dubbed the iWatch. Growing interest
in smartwatches by consumers and technology companies
might seem a perfect opening for the industry that really
knows watches: the makers of fine Swiss timepieces. It
seems that Swiss watchmakers may again miss out on yet
another opportunity as they are not committed thus far to
combining diamond bezels with digital bits. Another
example of the effects of environmental developments on
business firms is the impact of digital-camera technology on
the imaging industry (see Reader 7 Digital cameras kill
photo shop). The film company Kodak has made a loss in

six of the last seven years and has filed for bankruptcy
protection. Kodak was five years too late in shifting from
traditional film cameras to digital cameras. Given its poor
grasp of the impact of digitisation Kodak also did not
capitalise on opportunities to expand its product range to
digital printers. This delay opened the door for competitors
such Canon and Hewlett-Packard to take over its market. 1
2.1 Marketings interaction with the internal and

external environment
Marketings involvement in the environment can be
described at two levels (see Figure 2.1):
The internal environment:
Direct control and responsibility (the marketing

environment)
No control, but limited influence (the business
environment).
The external environment:
Neither influence nor control (the external environment

which can be divided into the market environment and
the macro-economic environment, see Figure 2.1).
The internal environment can again be divided into the

marketing environment and the business environment. In
the internal marketing environment, marketing managers
can control (and are, indeed, responsible for) decisions

relating to the marketing function (department), such as the
formulation of the objectives of the department, planning
and executing the marketing process and managing the
marketing mix. In the rest of the internal environment (i.e.
the internal business environment), marketing cannot
control elements such as the firms mission statement or
goals and strategic objectives or any decisions relating to the
other business functions, such as finance, human resources,
purchasing and production management.
Marketing can, however, attempt to influence decisionmaking in these areas. For instance, a marketing manager
cannot force production managers to change production
processes in order to add a new feature to a product, but can
try to persuade them to do so. Likewise, the human
resources manager may be persuaded (but not forced) to
expand the sales force.
READER 7 >> Digital cameras kill photo shop

The aggressive growth of digital technology forced the closure of one of Port
Elizabeths oldest and most respected photography firms. Color 2000 Photo
Lab closed down after nearly three decades in the film-developing and printing
business. Digital photography has just killed the market, according to the
owner, Ms Cader-Begg. In the old days, people would buy a roll of film, take
the 36 pictures, and have them all processed. Now, digital cameras take
pictures by the thousands. People keep them on their computers and choose
perhaps only one or two for printing. Its the end of an era. A chapter has
closed.
Digital cameras were first marketed to consumers about fifteen years ago.
Since then, digital camera sales have skyrocketed. Market research firm, GFK
Marketing, recorded a 152 per cent rise in digital camera sales two years ago,
compared with a drop in film camera sales.
SOURCE: Adapted from Cooper, B. 2004. Digital cameras kill photo shop.
Eastern Province Herald electronic edition, 27 July
The external environment can also be divided into two
components namely the market environment and the macro
environment (Figure 2.1). In the market environment,
uncontrollable variables (such as competition and the
economy) may affect not only the firm, but also the target
market. New suppliers may enter the market or the needs of
a market may change. In the so-called market environment,
the marketing manager can at least try to influence
consumers, suppliers and intermediaries (such as
wholesalers and retailers), and shape and reshape the
marketing mix to influence the target market (consumers),
but the marketing managers influence in the market
environment is limited. From a marketing perspective, the
macro-environment contains factors that are completely
uncontrollable. These include social factors, demographic
factors, economic factors, technological factors, political
factors, legal factors and competitors. For example,
marketers who perceive the Internet as a threat to their
business (such as travel agents) cannot make it disappear.
The manufacturers of photographic film could do little to
stop the decline of demand for their product to less than 5
per cent of what is was in 2000. Similarly, marketers cannot
remove governments or change laws: these are
uncontrollable elements to which marketers can only
respond. All the elements shown in Figure 2.1 continually
evolve and have an impact on the target market. Skillful

marketers study, track and anticipate these potential and
actual changes by changing the firms marketing strategies
(and in particular the 4Ps) to optimally satisfy the target
markets needs.
Figure 2.1 The firms internal and external environment
SOURCE: Adapted from Geel, F.C. & Tait, M. Unpublished lecture notes, Nelson
Mandela Metropolitan University (used with permission).
3. Understanding the external

environment
LO1
Unless marketing managers understand the external

environment, firms cannot successfully identify
opportunities and effectively plan for the future. Therefore,
many firms assemble a team of specialists to continually
collect and evaluate environmental data and information, a

process called environmental scanning. The purpose of
collecting environmental data is to detect and assess factors
and trends that may influence the firm or its target markets,
and identify future market opportunities (mostly unmet
market needs) and potential threats early. As Bill Gates, the
chairman of Microsoft once said, The culture of our
company is never to miss these things that are coming
along. We were one of those things that came along. Nokia
was once the dominant cell phone maker controlling more
than 50 per cent of the global market until Apples iPhone
and Googles Android came along and today Nokia is not
even amongst the top five cellular phone companies in the
world.
The focus of this environmental-scanning process is the
external environment the variables and forces outside the
firms sphere of direct influence that may have an impact on
its marketing decision-making and eventual success. These
variables and forces often represent trends that influence
marketing managements ability to develop and implement
marketing strategies. They can be broadly classified as either
a threat or an opportunity.
An opportunity can be described as a consumer need that
a firm can take advantage of profitably. A threat, on the other
hand, is a challenge posed by an unfavourable trend or
development that would, in the absence of preventative or
remedial action, harm the firm, such as a deterioration in
sales and profitability.
EXAMPLE >> For instance, South Africas first video-on-demand

service, offered by DStv BoxOffice allows DStv subscribers to rent and view digital
copies of movies without leaving their homes. This new service presents a serious
threat to the business of the traditional video store. Many property developers are
refusing to develop commercial properties in South Africa due to obstacles posed
by incompetent municipal officials and corruption leading to lost investment and
job losses. Due to threats posed by these risks property developers are utilising
opportunities in Ghana, Mozambique and Europe instead.2
The trend of downloading music and movies from the Internet (iTunes
recorded $10,2 billion worth of sales in 2014)3 has had a negative impact on the
sales of most music retailers, including that of Musica. In the industry as a whole,
sales have declined from R1,1 billion in 2007 to R650 million in 2011. Between
2013 and 2014 Musicas sales of CDs dropped by a further 13,8 per cent and
DVDs by 9,4 per cent.4 Another threat looming on the horizon for music retailers
is Spotifys online music streaming.
These are all examples of threats in the external
environment that had a significant influence on the
decision-making of marketing managers. Early detection of
threats by means of environmental scanning is an important
prerequisite to avoid the negative impact of potential threats
(see Reader 8 on Encyclopaedia Brittanica).
READER 8 >> Your tome is up Encyclopaedia

Britannica ends its print edition after 244 years as it
fully embraces digital age
As the march of the iPad and Kindle continues unabated, the oldest
manufacturer of encyclopaedias has become one of the first major book
publishing casualties of the digital age by cutting out its entire print operation.
The Encyclopaedia Britannica, which has been in continuous print since it was
first published in Edinburgh in 1768, said today that it will continue with
digital versions currently available online. The final set of the 32-volume
printed edition remains available for sale on the companys website for 890
(R16 000).
Encyclopaedia Britannica is the longest-running manufacturer of printed
encyclopaedias, with its first edition printed in Scotland in 1768, but the title
will live on as Britannica produces digital versions available online. Sales of
hard copied have declined from 120 000 in copies in 1990 to 40 000 in
1996 to 8 500 in 2012.
Britannica was one of the first companies to really feel the full impact of
technology, maybe 20 years ago, and we have been adapting to it, though it is
very difficult at times, he said. While Encyclopaedia Britannica has continued
to operate, he expected many trade publishers will not survive and any
content development company will have to be thinking about how they are
going to fill the gap.
As to whether print editions of books will be viable products in the future,
Mr Cauz predicted, print may not completely vanish from the market, but I
think it is going to be increasingly less important. With its scholarly, reliable
reputation, Mr Cauz said Encyclopaedia Britannica had not been affected by
the popularity of Wikipedia. Mr Cauz told CNN: The print set is an icon. But
its an icon that doesnt do justice to how much weve changed over the
years. The death of the print edition of Britannica echoes the rise of the
techno-savvy consumer. In terms of space-saving, practicality and cost, there
is much to be said for e-books something independent bookstores would
dispute, as they are fast becoming endangered species. Although digital books
have been around for more than two decades, it is only in recent times that
the long-predicted explosion in electronic reading has come to take hold. In
2010, e-books accounted for 6 per cent of all books sold in the UK, with sales
more than doubling every year. And in the US, Amazon now sells more e-books
than hardbacks and paperbacks combined.
SOURCE: Nick Enoch, N. Your tome is up Encyclopaedia Britannica ends its print edition after 244
years as it fully embraces digital age. Daily Mail online, 14 March 2012.
LO2
Environmental scanning ought to be an ongoing, rolling

process, but with specific time frames, such as one year,
three years, five years, ten years and twenty years. The
planning horizon is, therefore, constantly adjusted over
time, and the importance of environmental trends in terms
of marketing decision-making should be constantly
impressed upon marketing managers.
Environmental scanning techniques are by nature
qualitative and subjective. Activities associated with
environmental scanning include:
Studying current events by attending seminars and

conferences
Analysing the speeches of political leaders such as the
minister of Finance and the Governor of the Reserve
Bank
Reading the analyses of management consulting firms,
futurists and financial institutions
Collecting and analysing data from government
departments such as the Reserve Bank and the
Department of Trade and Industry
Analysing national trade figures
Following discussions on social media and relevant
blogs
Collecting information on economic indicators.
EXAMPLE >> Examples of internal sources of information are a firms own

records (sales figures, accountancy records, etc.), research reports, in-house
experts and experienced staff members. External sources of information are trade
associations, such as the South African Chamber of Commerce and Industry;
government departments, such as the Department of Trade and Industries and
Statistics SA; advertising agencies; consultants; and syndicated reports, such as
the South Africa Business Forecast report. Several commercial banks also publish
reports on economic indicators and conditions. An example is Absa Banks
Quarterly Economic Monitor.
How these data are analysed and interpreted, however, is
the real challenge. Some firms build long-term, alternative
scenarios (called scenario planning) and then formulate
contingency plans for each of them. Another technique that
is often used is the Delphi Technique whereby, after a series
of iterations, an attempt is made to reach some degree of
consensus among a group of experts on potential future
events and their impact on the firm.
Despite its speculative nature, the advantage of
environmental scanning is that it encourages marketing
managers to think long term, to translate vague gut feelings
into clear strategic issues and to think strategically about
potential opportunities and threats in the external
environment.5
4. Opportunities and threats

Every
firms
marketing
environment
LO3
has
many
opportunities. For example, anyone in South Africa who can

find alternative energy sources to generate affordable
electrical power, or a cure for degenerative diseases such as
HIV/Aids, Alzheimers and diabetes, or to desalinate
seawater will exploit the most shining of opportunities.
EXAMPLE >> Marketers must be continually on the lookout to take

advantage of any opportunities that come their way. In 1996 only 58 per cent of
the South African population had access to electricity. Today it is 85 per cent.
Eskoms electrification programme has given 5 million new households access to
electricity. The electrification programme is opening up tremendous opportunities
for manufacturers of electrical products, such as kettles, televisions, fridges and
stoves. However, the same programme has been a threat to the marketers of
samp and beans. Access to electricity and electrical appliances has changed the
eating habits of traditionally poorer households who no longer eat umngqusho
(samp and beans) prepared on fires as they take too long to cook.6
Similarly, convenience is a consumer need that often offers
opportunities to business firms. Today, we have firms that
deliver pizzas to our front door (mrdelivery.com), or mow
the lawn for us while we are at work; we can buy clothes
(naartjie.co.za; spree.co.za) and groceries (pnponline.co.za)
online, and do our banking from the comfort of a computer
at home. These are all examples of actions by firms who
view consumers need for convenience as an opportunity
that must be seized.
Clicks is another South African firm that has capitalised
on consumers need for convenience. Shoppers are
reluctant to walk long distances, says Clicks development
director, Chris Roesstorff. As a result, Clicks now opens
more but smaller shops, that are conveniently located,
rather than just a few in large shopping malls.7 Clicks now

boasts that no potential customer is ever more than 7km
away from a Clicks store.8 Similarly, Daily Buzz is a mobile
coffee bar with collapsible wings that fit into an elevator to
sell coffee at the desks of employees in large corporate
buildings.
Evolving lifestyles, changing attitudes and new
technological developments are all outside the direct
control of most firms, but they offer the type of opportunities
that many firms have successfully (and profitably) utilised.
Many firms have successfully capitalised on the trend of
consumers time poverty. Examples include firms like
Served Fresh (servdfresh. co.za) to prepared meals, DontQ
(dontq.co.za) - a firm that handles applications, such as
passport applications, birth registrations and vehicle
licensing on behalf of individuals, Woolworths
(woolworths.co.za) and Pick n Pays (pnponline.co.za)
online shopping ranging from food to clothes.
These firms have identified trends in the market
environment, decided that they offer opportunities that
could be profitably utilised and have done a great job of
satisfying the convenience and poverty-of-time needs of
their customers. Sometimes, however, the changing
environment can pose a threat. When it does, the challenge
to marketing managers is to convert the threat into an
opportunity.
For years, research conducted by the All-Media &
Product Survey (AMPS) has shown that South Africans are
reading less and less.9 This decline in the populations
reading habits has occurred mainly among relatively
affluent market segments, and this trend (i.e. the decline in

the reading habit) is an obvious threat to the marketers of
newspapers, magazines and books. The potential threat of
decreasing readership, however, can be turned into an
opportunity. Marketing more specialised publications, such
as Business Day and Student Life, is potentially one way of
doing that. Marketing on the Internet or digitising content to
be readable using electronic devices such as a Kindle or an
iPad may be another way of responding to the threat of
declining readerships.
WEBSITE
Read more about the reading culture in
South Africa on
http://www.southafricaweb.co.za/article/readingculture-south-africa.
>> Technology in action

Bookly changes the reading game
Technology has been the agent of change that has
created many opportunities for entrepreneurs in the
21st century. We are all familiar with the success of the
social media applications such as Facebook, Twitter,
Instagram, YouTube as well as the South African
developed app, Mixit. Another characteristic of the
digital marketplace is how developers have
reconfigured many traditional products and in so
doing allowing consumers to access existing products
in new and innovative channels and formats. For
example, consumers can download books and read

them at their leisure rather than follow the traditional
method of purchasing a physical copy at a bricks and
mortar shop. However, while the cost of downloading a
book might be relatively inexpensive, compared to
buying a hard copy, buying a device such as a Kindle,
iPad or tablet is not affordable for the vast majority of
South Africans.
As a result digital agency Native launched an
application known as Bookly which allows users to
download and read e-books (through Mixit) on their
mobile phones. Levon Rivers, Natives head of
inventions, says the company chose to develop the
application for Mxit because of the reach the platform,
both in terms of the number of users of the service and
the range of mobile phones supported it works on
phones with the most basic of features, not only smart
phones.
At present consumers can download certain free
books using Bookly (because they are no longer
copyright protected) but in addition, two commercial
publishers are offering selected titles to consumers, via
Bookly, for a fee. Users can purchase books one chapter
at a time or all at once with the average rate for a
chapter around R1,50 and whole books priced around
R30. Native is also interested in adding textbooks to
Bookly, but this will require working with academic
publishers and government. Perhaps in a few years you
will be reading this textbook on your phone!
SOURCE: Wilson, C. 2013. Bookly brings e-books to Mxit, Techcentral
electronic edition, 30 May 2013. Available from:

http://www.techcentral.co.za/ bookly-brings-e-books-to-mxit/40720/
(Accessed 25 June 2014)
There are a number of methods and techniques available

that marketers can use to assess environmental variables
and trends that appear to be opportunities or threats. These
will be discussed in detail in Chapter 14. One is called the
Boston Consulting Group Matrix. Another is the so-called
SWOT analysis (SWOT stands for strengths, weaknesses,
opportunities, threats). A SWOT analysis considers four
basic questions: is this environmental variable or trend
(such as declining readership or the need for convenience):
An opportunity (O)?
A threat (T)?
How can we deal with it?
Do we have the strengths required to utilise the

opportunity or overcome the threat (S)?
What are our weaknesses if we do attempt to utilise the
opportunity or overcome the threat (W)?
Opportunities and threats are normally (but not always)

found in the external environment (see Figure 2.1), whereas
assessing strengths and weaknesses generally takes the form
of an internal assessment (the internal environment in
Figure 2.1).
Sometimes firms identify environmental variables or
trends (such as increased use of the Internet, or increased
consumer demand for safer products, or a new law) and

decide to do nothing because they do not represent
opportunities or threats to the firm. On other occasions,
environmental variables or trends may indeed represent an
opportunity. If so, the firm must then consider whether it
has the required strengths and resources to utilise the
identified opportunity. For instance, will the firm be able to
establish a clear competitive advantage that is sustainable?
Does it have the required resources (skills, expertise,
experience, financial resources, capacity, etc.)? What are the
firms weaknesses? Does it know enough about its
customers needs? Does it know enough about likely
competitive responses?
LO4
If the firm identifies potential threats to its survival,

similar questions need to be asked. If the Internet is a threat
to its business (as it is for travel agencies and book
publishers), can it overcome this threat? Does it have the
resources to overcome it? Two key issues to consider when
evaluating each potential opportunity are: Does it fit in with
the firms goals and objectives and is it part of our business?
If not, it may not be an opportunity at all. (In Chapter 1 we
considered the question of a market definition and the
dangers associated with too narrow or too broad a definition
of a firms market.)
When Clicks entered the retail pharmacy market in 2004,
it clearly thought that medicines closely fitted with its
current business and products, such as cosmetics and
health care products. In considering its competitive
advantage Clicks probably argued that it could source

cheaper pharmaceutical products (because of its bulkbuying power), and offer consumers more convenient retail
locations, than independent pharmacies. Now, 10 years
later, Clicks manages over 330 pharmacies across the
country, and its footprint continues to grow. A key
ingredient to Clicks Pharmacys success is the quality of its
pharmacy staff, which is why the group has invested heavily
in their professional development. Every year the Pharmacy
Healthcare Academy has 350 to 400 learners enrolled for its
pharmacist assistant qualifications. The group also runs an
on-going pharmacist intern programme and funds bursaries
for about 100 pharmacy students a year. As more people are
challenged to meet the cost of healthcare, the pharmacist
plays a bigger role in counselling and assisting with
affordable medication in South Africa an opportunity wellutilised by Clicks. 10
The next assessment question is: can the firm establish a
sustainable competitive advantage? A competitive
advantage can take a variety of forms, such as cost, quality,
flexibility, location, safety, image, product design and
distribution (several sources of competitive advantages were
discussed in Chapter 1).
For instance, in competing with iPad in the electronic
book market, Kindle has focused on easing the complaint of
tiring eyestrain as a competitive advantage. By using
electronic ink, rather than a backlit screen, Kindle allows
readers to read for long periods without eyestrain.
5. Environmental management
No single firm is large or powerful enough to create major
changes in the external environment on its own. Therefore,
marketing managers are more often than not adapters to
change rather than agents of change in the external
environment. Despite their huge size, American motor
vehicle manufacturers such as General Motors, Ford and
Chrysler have not been able to stem the competitive push by
the Japanese for an ever-growing share of the US vehicle
market. Similarly, South African dairy producers are facing
increasing competition from foreign competitors, such as
producers from New Zealand, which harms local dairy firms
(such as Parmalat) and the industrys profitability.
Competition is basically an uncontrollable element in the
external environment.
EXAMPLE >> However, a firm is not always completely at the mercy of the
external environment. Sometimes external events can be influenced. During 2013
The South African Poultry Organisation lobbied the South African government for
import protection against what they referred to as cheap imports from abroad.
Based on the argument that cheap, subsidised imports of chicken products harm
their markets and profitability and that that will lead to job losses, the
Department of Trade and Industry granted them a 8,75 per cent average tariff
increase on some categories of imported chicken.11 Similarly, the Retail Motor
Industry (RMI), which represents the organised motor retail sector, recently asked
the Minister of Trade and Industry for protection for car dealers from their
suppliers (vehicle manufacturers). The RMI alleged that vehicle manufacturers
were abusing their power in their supply relationships with dealers. Dealers said
they had been pressured into deals that allow manufacturers to close their
dealerships down with as little as 30 days notice in some cases.12 The South
African clothing industry has also successfully lobbied the government for
protection against importing what they regard as cheap clothing from China. As a
result, the government has placed import restrictions on South African retailers
clothing imports from China.
5.1 Identifying opportunities and threats
LO5
When a firm implements strategies to respond to the

environment within which it operates, this is known as
environmental management. This process can identify a
variety of potential sources of opportunities or threats, such
as:
Technology the increased use of the Internet is

potentially a threat to travel agents, publishers, the Post
Office and vehicle dealerships. Kalahari.com has
recently added seven new product categories to its offer,
including baby products, homeware, pet products,
outdoor products, tools and appliances.13 Using
technology, Internet retailers such as Kalahari.com and
Takealot.com are a direct threat to many conventional
bricks-and-mortar retailers.
Legislation the new Consumer Protection Act gives
consumers more legal clout by raising the risk of product
liability damages claims, and, as a result, firms can
expect to pay higher insurance claims because of the
greater risk of lawsuits involving product liability. This
law could have a detrimental effect on smaller
businesses that may not be able to afford insurance
premiums and may be squeezed out of the market. 14 The
Department of Health has proposed a law that will

prohibit the advertising of alcohol which is an obvious
threat to wineries who may not be permitted to have
wine tastings or participate in wine festivals.
Government plans to ban all smoking in all public areas
will not only hurt cigarette manufacturers, but also
places such as restaurants and coffee shops. 15
International competition as more and more global
players enter the South African market, many firms and
even industries will suffer, including the retail industry
(Walmart entering the South African market is an
example; the Spanish clothing retailer Zara is another),
automotive industry (both Indian and Korean
manufacturers such as Kia and Daewoo are now
marketing their products here), the dairy industry, the
clothing industry, the fast food industry (Burger King has
entered an already crowded market) and the financial
services industry.
The factors within the external environment are important

to marketing managers because they can represent both
opportunities and threats and these can be classified as
social, demographic, economic, technological, political and
legal, competitive and physical.
6. Social factors
LO6
Social change is perhaps the most difficult external variable

for marketing managers to forecast, influence or integrate
into marketing plans. Social factors include our attitudes,

values and lifestyles. Social factors influence the products
people buy, the prices they are prepared to pay, the
effectiveness of specific promotions and how, where and
when consumers purchase products.
6.1 Consumer values

Todays consumers are demanding, inquisitive and
discriminating. They are no longer willing to tolerate
products that break down, and they insist on high-quality
products that are healthy or save time and energy. In South
Africa, demanding customers are becoming an increasingly
evident trend. The business publication, Financial Mail
recently reported: South African consumers, long secondclass citizens of the world shopping scene, are growing more
demanding. Travelling abroad more, shoppers like what
they see in foreign stores. Shoppers want good service and
high-quality products, or they go elsewhere. Retailers have
little choice: become more competitive or lose business. 16
Many of todays shoppers are also conscious of the
impact that their consumption patterns have on the
environment, but many firms have been slow to respond to
consumers views of the environment.
The growing sensitivity to environmental issues will
increasingly impact on marketing decision-making. Some
firms will view this trend as a threat, whereas others will see
it as an opportunity to gain a competitive advantage.
Nedbank, for instance, is positioning itself as an
environmentally-sensitive bank with advertising slogans
such as Keeping it green is a big deal. Motor manufacturers

(such as Toyota with their hybrid Prius model) have made
huge strides in manufacturing environmentally-friendly
models. Renault (in association with Nissan) hope to have
1,5 million electric passenger vehicles on the roads by 2016.
17
Another growing social trend is that fewer consumers

consider expensive cars, designer clothes, pleasure trips and
gold credit cards necessary components of a happy life.
Instead,
they
increasingly
value
non-material
accomplishments, such as having control over their lives
and being able to take a day off when they wish. 18 Dualcareer families suffer from time poverty, with few hours to
do anything other than work and commute to work, handle
pressing family situations, do housework, shop, sleep and
eat. Even French restaurateurs complain that, in an attempt
to save time and money, the French no longer eat threecourse meals in restaurants. Only four per cent of restaurant
meals now include the traditional starter, main course and
dessert and diners spend only 32 minutes on average at the
table compared to 90 minutes in 1975. 19
There is a sense that the relaxed lifestyle of earlier eras
the weekday golf foursome, bridge games, gardening, long
lunches, chats across the fence is fast disappearing. Work
consumes a huge portion of peoples days. This productivity
pressure is exacerbated by the explosion in the number of
double-income households, putting further pressure on the
available time of many consumers. Furthermore, in the age
of the virtual office (i.e. working at home with a computer
and modem), it has become increasingly difficult for many
professionals to separate the time they spend on work and
leisure. These people have special needs to help them cope

with their time poverty, and their needs are increasingly
centred on convenience and time saving.
6.2 The changing influence of families and

gender
Component lifestyles have evolved because consumers can
choose from a growing number of goods and services, and
most have the money to exercise more options. Rising
purchasing power has resulted from the growth of doubleincome families. As womens earnings grow, so do their
levels of expertise, experience and authority. Working-age
women are not the same group that businesses targeted 30
years ago. They expect different things in life from their
jobs, from their spouses and from the products and services
they buy and marketers who can assess and satisfy their
needs can make the most of a major opportunity.
EXAMPLE >> The automotive industry is one that has finally begun to
realise the power and influence of women in vehicle purchase decisions. Female
buyers account for almost 44 per cent of new car sales in South Africa. Women
are also increasingly purchasing more typically male products. Cigar Aficionado
magazine recently published an article on women and cigars. Some cigar makers
plan to introduce special shapes designed for women. The new cigars will be
large enough to provide full flavour, but tapered at the ends to make them easier
to light and more comfortable for the smaller female hand.
The growth in the number of working women has meant an
increase in dual-career families. Although dual-career
families typically have greater household incomes, they

have less time for family activities. Their purchasing roles in
the family (which define the items traditionally bought by
the husband or wife) are changing, as are their purchasing
patterns. Consequently, new marketing opportunities are
being created.
For example, small businesses that cater to the needs of
dual-career households by offering specialised goods and
services are opening daily. With more women than ever
working full time, there is a special demand for new
convenience and time-saving household products and
services such as gardening services, home deliveries (e.g.
Bread-on-Wheels), fast food and childcare. Examples of
products targeted at dual-career families are Royco Cup-ASoup and many ready-to-microwave foods. Elite Cheese
markets its grated cheese to the busy bee; John West
markets a tuna lunch-to-go; and Este Lauder markets a
one-minute make-up for the busy woman your best face
in a minute.
6.3 Is it a new social trend or a fad?

The ability to distinguish between a new social trend and a
fad at an early stage can create many marketing
opportunities, and prevent a firm from investing money in
the wrong product. However, being first to act on a new
trend can create a powerful advantage over the competition.
As cost and competitive pressures on universities
increase (trends), some of them such as North-West
University and the University of Stellenbosch have identified
distance education through the use of technology (telematic

teaching) as a means of establishing a competitive
advantage. They were the first to use this new channel and
have established themselves as leaders in the field. On the
other hand, firms that miss a trend will spend their time
trying to catch up with the competition. Many motor vehicle
manufacturers have spent decades paying the cost of
ignoring the early signs that consumers wanted cars to be
smaller, higher in quality and more fuel-efficient. Correctly
identifying a fad, on the other hand, has its own benefits.
Alert marketers can make a lot of money by reaping the
short-term rewards of a fad and abandoning it just as it
begins to lose its impact. Do you remember the childrens
Tamagotchi toy that was so popular in the late 1990s? Are
you old enough to recall the citizen-band radio craze of the
early 1980s? They were fads that were profitably exploited by
a few savvy marketers. More conservative firms prefer to
ignore a short-lived fad (such as reality TV, tattoos and
electronic cigarettes) and concentrate on opportunities with
longer-term potential.
A social trend that has had a significant impact on
marketing across the globe is that of healthier lifestyles.
Many people try to eat more healthily and exercise regularly.
Many products and services have been created in response
to this trend. Examples include sugar-free diet soft drinks
such as Coke Zero, Royco Lite Cup-A-Soup, Mrs Balls lowcalorie chutney, and artificial sweeteners such as Canderel.
Nestl SA will be building two new factories to manufacture
healthier foods (breakfast foods in particular) to take
advantages of this growing trend. The trend has also sparked
the emergence of retailers such as Kauai, Melissas and
Tashas.
A social trend of enormous importance to South African
marketers is the rapid growth in the number of people who
are reported as HIV-positive. Although commentators differ
somewhat in respect of their estimates of the prevalence of
HIV/Aids, the general consensus is that between 25 and 30
per cent of the South African population is HIV-positive.
From a business point of view, the HIV infection rate is an
extremely important social trend, because most victims will
be in the economically active age group (1845), resulting in
a dramatic loss of skills and productivity in addition to its
impact on traditional family structures and family life.
The impact of Aids in South Africa will offer opportunities
to some firms (such as funeral parlours), but will be an
enormous threat to others. From a marketing perspective,
the significance of the HIV pandemic is the question of how
it will impact on consumer spending patterns. A study by
Unisas Bureau of Market Research found that affected
families are likely to cut back first on durable goods, such as
televisions and cars, and to a lesser extent on semi-durable
goods, such as footwear, clothing and textiles. At the same
time, families will take children out of school to care for the
ill, or because they can no longer afford school fees,
uniforms and books. Ultimately, families adapt by eating
less and curtailing their spending on essentials such as food.
For example, it has been estimated that, in the short term,
about R7 billion less will be spent on grain products than if
the pandemic did not exist, and about R4,6 billion less on
bakery products. Spending on meat products is projected to
be R14 billion less than in the absence of HIV/Aids, and
spending on fruit and vegetables will shrink by R7,8 billion.

The Unisa model predicts that the fast-moving consumer
goods sector is most vulnerable because up to 35 per cent of
the households that constitute that market have family
members who are HIV-positive. 20
It is difficult to assess the precise impact of HIV/Aids on
marketing activities and how to manage its impact. Firms in
the life insurance industry are particularly vulnerable.
Southern Life, for instance, offers, among other things, lower
premiums to people under 45 who have HIV tests every five
years.
6.4 Todays pre-teens: Born to shop

Pre-teen children often have a greater discretionary income
(i.e. disposable income, or money that can be used beyond
the purchase of necessities and paying taxes) than many
university students and therefore represent an opportunity
to utilise. Parents give pre-teens considerable amounts to
spend as they wish. In addition, these children also
influence household purchases, such as breakfast cereals
and holidays. Almost without thinking about it, parents are
creating the next generation of spenders.
Many marketers recognise the importance of reaching
the childrens market early. In some countries, Volkswagen
donates vehicles to universities for their driver training and
many banks have financial packages for children and
students.
6.5 Teenagers: Demanding and opinionated

Teenagers influence household spending in four familiar

ways. Firstly, when teenagers accompany their parents to a
shop, their parents often let them add some gimmes to the
trolley. Secondly, teenagers influence their parents even
when they are not with them by encouraging them to buy
preferred brands. Either the teen specifically requests a
brand, or parents know that if they dont buy exactly what
the teen wants (such as Black Cat peanut butter, for
example), the purchase may go to waste. Thirdly, teens
influence adult purchases when parents actively solicit their
opinion. Parents buying a cellphone may be a good
example. Teens often know more about certain products
than their parents think of cellphones, computers, running
shoes or the latest brand of designer jeans. Finally, teens
influence parent purchasing when they ask for gifts. Teens
are rarely shy about letting their parents know what they
want for a birthday or other special occasions.21
The quality of cool is of paramount importance to teens
when they evaluate brands. Quality in itself may not sell a
product to teens, but it is the fundamental criterion of a
cool brand. The brands that teens consider to be the
coolest such as Quicksilver or Billabong are perceived
by teens to be of high quality. After quality, the most
common cool qualifier is that it is for people my age.
Teens seem to prefer things that are specifically for them,
whether its language, fashion, advertising or brands.
6.6 Generation Y
People born between 1977 and 1994 are referred to as
Generation Y. In America Generation Y has been described

as both the children of the baby boomers and as digital
natives because they have always known the Internet and
electronic devices such as cellphones. As a result, it is not
surprising that they are also known as the net generation,
the dot-com generation, millennials, and also as the echo
boomers (because they are the children of the baby
boomers). Generation Y makes up 26 per cent in the United
States (72 million people), 28 per cent of Australias adult
population and 34 per cent of the Chinese population. They
regard wireless communication as an essential part of daily
life, were the first to use text messaging and are the primary
users of applications such as Mxit, Facebook and Twitter.
They are used to instant access to information. Mxit is a
South African-created mobile social network. It has 4,9
million monthly active users in South Africa. It works on
over 8 000 different handsets and mobile devices, including
tablets. Mxit also embraces the capabilities of each platform
to offer an immersive chat experience that feels native to
each one. By acting as a gateway to functions not otherwise
available on feature phones, Mxit affordably bridges the gap
between feature and smart phones.22
All those who make up Generation Y have now entered
the workplace and most of them are in early to midadulthood. This is an important market for marketers
because this is the stage in life when people start forming
their brand preferences that could last a lifetime. However,
Generation Y needs to be approached with circumspection
because they are concerned about global issues, ethical
behavior and trends and are often skeptical about glib
marketing messages. There is a new generation of South
Africans born into a new South Africa the so-called born

free generation of mostly black South Africans who have
grown up in a different world, and in particular a country
that is very different to what their parents knew. The oldest
of these Gen-Ys are already grown up and many have
already, or are just about to enter the world of work, and it is
certainly a New World of Work. For South African
businesses, and marketers in particular, it is important to
realise that these future employees, customers,
entrepreneurs and leaders are different and that they bring a
different set of values into play. 23
6.7 Generation X
Americans refer to people born between 1965 and 1976 as
Generation X. In the United States, approximately 17 million
consumers fall into this age category. It is the first generation
of latchkey children who came home from school to empty
homes who largely had to look after themselves during their
later childhood the products of dual-career households or,
in roughly half the cases, of divorced or separated parents.
American Generation Xers began entering the workforce in
the era of downsizing and downturn, so its members are
more likely than the previous generation to be unemployed,
underemployed and depending on their parents for
financial support.24 In South Africa, Generation X can be
loosely defined as all those young people old enough to
remember apartheid and be judged by history to have been
part of it, and yet not quite old enough to have been
involved in any form of struggle against (or on the side of)
apartheid. In South Africa the Xers birth years range from

1970 to 1990. They are expected to grow up quickly.
Teenagers are now expected to confront life and its
challenges with the maturity once expected only of the
middle-aged. High schools, which were once the setting for
a unique teenage culture and language, have become
miniatures of the adult community.25 Yet, as a generation
that has been bombarded by multiple media since their
cradle days, they are savvy and cynical consumers.
6.8 Americas baby boomers and South Africas

prime timers
In the United States, people born between 1946 and 1964 are
referred to as the baby boomers. Almost 78 million babies
were born in the United States in that post World Warperiod, which created a huge market for almost all products
and services.26 The oldest baby boomers are now
approaching their 70s, but they cling to their youth. This
group cherishes convenience, which has resulted in a
growing demand for home delivery of items such as large
appliances, furniture and groceries. In addition, the
spreading culture of convenience explains the tremendous
appeal of prepared takeaway food and the necessity of
PVRs, cellphones and overseas holidays.
Post-World War II affluence allowed baby boomers
parents to indulge their children as never before. They
invested in their childrens skills development by sending
them to university. They encouraged their children to
succeed in a job market that rewarded competitive drive
more than co-operative spirit and individual skills more

than teamwork. In turn, the sheer size of the generation
encouraged businesses to promote to the emerging
individuality of baby boomers. Even before the oldest baby
boomers started earning their own living more than three
decades ago, astute businesspeople saw the profits that
could come from giving millions of young people what they
wanted. Firms offered individualistic baby boomers a
growing array of customised products and services houses,
cars, furniture, appliances, clothes, holidays, jobs, leisure
time and even beliefs. 27
READER 9 >> South Africas Prime Timers

UCT Unilever Institute of Strategic Marketing has launched its latest study on
the Prime Time generation which shows that South African marketers, unlike
their European and American counterparts commonly known as the Baby
Boomers, are ignoring one of the most lucrative markets around. The findings
of the Prime Time Study show that 6 per cent of South Africans account for
nearly 20 per cent of South African spend! According to the report, a golden
seam of South Africas biggest spenders are often ignored by marketers, these
urban 40 plusses, while only a small percentage have a combined income
amounting to nearly R300 billion which marketers arent reaching to. The
study further revealed that nearly half of 50-plusses, who are LSM7+, are debt
free so surely worth attention to marketers. Considering that 22 per cent of
over 40s and 65 per cent of over 60s are bond-free, one can see why. Prime
Timers have the time and the finances to enjoy life and they know what they
want and when they want it. And what they want is quality and lifestyle.
SOURCE: Scher, M. 2008. Baby boomers ignored by South African marketers.
Bizcommunity, 15 August 2008
6.9 Older consumers: Not just grandparents

As mentioned above, the oldest baby boomers have already
crossed the 60-year-plus threshold that many demographers
use to define the senior-citizen market or the grey market.
And todays mature consumers are wealthier, healthier and
better educated than those of earlier generations.28 Many
marketers have yet to tap the full potential of the huge and
lucrative grey market. For example, the most critical factor
in determining car-owner loyalty is age. The oldest
consumers (aged 65 and more) are twice as loyal to their
make of car as the youngest customers.29 Marketers who
want to actively pursue the grey market must understand its
intricacies. Ageing consumers create some obvious
opportunities. Some medical doctors recommend that older
people take half an aspirin per day to help control their
blood pressure. Has this opportunity been utilised yet?
Some clothes manufacturers use Velcro-fastened clothing
for people with arthritis or other ailments who may have
difficulty with zips or buttons. Wheaton Medical
Technologies markets a pill bottle that has a tiny batteryoperated clock that registers the time the container was last
opened to take out a pill.30
6.10 The Black diamonds

Black diamonds are defined as the recently enfranchised
black (as opposed to Asian or mixed-race) middle class in
South Africa. Although research about the black diamonds is
in its infancy, this group has immense growth potential, as it
comprises well-educated and wealthy/salaried individuals.

The black diamond identity is complex and, in a sense, a
work-in-progress. However, it has distinct characteristics
that set it apart from other groups. The economic potential
of this group is enormous. This target market, however, is
very complex due to a number of sub-segments with
significant differences in behaviour, attitudes and media
consumption. Nevertheless, if firms can position themselves
(or their products) so that this nascent market segment
adopts their products as part of their culture, then they will
have a substantial and sustainable competitive advantage in
respect of this potentially lucrative market segment. 31 This
market segment has more than doubled in size in less than a
decade and the black middle class has overtaken the white
middle class in both size and spending power. 32
6.11 Survivors
At the opposite end of the income spectrum to that of Black
Diamonds is what is termed the Survivors. This group is
uniquely South African and while it is the biggest market
segment by number, it is the most misunderstood.
Nevertheless it is becoming increasingly important to
businesses in South Africa as the more affluent markets
become saturated.
Survivors are defined as people who live in households
with an income of R5 000 per month (or less) and while this
modest income may not suggest a feasible market
opportunity, this is a somewhat myopic view of this market
segment. This is because disposable income does not always
correlate with actual income. For example, households

earning a far higher income may spend a greater percentage
on items such as rates and taxes, bond repayments, cars,
petrol etc., expenses that your typical survivor household
would not have to bear. In other words, households with far
greater actual income (than R5 000) may in fact have less
disposable income than survivor households because of the
additional costs that they have to bear in managing their
household expenditure.
While it is arguable that other developing nations have a
similar (survivor-like) market segment, South Africa is
unique in that many (about 38 per cent) survivor
households depend on social grants for their primary source
of income, suggesting a more stable source of income than
many other developing nations. In addition, compared with
survivors of most developing countries, South African
survivors are relatively better off in terms of income but do
not have assets that they can sell or use as collateral to raise
finance. Compounding this problem is that many (at least
3,5 million, but it could be as many as 5 million) survivors
have impaired credit records meaning that it will be
difficult for them to raise finance to buy durable goods such
as furniture and motor vehicles. 33
7. Demographic factors
34
LO7
Demographic factors another uncontrollable variable in

the external environment are extremely important to
marketing managers. Demography is the study of peoples
vital statistics, such as their age, ethnicity and location.

Demographics are significant because the basis for any
market is people. Demographic characteristics are strongly
related to consumer buying behaviour and are good
predictors of how the target market will respond to a specific
marketing mix. In fact, demographic considerations have a
particularly important influence on marketing in South
Africa. Variables such as the size and distribution of the
countrys population are of importance to marketers in
identifying marketing opportunities and planning marketing
strategies.
WEBSITE
For more information of various other
useful break downs of the Census data
visit http://www.southafrica.info/about/
people/population.htm#.U4ZGovmSySo.
Other demographic statistics and trends that are often of

value to South African marketers are the following: 35
Gross Domestic Product (GDP), considered a measure of

standard of living, has risen by 31 per cent since 1994
The population growth is slowing and will start declining
in 2030
The average life expectancy is 53 years for men and 55
years for women
Approximately 52 per cent (approximately 26,07 million)
of the population is female
The infant mortality rate is 47 per 1 000 births
Fertility has declined from 2,86 children per women in
2001 and is expected to decline even further in the future

About 25 per cent of South Africans live in shacks or
informal dwellings and about 20 per cent in a standard
suburban house
54 per cent of the South African population lives in urban
areas, whereas 46 per cent live in rural areas
Gauteng comprises the largest share of the South African
population. Approximately 11,3 million people (22,4 per
cent) live in this province. KwaZulu-Natal is the province
with the second largest population, with 10,8 million
people (21,4 per cent) living in this province. With a
population of approximately 1,10 million people (2,2 per
cent), Northern Cape remains the province with the
smallest share of the South African population
Nearly one-third (31,3 per cent) of the population is aged
younger than 15 years and approximately 7,7 per cent
(3,9 million) is 60 years or older. Of those younger than
15 years, approximately 23 per cent (3,66 million) live in
KwaZulu-Natal and 19,4 per cent (3,07 million) live in
Gauteng.
Interesting as these statistics may be, their value lies in the

ability of marketers to interpret the data and information,
ascertain what they imply for the firm and base marketing
strategies on those likely implications.
7.1 Universal Living Standards Measure
LO8
The South African Advertising Research Foundation

(SAARF) has introduced a non-racial measurement to
describe the South African consumer market called the

Living Standards Measure (LSM). LSM attempts to group
similar people together and distinguishes between different
groups of people in South Africa in terms of social class, or
living standard, regardless of ethnicity, income or education.
Instead of approaching social class from the point of view of
obvious demographic differences, the LSM quantifies the
ownership of certain durable goods, access to services, and
the like, to provide a composite measure of social class. The
LSM methodology is thus based on the premise that the
consumption behaviour of South Africans is largely
determined by their social class as measured by ownership
of durable goods and consumption of services. The variables
used to define the LSM measures are:36
Access to hot running water and a flush toilet

Ownership of products such as a fridge or freezer,
microwave oven, VCR, vacuum cleaner or floor polisher,
washing machine, personal computer; (PC), electric
stove, TV, tumble dryer, home telephone, radio, hi-fi or
music centre, built-in kitchen sink, home security
service, motor vehicle, DVD player, home theatre,
cellphones
Utilisation of services such a domestic worker, M-Net or
DStv subscription, security services
Where people lived: house/cluster house, town house,
living in rural areas outside of Gauteng or Western Cape
or metropolitan dweller.
The presence, or otherwise, of these variables for each

respondent in the All Media Products Survey (AMPS), is
coded. A formula is then applied to yield a score for each

respondent, the value of which determines his or her LSM
group membership. The LSM model originally had eight
groups when it was conceptualised in the late 1980s. This
was later expanded to ten universal LSM groups, ranging
from group 10, which has the highest standard of living, to
group 1, with the lowest. In 2008, it was argued by some
stakeholders that there was not enough precision in the
higher LSM groups, and that a finer tool was needed to
examine this end of the market. Consequently, the four top
groups (the existing LSM groups 710) were split into a high
and low measure. These new divisions are not new LSM
groups, but rather subsets of the existing LSM 710, and can
be added back together into the original groups.
7.1.1 LSM 1
This group comprises 3,5 per cent of the total adult South
African population, and consists of mainly females, living in
huts, 16 to 24 years of age or over 50. They are rural-based
with some primary-school education. Their average
household income is R1 269 per month. Because of their
lack of electricity, ownership of durables is very low, except
for radios. They are heavy users of essential commodities.
They have minimal access to basic services. Radio is a major
communication channel, particularly the radio stations of
the African Languages Services.
7.1.2 LSM 2
African population. They are rural, mainly 16 to 24 years of
age or over 50 and have completed some primary-school

education. They typically live in matchbox-type houses.
Unemployment is high and their average monthly
household income is R1 475. They have on-site water with
minimal ownership of durables except for radios and stoves.
They listen to the radio stations of the African Languages
Services.
7.1.3 LSM 3
This group makes up 7,8 per cent of the total adult South
African population. The people in this group are rural,
mainly 16 to 24 years of age and some (15,6 per cent) have
matric. Unemployment in this group is high and their
average monthly household income is R2 267. About 73 per
cent live in conventional matchbox houses and have access
to on-site electricity and water with minimal ownership of
durables except for radios and stoves. They spend limited
amounts of money on non-essential items, such as takeaway
meals and lottery tickets. They listen to the radio stations of
the African Languages Services. They are also viewers of
SABC 1 and are exposed to some outdoor advertising.
7.1.4 LSM 4
This group contains 14,2 per cent of the total adult South
African population. The group contains a fairly even spread
of the various age groups, with many achieving some highschool level. The average monthly household income is R2
424. They have access to on-site electricity and water with
flush toilets. They typically own TVs, hi-fis or radios, stoves
and fridges. They spend some money on non-essential
items, such as lottery tickets and takeaway food. Cellphone

ownership is 59,7 per cent. They listen to the radio stations
of the African Languages Services, Metro FM and YFM. They
are regular viewers of SABC 1 and 2, and are exposed to
outdoor advertising.
7.1.5 LSM 5
African population. They are largely urbanised, mainly 25 to
49 years of age, and about 30 per cent have completed high
school up to grade 12. About 82 per cent live in a
conventional dwelling and their average monthly household
income is R3 462. They use electricity, water and flush
toilets. They own TVs, hi-fi or radio sets, stoves and fridges.
They exercise, paint the interior of their houses, buy lottery
tickets, fast food and DVDs. Almost 47 per cent have a
savings account. They listen to all radio stations of the
African Languages Services, Metro FM and YFM. They are
viewers of SABC 1, 2 and 3 and e-tv, and are exposed to
outdoor advertising. Unlike LSM 4, they regularly read
weekly newspapers and magazines.
7.1.6 LSM 6
African population. They are urbanised, mainly 25 to 49
years of age, with up to a post-school qualification, but not
necessarily a university education. Their average monthly
household income is R5 755. They have access to electricity,
hot running water and flush toilets. They are typically
owners of a number of durables (TVs, hi-fi or radio sets,
stoves and fridges), including cellphones. More than half of

them have a savings account and over a third have some
form of insurance product. They participate in a wide variety
of outdoor activities and listen to a wide range of
commercial radio stations, including community radio.
They are regular viewers of SABC 1, 2, and 3 and e-tv, and
are exposed to outdoor advertising. They regularly read daily
and weekly newspapers and magazines, and go to the
cinema.
7.1.7 LSM 7
This group makes up 10,2 per cent of the total adult South
African population, with LSM 7 Low forming 5,2 per cent of
this group, and LSM 7 High making up the balance with 5,0
per cent. They are urbanised, predominantly male, above 25
years of age and with grade 12 and higher-education
qualifications. Their average monthly household income is
R10 044 (LSM 7 High) and R9 242 (LSM 7 Low), and they live
in houses or flats. They have full access to all services. They
own all household durables and often a motor vehicle. They
actively participate in a range of outdoor activities, such as
holidays in South Africa. They typically listen to a wide range
of commercial radio stations and community radio. They
are regular viewers of SABC 1, 2 and 3, e-tv and M-Net, and
are exposed to outdoor advertising. They access the Internet
at least four times per week. They regularly read daily and
weekly newspapers and magazines, and go to the cinema.
7.1.8 LSM 8
African population, with LSM 8 Low making up 3,9 per cent

of this group, and LSM 8 High making up the balance with
3,6 per cent. They are predominantly male, urbanised
(mainly based in Gauteng and the Western Cape), over 35
years of age, have completed grade 12 and have a higherlevel qualification. Their average monthly household
income is R14 017 (LSM 8 High) and R12 068 (LSM 8 Low),
and the vast majority own their own houses. They have full
access to all basic services. They have full ownership of all
household durables, including a PC and a satellite dish.
They participate in a range of outdoor activities. They listen
to a wide range of commercial radio stations and
community radio. They are regular viewers of SABC 1, 2 and
3, e-tv, M-Net and DStv, and are exposed to outdoor
advertising. They access the Internet at least four times per
week, read daily and weekly newspapers and magazines,
and go to the cinema.
7.1.9 LSM 9
African population, equally split between LSM 9 Low and
LSM 9 High, with 4,2 per cent in each subset. They are
urbanised, predominantly male, over 35 years of age, have
completed grade 12 and achieved a higher-level
qualification. Their average monthly household income is
R19 453 (LSM 9 High) and R15 853 (LSM 9 Low). They have
full access to basic services and most own their own homes.
They have full ownership of all household durables,
including a PC at home and a satellite dish. About twothirds own their own vehicle and air travel is common. They
listen to a wide range of commercial radio stations and

community radio. They are regular viewers of SABC 1, 2 and
3, e-tv, M-Net, DStv and DVDs, and are exposed to outdoor
advertising. They typically access the Internet at least four
times per week. They read daily and weekly newspapers and
magazines, and go to the cinema.
7.1.10 LSM 10
African population, with LSM 10 Low making up 3,2 per cent
of this group, and LSM 10 High making up the balance, with
3,1 per cent. They are urbanised, over 35, have completed
grade 12 and achieved a higher-level qualification. They live
in conventional housing, which they usually own, and their
average monthly household income is R28 467 (LSM 10
High) and R22 043 (LSM 10 Low). They have full access to all
basic services, including a PC at home, a satellite dish, their
own vehicle and a microwave oven. They are participants in
a wide range of activities, such as exercising, and use both
local and international air travel. They listen to a wide range
of commercial radio stations, including community radio.
They are regular viewers of SABC 1, 2 and 3, e-tv, M-Net and
DStv, and are exposed to outdoor advertising. They access
the Internet at least four times per week. They read daily and
weekly newspapers and magazines, and go to the cinema.
Patterns along the continuum of LSM groups can be
identified in order to better understand the consumers in
the various categories and the buying behaviour of these
groups. Many South African firms use the LSM
measurement to refine their target market strategies. South
African Breweries, for instance, makes use of LSM groupings

to target the markets for its beers. Premium beers, such as
Peroni, are targeted at LSM 8 to 10. Mainstream brands,
such as Castle, are targeted at LSM 6 to 8 and Carling Black
Label at LSM 1 to 4.
7.2 Using LSM and other demographic factors to

understand markets
Besides SAARFs Living Standards Measure (LSM) there are
also other demographic variables that can be used to assess
a market in demographic terms. These are particularly
useful when they are combined with LSM groups.
7.2.1 Monthly household income

Table 2.1 shows the number of people in each LSM group
and their average monthly household income, and we can
see that the LSM groups do not differ significantly with
respect to gender distribution. Table 2.1 also shows that the
bulk of the South African population is to be found in LSM
groups 1 to 6 and that the average monthly income increases
substantially as one moves up the LSM ladder, with the
average income of those in LSM group 10 (High) being R28
467 per month. Table 2.1 shows that in terms of the adult
population, LSM groups 16 represent nearly 70 per cent of
the total adult population. However, LSM 1 to LSM 6
account for only 33 per cent of the total income. Conversely,
LSM groups 710 earn 67 per cent of the total income,
although they represent only 31 per cent of the total adult
population. Although not shown in Table 2.1, LSM 1 spends
37 per cent of their income on food and LSM 10 only 15 per

cent. In other words, relatively poor people (lower LSM
groups) spend a higher proportion of their total budget on
food than wealthier households.
Table 2.1 Number of people per LSM group, gender

distribution, average household income and percentage of
population
SOURCE: Eighty20 data bases, eighty20.com (used with

permission)
7.2.2 Shopping patterns

People in households across all the LSM groups were asked
where they do their main shopping for food and groceries
(including meat, vegetables, bread, milk, cleaning materials
and toiletries). The majority of LSM 1 and LSM 2 households
patronise Shoprite, a spaza or tuck shop, a small local shop,

trading store or general dealer, a local caf and a hawker or
street vendor. At the other end of the continuum, LSM 9 and
LSM 10 respondents indicated that they regularly shop at
Pick n Pay supermarkets, family shops, Woolworths, Pick n
Pay hypermarkets and petrol stations or garage convenience
stores. Therefore, there is a relationship between the LSM
groupings of consumers and their retail shop patronage.
7.3 Education and literacy

The reports of no attendance at school is high in LSM 1 (26
per cent) and decreases gradually until it is virtually nil in
LSM 10 (0,1 per cent). Likewise, in the category postmatric, there are relatively few in LSM 1 (0,6 per cent),
rising to 40,2 per cent in LSM 10, the highest proportion.
Thus, the higher the level of education, the higher the LSM
category.
7.4 Language
English is the language best understood by the South African
population (76 per cent), followed by isiZulu (49 per cent),
Afrikaans (44 per cent) and isiXhosa (35 per cent). The most
frequently spoken first official language in South Africa is
isiZulu (23,5 per cent), followed by isiXhosa (17,6 per cent)
and then Afrikaans (13,7 per cent). The least spoken official
languages are Tshivenda (2,8 per cent), isiSwati (2,5 per
cent) and isiNdebele (1,5 per cent).
Marketers can also assess the media consumption
behaviour of different LSM groups to better target their

advertising. Table 2.2 shows that LSM 5 and 6 are more
likely to read Drum magazine while Afrikaans-speakers in
LSM 9 are most likely to read Huisgenoot and Englishspeakers in those groups are more likely to read YOU
magazine. Depending on what LSM groups marketers
target, this type of information is useful in planning
advertising strategies. A marketer of, say, a computer tablet
is thus more likely to advertise in Huisgenoot or YOU than in
Drum.
Table 2.2 Magazine exposure to three magazines per LSM

group

permission)
Marketers can also assess their market shares or identify

major competitors in different LSM groups. Table 2.3 shows
the sales figures for womens clothing per LSM groups for
different retailers. An analysis of LSM 10 shows that
Woolworths has a 23,6 per cent market share but faces
considerable competition from Edgars (24,4 per cent) at the
top end of the market and from Mr Price (19,0 per cent) at
the lower end of the market.
Table 2.3 Retail clothing buying per LSM group

permission)
8. Economic factors
LO9
It is not only social and demographic factors that marketing

managers must understand and react to, but also the
economic environment. The general economic conditions
prevailing in a country should be the starting point of an
assessment of opportunities or threats in a market. The
prevailing economic conditions also determine consumers
spending patterns. During periods of economic growth,

fewer people are unemployed (during the period of
economic growth in 20052006, 30 000 new jobs were
created each month) and interest rates are often low. As a
result, people have more money to spend, referred to as
disposable income.
However, marketers will regard favourable economic
conditions as an opportunity to execute their marketing
plans, but economic conditions are not always favourable.
The economic conditions of greatest concern to most
marketers are inflation and recession, as well as the impact
of interest rates and currency fluctuations on prices and
consumer demand.
8.1 Inflation
LO10
Inflation manifests itself in a general rise in prices without a

corresponding increase in wages, which results in decreased
purchasing power for consumers. Fortunately, South Africa
has enjoyed the advantages of a relatively low rate of
inflation in recent years. At one stage in the mid-1980s, the
inflation rate was around 25 per cent, which made life very
difficult for marketing managers. Low inflationary
conditions benefit marketers, because real wages, and
hence purchasing power, increase when inflation is low. A
significant increase in inflation almost always depresses real
wages and, consequently, consumers ability to buy more
goods and services, which is a huge challenge to marketers.
In times of high inflation, businesses seeking to increase
their profit margins can do so only by increasing their
efficiency. If they significantly increase prices, fewer

consumers will purchase their goods or services. The South
African airline Comair is a shining example. Although
inflation in South Africa reached 10,9 per cent in May 2008,
the airline kept its fares competitive and still made an
attributable profit of R32,63 million (a three per cent
increase on the previous year) as a result of its strong focus
on cost containment.37 In South Africa, the value of the
Rand has an important influence on inflation. For instance,
when the value of the Rand relative to other currencies such
as the European Dollar or the American Dollar increases,
the cost of imported products declines, exerting downward
pressure on retail prices and, therefore, inflation. During
2005 and 2006, when the Rand strengthened to
unprecedented levels, the prices of imported goods such as
electronics and motor vehicles were unusually low for South
Africans. Conversely, during times when the value of the
Rand declines in value against other currencies (as
happened in the beginning of 2014), the opposite is, of
course, true. Then imported goods in particular products
such as petrol, motor vehicles and electronic goods, become
expensive, which depresses retail sales. In response to the
prevailing economic circumstances the National
Association of Automobile Manufacturers of SA (NAAMSA)
issued the following statement: Domestically, 2014 new
vehicle sales were likely to experience head winds as a result
of above inflation average new vehicle price increases, the
slowdown in the economy and, more recently, rising interest
rates. As a result, NAAMSA anticipated a difficult domestic
new vehicle trading environment characterised by
consolidation in sales numbers at best around levels
recorded last year.38

When prices increase over a prolonged period, wage
demands and wage increases are often too high and interest
rates start rising, which curbs consumer spending even
further. For instance, during difficult economic times in
2011-2012 Pick n Pay profits dropped by 34,4 per cent. The
declining profits were attributed to high levels of
household debt and further increases in inflation [that]
continue to put pressure on consumers disposable
income.39
In order to cope in inflationary times, a number of pricing
strategies can be implemented (see Chapter 13). But in
general, marketers must be aware that inflation causes
consumers either to build up or to diminish their brand
loyalty. Inflationary pressures also force consumers to make
more economical purchases.
However, most consumers try hard to maintain their
standard of living during periods of inflation. Therefore,
marketers can try to encourage brand loyalty with loyalty
programmes (Pick n Pay introduced its new loyalty
programme during tough economic times in 2011-2012), by
emphasising value-for-money positioning, keeping prices as
low as possible and making sure that all price increases are
well justified. In formulating marketing strategies to cope
with inflation, managers must realise that, despite what
happens to the sellers cost, the buyer will not pay more for a
product than the subjective value that he or she places on it.
No matter how compelling the justification may be for a 10
per cent price increase, marketers must always examine its
impact on demand. In inflationary circumstances, many
marketers try to postpone price increases for as long as

possible. In 2104 the Bureau of Economic Research
concluded that SA firms have not fully passed on cost
increases (mainly electricity and labour costs) to the
consumer because they are afraid it will kill off demand.40
Business firms deal with inflationary conditions
differently. To maintain sales of its sweets, Tiger Brands
changed its packaging to sell sweets in smaller packages.41
Owing to a fall of 10 per cent in demand for airline travel in
2009, many airlines saved costs by reducing their seating
capacity by six per cent by selling unused aircraft.
8.2 Recession
LO10
A recession is a period of economic activity when income,

production and employment tend to fall all of which
reduce demand for goods and services.
From a marketing perspective it is important to realise
that during recessionary conditions, consumers change
their consumption patterns. For example, attendance at
South Africas several arts festivals (such as The
Grahamstown Arts Festival and Aardklop) has shown to be
sensitive to prevailing economic conditions. In a climate in
which people are more inclined to tighten their belts they
will cut back on what could be considered a luxury.42 During
the recessionary period in 2013 one market analyst reported:
Clearly higher priced goods are not flying out of the store
so, value for money is what the middle income consumer
is after.43
During periods of recession, consumers switch to buying
basics rather than luxuries, and generally become more

price-sensitive. During recessionary times in 20082009
many South Africans switched in large numbers from more
expensive staples, such as rice, to more affordable maize. As
a result, food company Tiger Brands reported sharp falls in
sales of its Tastic Rice and Aunt Caroline brands. Consumers
also bought less chocolate and more jellies during this
period. Sales of luxury brands, such as Renown spreads,
Enterprise crumbed pork and Like-it-Lean viennas, fell by
17 per cent as people switched to cheaper proteins, such as
pilchards and beans.44 During these periods, retailers often
capitalise by aggressively marketing their house brands (also
referred to as a private label) as value for money. During
the recent recession Clicks expanded its house brands from
18 per cent to 25 per cent of its total product offering.
Motor vehicle dealers respond to recessionary pressures
by offering financing deals such as no interest paid in the
first year or a years free insurance. During recessionary
times in 2003, the National Automobile Dealers Association
asked the Minister of Trade and Industry to change the law
(the Credit Agreements Act) that prescribed a minimum ten
per cent deposit and a maximum 54-month repayment
period for individuals who buy a new motor vehicle. The
change would have allowed individuals, for the first time, to
lease a motor vehicle. The idea was to stimulate new
vehicles sales which were in a slump at the time.
The problems of inflation and recession go hand in hand,
yet recession requires different marketing strategies. The
following are examples:
>> Strategy
Improve existing products and introduce new ones.

Using this approach, the objective is to reduce
production hours, waste and the cost of materials.
Recession increases the demand for goods and
services that are economical, efficient and offer
value. A recession, therefore, forces firms to
streamline their operating practices and procedures
and improve customer service.
Maintain and expand customer services. In a
recession, many firms and organisations postpone
the purchase of new equipment and materials. For
instance, South African Airways postponed replacing
some of its aircraft in the period 20002003. Under
similar circumstances, many individuals will
postpone the purchase of big-ticket items, such as
motor vehicles, TVs, fridges and other electronic
equipment. Sales of replacement parts and other
services (such as repairs) may become an important
source of income for firms such as vehicle
manufacturers during such times. Some firms add
additional services. During a recent recession, the
business publication Financial Mail added a homedelivery service that had not been offered previously.
Emphasise product value. Customers with less to
spend will demand quality, value for money,
durability, satisfaction and the capacity to save time
and money before they will buy. During recessionary
periods Pick n Pay heavily advertises its no-name
range of products to make your money go further.

Use special offers to stimulate demand. In 2008
motor vehicle manufacturer, Daihatsu, offered
buyers R10 000 worth of free accessories, a free
three-year factory warranty plus a three-year service
plan with every purchase of a 4x4 Terios.
Target new market segments. Traditionally, Japanese
men do not buy much chocolate because they still
see themselves as Samurai warrior macho males,
and chocolate packaging generally appeals to
women and children. Now Japanese chocolate
marketers, facing a recession, have made renewed
attempts to penetrate the male market segment by
changing their packaging to appeal to males.
Marketers of luxury products, such as jewellery and motor

vehicles, almost inevitably face declining demand during
periods of recession. As consumers trade down during these
periods, firms such as Pep Stores and Mr Price, which
appeal to more price-sensitive consumers, may prosper.
One other economic variable of considerable importance to
marketers is interest rates. High general interest rates reduce
consumers disposable income (also known as discretionary
income), as they have to pay more for their home loans,
credit card purchases and hire purchases. Higher interest
rates, therefore, reduce consumer demand for goods and
services. Clearly marketers prefer an environment of low
interest rates because a higher level of disposable income
increases sales and, therefore, profitability.
9. Technological factors
LO11
Few environmental factors can have such a pervasive

influence on business firms as technological developments.
Failure to analyse the technological environment can be
disastrous. Motorola discovered this when Nokia and
Ericsson first made use of digital technology. Motorola had
been the market leader at one stage, but the use of analogue
technology in its cellphones allowed Nokia and Ericsson to
overtake the once-dominant Motorola. Moreover, the rate at
which new technological developments are commercialised
is increasing exponentially. New scientific knowledge,
research results, inventions and innovative thinking, which
often lead to new products, surface almost daily. Few
business leaders ten years ago would have been able to
predict the use and impact of information technology and
business tools, such as cellular phones, electronic mail, the
Internet and social media, which are in common use today,
on consumer markets and marketing practices.
Business firms can simply not afford to ignore
technological developments, such as computer technology
in general and information technology in particular. Smart
firms have not viewed technological developments with
scepticism or as a potential threat, but have used them as
opportunities to create value for their customers and to gain
a competitive advantage.
EXAMPLE >> Airlines are increasingly using self-check-in facilities via the
Internet and in airport lounges to enhance the convenience of travellers. The use
of technology will, it is hoped, reduce customer waiting time in queues and
provide a better service. Both Standard Bank (see Reader 10 on Standard Banks
SnapScan) and Absa Bank are testing technology that will allow consumers to use
their cell phones to make payments for anything from taxi fares to big ticket
items such as cars. The Sunday newspaper Sunday Times, acknowledging the
growing trend of using electronic readers, has introduced three electronic
versions of their newspaper: a desktop edition, an editors choice edition and an
e-edition.
Another example of a firm using technology to enhance its need-satisfying
efforts and establish a competitive advantage is the American firm Frito-Lay. Every
Frito-Lay route-delivery person now has a hand-held computer terminal. When the
salesperson visits a shop, and inventory is updated, information is entered in the
hand-held terminal. At the end of the day, the data are transferred back to the
central office. That night, the information from all the different salespeople is
aggregated, analysed and summarised in reports. By the next morning, the
product manager knows what is selling where and in what quantities. Another
example is the Limited retail chain in the United States, which specialises in
womens fashions. It tracks consumer preferences every day through point-of-sale
computers. Based on immediate analysis of what is selling, new product designs
are sent via satellite to suppliers in the United States, and to Hong Kong, South
Korea and Singapore. Within days, clothing produced to these designs flows from
these points in Asia and collects in Hong Kong. About four times a week a
chartered jet takes the clothing to the Limiteds distribution centre in Ohio, where
items are priced and then shipped to the specific shops within 48 hours.45
READER 10 >> Standard Bank rolls out mobile

payments to 10 000 merchants in South Africa
Standard Bank, one of South Africas largest financial services groups, has
launched a service that allows small merchants to accept mobile payments by
simply placing a QR code (Quick Response Code) at their point of sale, with
no Point of Sale (POS) terminal required. Consumers can make payments
using the SnapScan app at 10 000 merchants across the country, including
Motherland in Johannesburg and The House of Machines in Cape Town. The
service is available to all consumers, regardless of whether they are Standard
Bank customers or not, and transactions are free of charge. Merchants sign up
for the service online to receive a unique QR code that they can then print out
and place at their point of sale. Consumers need to download the app and
register their details along with a nominated Visa or MasterCard. To make a
payment, they scan the merchants unique QR code, enter the amount due
and confirm the payment using their PIN number. The merchant then receives
an SMS notification from Standard Bank to confirm the transaction is
complete. Merchants with a business bank account can have their SnapScan
receipts paid directly into their bank, while small traders without an account
can request a voucher that they can redeem at any Spar outlet or at a
Standard Bank ATM. For small businesses, this is a real-time retail payment
solution that allows business owners safe, secure and convenient payment
methods for their customers. Having SnapScan also minimises potential loss
due to the lack of a POS system, essentially creating another sales stream.
SOURCE: Boden, R. 2014. Standard Bank rolls out mobile payments to 10 000
merchants in South Africa. Available from http://www.nfcworld.com (Accessed
22 May 2014)
Another example of a technological threat for some firms is
the one offered by speech recognition software (you talk and
your PC types it for you). Many firms and individuals
offering secretarial and typing services may lose business if
this software is widely adopted. In general, it is fair to say
that most forms of technology offer a variety of opportunities
to create value for customers. One application is the use of
customer databases and improved customer-relations
management using sophisticated software. As Richard
Came, ex-marketing director of Dimension Data, says with
regard to the merging of computing and telephony:

Business can move from mass marketing to mass
customisation and can assume the role of the small
proprietor, once again doing business with individuals
though hundreds of thousands of them one at a time.46
LO12
Technology and the Internet in particular will continue to

have a particularly significant and growing impact on
consumer markets and marketing practices in general. It is
estimated that the volume of Internet trade has already
exceeded R30 billion a year. The growth of this technology
has exceeded the growth rate of any other communication
medium or consumer electronics technology, including the
personal computer. Firms belonging to the Wooltru group,
such as Makro, Shield, Dion and CNA and their
approximately 75 suppliers already send about a million
transactions amongst themselves on the Internet each week.
The Internet provides access to almost limitless information
about the external environment. It is also a means of
communicating with consumers while simultaneously
receiving quick and reliable feedback from customers.
Twitter is a good example. Besides the advantages already
mentioned, smaller firms in particular will be able to utilise
the Internet by making their products more accessible
even globally. It is a medium with an incredibly wide reach,
is relatively inexpensive and fairly simple to utilise.
Other firms may see the Internet as a serious threat.
Because potential travellers can now book hotel rooms on
web sites such as Booking.com and airline seats on the
Internet (Tripadvisor) from the comfort of their homes,

some travellers may no longer require the services of travel
agents. The ability to purchase short-term insurance on the
Internet may similarly be a threat to some insurance
brokers. But consumers benefit because the Internet makes
wider distribution possible, and makes comparisons with
competitors particularly price comparisons easier for
those who want to shop around. Typical examples of
popular websites where South Africans can compare prices
are PriceCheck.co.za (where one can compare prices, read
product and retailer reviews, or charge directly to the
checkout page, knowing that you found the best deal on the
net) and Travelstart.co.za (where you can search for the
cheapest flights online).
WEBSITE
See the ease with which a hotel room can
be booked internationally at
www.booking.com
10. Political factors
LO13
Political factors refer to the factors influencing the political

situation in a country. Marketers, like most businesspeople,
prefer a situation of relative political stability. Most
westernised democracies enjoy the benefits of prolonged
political stability, which makes it relatively easy to plan and
execute marketing strategies. Other countries often find
themselves in periods of political turmoil. In many of these
countries, the lead-up to elections contributes to this

undesirable situation. If governments change regularly
with each new government introducing new economic
policies, such as increased government involvement in the
economy, which the next government reverses again the
frequent changes contribute to political instability. If, before
an election, the government in power pursues a free-market
system, whereas the newly elected government introduces
socialist policies, this instability will be seen as a threat by
many marketing firms.
A major consideration for marketers entering foreign
markets is the attitude of the government in power towards
the economic freedom of its citizens. Some countries (such
as Cuba) still have a socialist government in power. Others
(such as Russia and Khazakstan and many Eastern
European and African countries, including Zambia and
Tanzania) are moving towards free-market economic
systems. In foreign markets in particular, marketers tend to
believe they have little influence on the political
environment, and refrain from challenging the political
dogma of the host country. By ensuring that no major
transgressions occur, international firms avoid punitive
legislation. For instance, a firm with oil refineries in Angola
will try to ensure that no major oil spillage or pollution
occurs that could jeopardise relations with local government
officials.
Sometimes legislation is passed in response to the
pressure created by consumers for example, in response to
those who have fallen foul of ethical business practice, such
as some pyramid schemes. Other consumer groups, such as
the Housewives League and the National Council Against

Smoking, are organised in formal structures to protect
consumers rights. Another example is the financial services
ombudsman, a regulatory body set up to protect consumer
rights in the financial services sector. The Media Monitoring
Group is another example of a consumer group protecting
the rights of consumers. It frequently complains to TV
stations about the violent content of its news bulletins.
Consumer rights organisations base their campaigns on the
four basic consumer rights, namely the right to safety, the
right to be informed, the right to choose and the right to be
heard. The International Charter of Consumer Rights,
endorsed by the Department of Trade and Industry, has
expanded these basic consumer rights to eight:47
The right to basic needs. The right to the basic goods

and services that guarantee survival, including adequate
food, clothing, shelter, healthcare, education and
sanitation
The right to safety. The right to be protected against
products, production processes and services that are
hazardous to health or life
The right to be informed. The right to be given the facts
needed to make an informed choice or decision. This
right implies protection from misleading or inaccurate
publicity material, whether included in advertising,
labelling, packaging or by any other means
The right to choose. The right to have access to a variety
of products and services at competitive prices and, in the
case of monopolies, to have an assurance of satisfactory
quality and service at a fair price
The right to be heard. The right to advocate consumers

interests with a view to receiving full and sympathetic
consideration in formulating and executing economic
and other policies
The right to redress. The right to fair settlement of just
claims due to misrepresentation
The right to consumer education. The right to acquire
the knowledge and skills to be informed consumers
throughout life
The right to a healthy environment. The right to a
physical environment that will enhance the quality of
life.
The movement to protect consumer rights is known as

consumerism. Pressure from consumer groups often leads to
industries setting up self-regulatory agencies.
10.1 Self-regulatory agencies
LO14
Some industries regulate themselves rather than wait to be

subjected to governmental laws and regulations. One of the
best examples is the Advertising Standards Authority of
South Africa (ASA), which self-regulates the South African
advertising industry.48 The ASA is an independent body, set
up and paid for by the advertising industry, to administer
the industrys system of self-regulation. The ASA works
closely with government, industry and consumer bodies to
set and maintain the highest standards in advertising.
10.1.1 Advantages of self-regulation

Self-regulation is internationally accepted as the ideal

system of regulating advertising, as it is faster and less
expensive than government legislation, more flexible and
ensures the speedy resolution of disputes. Self-regulation
also generates greater moral adherence than a law would
because codes and guidelines are voluntarily developed and
adopted by industry members. Such members agree to obey
not only the letter, but also the spirit of self-imposed rules
and to abide by the decisions of their peers.
10.1.2 The Code of Advertising Practice

ASA members support, and are obliged to adhere to, a code
of conduct. To keep abreast of socio-economic change, this
code is updated annually by a Code Revision Committee
appointed by the industry. While the code sets out the
advertising standards pertaining to a wide range of
industries, its basic principles may be summarised as
follows:
Stay within the law

Claim only what you can prove
Do not mislead
Do not disparage
Compete fairly
Act with responsibility
Do not offend
Do not steal
Do not exploit the vulnerable
Consider your neighbour.
10.1.3 Fair adjudication

The ASA directorate investigates complaints that the code
has been breached, giving both parties a fair and equal
opportunity to state their point of view before the ASA
adjudicates on the matter. Members of ASA committees are
elected by their industry bodies to serve on ASA committees
and to make decisions on behalf of the industry. They are,
therefore, elected on the basis of their knowledge,
experience and standing in the industry. If an advertiser fails
to co-operate with the ASA, all ASA media members
(including newspapers, magazines, television, radio, cinema
and members of the Printing Industries Federation) have
agreed, in the public interest, not to accept advertising that
contravenes the Code of Advertising Practice from the
advertiser in question. When an advertiser is found to be
negligent, wilful or a regular contravener of the code, a preclearance requirement (all new advertising must be
approved by ASA before it may be used) may be imposed on
the advertiser. A selection of complaints that the ASA has
had to deal with recently include:
Pick n Pay Hypermarkets claim of being always

cheaper (ruled in favour of Pick n Pay)
Chicken Licken using a character parodying rival KFCs
Colonel Saunders (discontinued voluntarily)
Duracell batterys claim of lasts up to six times longer
than ordinary zinc-carbon batteries (ruled in favour of
Duracell)
Artificial sweetener brand Canderel complaining that a
competitor, Selati, copied the packaging of its Sucralose
sweetener sticks (ruled in favour of Selati)
Both Parrots Restaurant and Steakhouse boasting the

best steaks in the East Rand (ruled against Parrotts)
Dis-Chems claim to be SAs favourite pharmacy (ruled
in favour of Dis-Chem as they submitted research
information to support the claim).
11. Legal factors

The legal system of a country can exert a profound influence
on how business in general and marketing in particular are
conducted. Legislation affecting marketing activities can be
divided into three main categories:
Laws promoting competition such as the Competition

Act, which prohibits restrictive trading practices, such as
price collusion
Laws limiting competition such as the laws providing
Telkom and the Post Office (Postal Services Act [No 124
of 1998]) with legal protection against competition
Laws protecting consumer rights such as the Consumer
Protection Act (2011), the National Credit Act (No 34 of
2005) and the Usury Act (No 73 of 1968). Business needs
government regulation to protect innovators of new
technology, to promote the interests of society in
general, to protect one business from another and to
protect consumers. In turn, governments want business
to flourish, because trade generates taxes that are used to
support public efforts to educate our youth and defend
our shores, and so on. The private sector also serves as a
counterweight to government. The decentralisation of

power inherent in a private-enterprise system places
some restriction on a government so essential for the
survival of a democracy.
Every aspect of the marketing mix is subject to laws and
restrictions. It is the duty of marketing managers or their
legal experts to understand the implications of these laws
and conform to them because failure to comply with
regulations can have major consequences for a firm.
Sometimes just sensing trends and taking corrective action
before a government agency intervenes can help avoid legal
action against a firm.
However, the purpose should not simply be to keep the
marketing department out of trouble, but also to help it
implement creative new programmes to realise marketing
objectives. It is all too easy for a marketing manager or
sometimes a lawyer to say no to a marketing innovation that
in reality entails little risk. For example, an overly cautious
lawyer may hold up the launch of a desirable new product
by warning that the package design could prompt a
copyright infringement lawsuit. Therefore, it is important to
have a thorough understanding of the laws of the central
government, provincial governments and regulatory
agencies to regulate marketing-related issues.
Laws and regulations can be a threat or an opportunity to
different firms. One firm that benefits from legal protection
is Telkom. The Telecommunications Regulatory Authority
ruled, after complaints from Telkom, that all callback
operators that competed with Telkom in the international
market had to cease operations. Another example of the
effect of legislation is the opportunities that opened up for

firms selling cellphone car kits. Legislation that bans drivers
from using hand-held phones has doubled the sales of many
cellphone car-kit installers. Another firm that has exploited
a new law profitably is Mitsubishi. When the Receiver of
Revenue ruled that four-door, double-cab vehicles will no
longer be deemed to be used for business purposes
(meaning that businesspeople could no longer claim back
the 14 per cent VAT paid on them), sales of Mitsubishis twodoor double-cab brand, Clubcab, nicknamed a cab and a
half, soared.
11.1 Central government legislation
LO15
In South Africa marketers have recently had to deal with a

deluge of new legislation at both central and provincial
government level. The following sections provide
examples.49
11.1.1 Privacy and data protection

Some years ago, the South African Law Reform Commission
began to investigate the desirability of introducing privacy
and data-protection legislation. The commission
investigated all aspects related to the protection of the right
to privacy of a person in relation to the processing in any
way of his or her personal information by the state or
another person. The Protection of Personal Information Act
(POPI) provides for comprehensive regulation of all aspects
of the collection, use, disclosure, storage of and access to
personal information. The act prohibits any firm from using
information supplied by a customer for any purpose other

than for which it was supplied. The act thus provides a legal
framework for the use of consumers private information
and preventing the indiscriminant use of such information.
A specific target is the regulation of direct marketing
practices and preventing the undesirable practice of spam
marketing (unsolicited emails and sms messages).
One implication will be that a magazine publisher may
then not sell its subscribers list to, say, a marketing research
firm or direct marketing company. Such a law may be a
serious threat to firms using customer databases (such as
catalogue sellers) to conduct their business. Measures to
protect privacy may also be perceived as a cost to business
and an unjustified constraint on the right of a firm to
conduct its business affairs as it wishes. On the other hand,
greater protection for the privacy of customers may promote
electronic commerce because customers who do buy online
will perceive lower risk in transacting online and will feel
better protected.
Firms using better-targeted niche advertising rather than
mass advertising will, however, be affected by the law, as
would firms exchanging information about clients as
Nedbank, Wooltru, Didata and Old Mutual were at one stage
planning to do. The cellular telephone industry, which does
an automatic credit check on its clients every three months,
will also be affected by the new law.
The proponents of the expected law contend that its
purpose is to protect the privacy of consumers, whereas
firms that oppose the law argue that consumers who provide
confidential information should have the right to receive
information not necessarily related directly to that

transaction. In most other countries in the world where
similar legislation is in place, consumers have the right to
indicate whether or not their personal details can be passed
on to third parties or not.
11.1.2 The Consumer Protection Act

As the name suggests the purpose of the Consumer
Protection Act is to protect consumers by promoting a fair,
accessible and sustainable market for consumer products
and services and by specifying national norms and
standards relating to consumer protection. Failure to do so
may have serious consequences. After analysing more than
500 complaints received by the National Consumer
Commission cell phone firms and time-share firms are
being investigated for alleged abuse of consumer rights. The
act is based on eight principles: equality in the consumer
market; privacy; choice; disclosure and information; fair and
responsible marketing; fair and honest dealing; fear, just
and reasonable terms and conditions; fair value, good
quality and safety. It requires businesses to reconsider many
traditional business practices to ensure that all their
dealings with consumers are fair, reasonable and honest.
The act holds producers, importers, distributors and
retailers even if they werent negligent jointly and
severally liable for damages caused by unsafe products,
product failures, defects or hazards in goods or inadequate
instructions or warnings. The act will force many business
firms to review their business models, strategies and service
delivery methods in order to satisfy the requirements of the
act.
WEBSITE
You can read more about the Consumer
Protection Act on
http://www.acts.co.za/consumerprotection-act-2008/
11.1.3 The Tobacco Products Control Act

The Tobacco Products Control Act controls, among other
things, the advertising of tobacco products; the use of
tobacco trademarks, logos, brand names or company names
when promoting, for example, sporting, cultural or
educational events; the sampling of tobacco products;
accessibility to cigarette vending machines; the placement
of a cigarette name or trademark on anything other than a
cigarette package; and the placing of any other information
on tobacco packaging except for health warnings,
trademarks and trade names. Due to these restrictions
tobacco firms have had to find alternative ways to market
their products. The Tobacco Products Control Act was
introduced in South Africa in 1993, after smoking was rated
the second highest health concern, after HIV/AIDS. This act
has been amended several times during the past decade and
today South Africa has some of the strictest tobacco control
measures ever adopted by the government of a developing
country. It is estimated that cigarette consumption has fallen
dramatically since the early 1990s while the percentage of
adult smokers in the country has dropped from 32 to 26,5
percent. 50
11.1.4 The Competition Act

The Competition Act prohibits any agreement that may
reduce competition in an industry, including agreements to
fix prices, production quotas, or to restrict investment,
innovation, or divide markets by allocating customers,
suppliers or territories. It also prohibits collusive tendering
and vertical relationships in the same distribution channel
(for example a producer owning both a wholesaler and a
retailer). Several firms in South Africa, including fishing firm
Oceana (who had to pay a R35m fine) and construction
firms such as Murray and Roberts have fallen foul of this
law. An example of ensuring competition is when the
Competition Commission blocked Pick n Pays attempt to
buy the Fruit and Veg City retail chain because the
transaction would limit competition in the market.
WEBSITE
You can read more about the Competition
Act on
http://www.acts.co.za/competition-act1998/
11.1.5 The Electronic Communications and Transactions Act

The Electronic Communications and Transactions Act
regulates online trading and stipulates, among other things,
that:
Consumers must have the opportunity to withdraw from

an online transaction at any time before placing a final
order
The seller must accept responsibility for the protection of
buyers confidential information

The buyer is entitled to cancel any online transaction
without reason within seven days of receipt of the goods
(certain product categories are exempt)
Consumers have the right to request not to be included
on the firms mailing list.
WEBSITE
You can read more about the Electronic
Communications and Transactions Act on
http://www.acts.co.za/electroniccommunications-and-transactions-act2002
11.1.6 The National Credit Act

The National Credit Act regulates the credit market in South
Africa by introducing the concepts of over-indebtedness and
preventing the reckless granting of credit. Overindebtedness is a situation where a consumer is unable to
meet all of his or her obligations in respect of credit
agreements entered into in a timely manner. If a court
determines that a consumer is over-indebted, it may extend
the period of the credit agreement, reduce payments,
postpone payments, or re-calculate the consumers
obligations. In other words, a debt rearrangement can be
sanctioned by the court. The National Credit Act ensures
that consumers are not drawn into applying for and agreeing
to the provision of credit when they will not be in a position
to service that credit line in the future. If credit is granted on
a reckless basis, the court may suspend the credit agreement
or set aside all or part of the consumers obligations in terms
of such credit agreement. The financial means, prospects

and obligations test will be applied when assessing
individuals for credit. This test will encompass an
assessment of the consumers income and right to receive
such income, the regularity of such income and the financial
means of any adult person within that consumers
household (such as that persons spouse). The ultimate
objective of this act is the protection of the indigent, illiterate
consumer and to protect consumers who do not understand
the terms of credit agreements. The act requires credit
agreements to be set out in plain and understandable
language and if requested, credit providers have to provide
information (both written and oral) to consumers in the
preferred language of the consumer.51 From a marketing
perspective, the National Credit Act will limit and constrain
the amount of credit granted by banks and retailers (such as
furniture and clothing retailers), which will dampen
demand and, therefore, sales.
WEBSITE
You can read the National Credit Act on
http://www.acts.co.za/national-creditact-2005
11.2 Provincial government legislation

In South Africa, a provincial legislature is the legislative
branch of the government of a province, as provided for in
the Constitution of South Africa. The legislature is
empowered to pass legislation within its functional areas, as
well as a constitution for the province should it wish to do
so.52 Provincial governments also pass their own laws that

have an impact on firms. Gauteng, for instance, has
consumer courts that allow consumers whose consumer
rights have been violated access to legal recourse.
11.3 International agreements
LO16
International business and trading agreements that the

government has entered into can also influence a firms
marketing initiatives. South Africa is a signatory to several
international trade agreements. Three of the most
prominent ones are worthy of further consideration.
11.3.1 World Trade Organisation (General Agreement on

Trade and Tariffs)
South Africa is a signatory to GATT (General Agreement on
Trade and Tariffs), a worldwide agreement aimed at
increasing free trade among member countries by limiting
the role of trade barriers, such as import duties, subsidies
and tariff protection. The responsibility for managing the
implementation of the agreement now rests with the World
Trade Organisation (WTO). In other words, although there is
sometimes confusion, the essence of GATT still exists under
the umbrella of the WTO, albeit under another name.
Membership of the WTO means that South African firms can
no longer be protected by the government by means of trade
barriers, and existing trade barriers must be phased out. One
casualty of the agreement is the General Export Incentive
Scheme, which has subsidised South African exports to the
tune of R10 billion since 1990.
11.3.2 Southern African Customs Union

South Africa is also a member of the Southern African
Customs Union (SACU), whose objective is also to promote
free trade between the member countries, South Africa,
Botswana, Lesotho, Namibia and Swaziland.
EXAMPLE >> Several firms have recently felt the uncomfortable heat
of foreign competition as a result of reduced protection flowing from the freetrade agreements. Kelvinator tried to persuade the Board of Tariffs and Trade to
apply tariffs to cheap imports of white goods (stoves, fridges, etc.) from
Fridgemaster in Swaziland.53 The standard argument is that cheap imports
destroy the South African manufacturing base and, therefore, jobs. The counterargument is that South African consumers should have access to the cheapest
products possible and that consumers cannot be expected to subsidise
inefficient firms and poor labour productivity. Dairy producers have also
expressed concern about possible cuts in import tariffs on dairy products, as this
will lead to an increase in imports from countries such as New Zealand and
Australia. Dairy farmers complain that the competition caused by imports put the
profit margins of dairy producers under pressure because they cannot get price
increases to match production costs.54 Potato SA, the organisation looking after
the interests of the potato industry (including farmers, wholesalers and exporters)
recently complained about the import of cheap processed potatoes from France.
11.3.3 Southern African Development Community55

South Africa is part of the Southern African Development
Community (SADC) agreement that was established in 1992.
The SADCs purpose is to turn this economic bloc into the
African economic engine by creating a common market and
eliminating trade barriers. It has 14 members at present. In

the past, the GDP of the SADC countries often grew at a
faster rate than that of the rest of Africa. About threequarters of South Africas trade is with SADC countries.
SADC membership implies free trade and, therefore,
stronger competition, but also more exporting opportunities
for South African firms.
11.4 The marketing implications of legislation

Government interference in business through legislation
will always raise the cost of doing business and will
inevitably increase prices to consumers. The cost of
business compliance with the new Consumer Protection Act
is estimated to be R1 billion and for compliance with the
new Companies Act R3 billion. To comply with the
Consumer Protection Act Vodacom points out that it will
have to re-train all frontline staff, revise contract terms and
conditions and re-engineer some of its business processes.56
Telkom executives recently told Parliament that
compliance with a host of new laws would add considerably
to the cost of doing business, which would directly
contribute to inflation, as consumers would have to pay for
them.57 Legislation and laws can obviously hamper
business activities and marketing initiatives.
The departing chairman of Woolworths recently said the
following about the impact that laws and regulation have on
business: The over-emphasis on corporate governance is
killing business activity in South Africa. Too much focus and
time had to be devoted to complying with corporate
governance rules and regulations instead of creating lasting

relationships with customers and ensuring that they are
supplied with the right products.58 The previous CEO of
1Time airline recently said that the governments red tape
and taxes are largely to blame for the airlines financial
woes.59
READER 11 >> Obeying new laws will add to costs, says

Telkom
Compliance with a host of new laws would add considerably to the cost of
doing business, which would indirectly contribute to inflation, as consumers
would have to pay for them, Telkom executives have warned. The executives
briefed Parliaments communications committee yesterday on the groups
annual report, business conditions and future plans. The committee heard
that the groups capital expenditure in future would be driven more by
regulatory requirements than by business imperatives. Group executive for
regulatory and government relations, Victor Moche, cited the Regulation of
Interception of Communications and Provision of Communication-Related
Information Bill, Promotion of Access to Information Act, State Information
Technology Agency (SITA) Amendment Bill, the Electronic and Communication
Transactions Act and Electronic Communications Security Bill as laws that
would create substantial additional costs. These higher costs would make it
hard for Telkom to be profitable in the long term, and would contribute to
higher consumer costs and, ultimately, inflation. The interception legislation
would oblige Telkom to collect an enormous amount of consumer information
and create a huge administrative burden for the corporation.
The Promotion of Access to Information Act would also require the
establishment of special units and the keeping of information, while the SITA
legislation would create a monopoly and contribute to inefficiency in the
economy.
Moche also said the verification procedures required by the Electronic and
Communication Transactions Act and Electronic Communications Security Bill
would dampen business growth.
SOURCE: Adapted from Ensor, L. 2002. Obeying new laws will add to costs,
says Telkom. Business Day electronic edition, 23 October 2002
12. Competitive factors
LO17
The competitive environment encompasses the number of

competitors a firm must face, their relative size and their
degree of interdependence within the industry.
Management has little control over the competitive
environment confronting a firm. Yet the marketing mix,
particularly pricing, depends on the type and extent of
competition.
After years of relative isolation from international
competitors, South African marketers have been forced to
adapt to escalating levels of foreign competition lately. In
some cases, competitive considerations (or the lack thereof)
can present an opportunity. The number of courier firms
that have sprung up and prospered in recent years has been
made possible by the Post Offices inability to satisfy the
needs of consumers.
The competitive environment is indeed challenging. The
firms organisational culture and its perceptions of possible
risks and returns will, to a large extent, determine how
occurrences, trends and potential opportunities and threats
are handled. Micro-lenders (sometimes cruelly referred to
as loan sharks) spotted an opportunity in the financial

services market that the large established banks were not
interested in. Sometimes new competition emerges from
unexpected sources. Technology companies such as Google
(PayPal) and Apple are developing payment solutions that
will be a serious threat to conventional banks. Similarly,
Vodacom has applied for a financial services license and
already holds a short- and long term insurance license
allowing it to sell, amongst other things, funeral cover. Some
firms (such as large commercial banks) are often
conservative and will avoid what they regard as
unacceptable risks or developments they may not be
familiar with. Other firms such as Capitec Bank and Rand
Merchant Bank are more innovative and entrepreneurial
and will pursue opportunities others may prefer to stay clear
of. Capitecs unsecured lending business is an example. This
culture will also influence perceptions of the likely risks and
returns (profitability) of a new venture.
13. Physical forces
LO17
Physical forces are becoming an increasingly relevant issue

in the marketing environment. A generation ago, physical
forces would not have merited much consideration by
marketing managers. However, awareness by consumers
and regulatory authorities of the impact of human activities
on the natural environment has made the physical
environment an important macro-environmental force that
impacts on marketing decisions. In South Africa, the
physical forces that are relevant for marketing managers are

climate change, pollution, scarce resources, recycling and
non-wasteful packaging, and the use of environmentallyfriendly ingredients.60
13.1 Climate change

The impact of climate change on our physical environment
is possibly the greatest challenge facing the world this
century. Many argue that the depletion of the ozone layer by
such human activities as burning fossil fuels and the slashand-burn approach to harvesting timber from rainforests
(particularly in the developing world) has had a profound
negative impact on our climate. There have been numerous
attempts to regulate the activities of nations (and
businesses) in order to limit the impact of industrial activity
on the climate. A start to achieving global consensus on this
controversial topic was reached in 1997 in Kyoto, Japan. The
objective of the Kyoto Protocol is to articulate a strategy to
stabilise the emission of greenhouse gases to prevent the
hazardous interference with the climate system. The Kyoto
Protocol was adopted by South Africa in 2002. A
controversial issue, however, is how to reach a balance
between development and climate goals. Developed and
developing nations have different priorities and,
accordingly, opposing viewpoints as to what would
constitute a fair compromise, as there will obviously be costs
involved in implementing any agreement.
Although South Africa, because it is a developing country,
does not have to reduce its omissions under the Kyoto
Protocol, the country has set itself voluntary targets, which

will hopefully see emissions peaking between 2020 and 2025
and then decline. This target is important because climate
change has the potential to have a serious negative impact
on South Africas economy. For example, tourism
contributes as much as ten per cent to the South African
GDP and 36 per cent of tourists to South Africa cite the
countrys natural resources (such as wildlife) as the primary
reason for visiting the country. Climate change may result in
a loss of habitats and biodiversity due to changes in
temperature and humidity, and an increased malaria risk,
resulting in a decrease in tourism-generated revenue.61
13.2 Pollution
Pollution can be described as the unwelcome concentration
of harmful substances detrimental to the environment.
Pollution can take the form of carbon emissions from
factories or combustion engines, chemicals, sewerage and
even an excessive concentration of fertilisers. More than 200
000 tons of tyres become waste every year and only 5 per
cent are recycled. All 11 million tyres are dumped illegally or
burnt to salvage the wire inside. The governments
Recycling and Economic Development Plan is trying to
address this situation.62
Although pressure from government and consumer
groups can compel industries and local authorities to reduce
pollution, in some cases there are positive financial benefits
associated with a pollution-free environment. For example,
Gonubie Beach near East London has been awarded Blue
Flag status, an internationally recognised symbol which is

awarded to beaches that are clean and meet international
environmental standards. This award means that tourists
are assured of certain physical environmental standards
when visiting the beach, which results in an increased
number of visitors to the area and, consequently, increased
revenue for local businesses.
13.3 Scarce resources

We have always lived in a world of finite resources
although we may not always have appreciated this reality.
For example, in the past, manufacturers (and consumers)
were not too concerned about exhausting the worlds
natural resources and hence the expression there are plenty
more fish in the sea. This generations-old adage has proved
to be false, and we have found that, unless properly
managed, fish stocks can be depleted to the extent that
certain species of fish are now in danger of extinction.
Fortunately, fish stocks, if properly managed, like wood,
paper and leather, and harvested at a rate less than or equal
to their natural replenishment, are a renewable resource.
One of the biggest technological challenges in the world
today is finding sources of renewable energy to replace the
current reliance on oil and coal for generating much of the
worlds electricity and powering its transport. Even if one
concedes that global warming may be part of a natural cycle
rather than a consequence of excessive carbon emissions,
these resources are finite. It follows that governments and
firms marketing energy need to find other sources of energy.
As a result, much of the effort of firms has turned to the

harvesting of what are known as perpetual resources, such
as the sun, tides, winds, sea currents and hydroelectricity.
These resources are in no danger of being exhausted and
will provide a sustainable and clean source of energy for
generations. As with any crises, there lies an opportunity
and it is estimated that as many as 1,2 million direct or
indirect jobs could be created in South Africa in the
renewable energy sector.63
Innovative firms, such as Nedbank, respond to these
concerns. The bank has designed the first branch, located in
Lansdowne Corner in Cape Town, which will be fully
powered by renewable energy sources.
13.4 Recycling and non-wasteful packaging

Although South Africa is behind the developed world in its
effort to implement recycling of materials and encourage the
use of environmentally-friendly packaging, it has recognised
this activity as an important national priority. To this end the
South African government introduced legislation to force
businesses to charge customers for the supply of plastic
shopping bags (and to make them more durable),
prompting a 90 per cent reduction in the use of plastic bags.
13.5 Environmentally-friendly ingredients

The trend towards using environmentally-friendly
ingredients as a component of, or in the manufacture of
products, is pervasive in all sectors of our economy. The
wine industry in South Africa is one that has embraced

environmentally-friendly practices. This is a systemic
approach and embraces all aspects of the winemanufacturing process, from cultivating grapes in the
vineyard to bottling the wine.64 Even something as
innocuous as the traditional disposable babys nappy can
have a profound impact on the environment. One baby,
using disposable nappies, can produce up to two tonnes of
solid waste during its lifetime, which can take up to 500
years to decompose. Consequently, manufacturers of
nappies are investigating the use of more environmentallyfriendly
(biodegradable)
components.
Similarly,
manufacturers of personal computers and allied products
are investigating ways to limit the use of non-recyclable
components and harmful substances in their products. In
this area, one proposal being considered is to use corn
starch rather than plastic in printers.65
To summarise: the environmental occurrences and
trends that may represent opportunities and threats to
business firms, and that determine and shape the long-term
well-being of these firms are found within the marketing
environment. Once identified, the marketer has to evaluate
them and then decide how to respond to them. These two
considerations are discussed in detail in Chapters 4 and 14.
The competitive environment is so important in marketing
that we devote an entire chapter to this topic (Chapter 4).
<<< LOOKING BACK

At first glance the new DStv service appears to be a
considerable threat to the traditional video store. However,

with only 3,49m SA subscribers to DStv in a population of
50,5m, the DStv market is small. In addition, the number of
films DStv has access to, are also limited. However, it is a
competitive threat all video stores will have to keep an eye
on in the future.
SUMMARY
1
The external environment of marketing and its impact

on a firm. The external marketing environment consists
of social, demographic, economic, technological,
political, legal and competitive factors. Marketers
generally cannot control the elements of the external
environment. Instead, they must understand how the
environment is changing and how change may impact
the firm and the target market. Then marketing
managers can create a marketing mix to effectively meet
the needs of target customers.
The nature of environmental scanning. Environmental
scanning ought to be an ongoing, rolling process. The
planning horizon is constantly adjusted over time. It
often emphasises the importance of environmental
trends for marketing decision-making. Environmental
scanning techniques may be of a qualitative or
quantitative nature. Studying current events, collecting
secondary data and analysing figures on economic
indicators are activities associated with environmental
scanning. Despite its speculative nature, the advantage
of environmental scanning is that it encourages
managers to think about the long term, to translate

vague feelings into clear strategic issues and to think
strategically about opportunities and threats in the
external environment.
3 The nature of opportunities and threats. An
opportunity can be described as an area of buyer need
that a firm can utilise profitably. A threat, on the other
hand, is a challenge posed by an unfavourable trend or
development that would lead, in the absence of
preventative or remedial action, to a deterioration in
sales and profitability.
4 The importance of identifying opportunities and
threats. Failure to identify and utilise new opportunities
can lead to stagnation and losing out to more alert
competitors. Failure to identify potential threats can lead
to the demise of the firm.
5 Examples of threats and opportunities to South
African firms. The following broad threats can be
identified:
A recession
The impact of HIV/Aids
Foreign competition
A prolonged drought.
The following broad opportunities can be identified:
An end to a recession
Economic growth of 8 per cent
Improved productivity
Lower interest rates.
6 The social factors that affect marketing. Within the
external environment, social factors are perhaps the
most difficult for marketers to anticipate. Several major
social trends are currently shaping marketing strategies.

First, people of all ages have a broader range of interests,
defying traditional consumer profiles. Second, changing
gender roles are bringing more women into the
workforce and increasing the number of men who shop.
Third, a greater number of dual-career families has led
to time poverty, creating a demand for time-saving
goods and services.
7 The demographic factors that affect marketing.
Demographic factors that impact on marketing are the
geographical distribution of the population, their age,
their levels of income and language usage.
8 The value of the Living Standards Measurement
(LSM). The South African Advertising Research
Foundation (SAARF) has developed a non-racial
measurement to describe the South African market. It
uses All Media Product Survey (AMPS) data to classify
people on the basis of their living standards. It measures
social class or living standards, regardless of race,
income or education. Instead of approaching social class
from the point of view of obvious demographic
differences, the LSM quantifies the ownership of certain
durable goods, access to services, and the like, to yield a
composite measure of social class. The attributes that are
included to define the LSM include measures such as
ownership of a fridge or freezer in the home, flush toilet,
the use of financial services, and the like. LSM group
membership correlates closely with variables such as
income, education and race, illustrating an upward
continuum from poor rural have-nots to educated and
predominantly white urban haves or affluents. There
are ten LSM groups, from group 10, with the highest
living standards to group one, with the lowest.
9 Relevance of the economic environment. The
economic environment is of particular importance to
marketers because all the variables in this environment
influence the spending power of consumers. Examples
include interest rates, inflation and recessionary
conditions.
10 Consumer and marketer reactions to the state of the
economy: inflation and recession. During a time of
inflation, marketers generally attempt to maintain
pricing levels in order to avoid losing customer brand
loyalty. During times of recession, many marketers
maintain or reduce prices to counteract the effects of
decreased demand; they also concentrate on increasing
production efficiency and improving customer service.
11 The impact of technology on a firm. Monitoring new
technology is essential to keeping up with competitors in
todays marketing environment. For example, in the
technologically advanced United States, many firms are
losing business to Japanese competitors, which are
prospering by concentrating their efforts on developing
marketable applications for the latest technological
innovations. In the United States, much research and
development expenditure goes into developing
refinements of existing products instead of fostering and
encouraging innovation. Without innovation, firms
cannot compete over the long term.
12 The impact of the Internet on marketing. The Internet
will have a particularly significant impact on consumer
markets and marketing practices in general. The Internet
provides access to almost limitless data and information

about the external environment. It also provides a means
of communicating with consumers while receiving quick
and reliable feedback from customers. The industries
most likely to be affected by the Internet are travel, retail
and banking.
13 The role of political factors. Political factors refer to the
variables determining the political situation in a country.
The marketer, like any business person, prefers a
situation of relative political stability in a country. Most
westernised democracies enjoy the benefits of prolonged
political stability, which makes it relatively easy to plan
and execute marketing strategies. Other countries often
find themselves in periods of political turmoil. In many
of these countries, the approach to elections contributes
to this undesirable situation. If governments change
regularly each introducing a new economic policy,
such as increased government involvement in the
economy, which the next government reverses again it
will contribute to political instability. In foreign markets
in particular, marketers tend to believe they have little
influence on the political environment, and refrain from
challenging the political dogma of the host country. By
ensuring that no major transgressions occur,
international firms avoid punitive legislation. Sometimes
legislation is passed in response to the pressure created
by consumers for example, in response to those who
have fallen foul of ethical business practice, such as
some pyramid schemes. Other consumers organise
formal structures to protect consumers rights.
14 Businesss attitude towards legislation. All marketing
activities are subject to regulation by central and

provincial government. Marketers are responsible for
remaining aware of and abiding by such regulations.
15 Identifying legislation and its likely impact. There are
several laws that will impact on marketing managers
decision-making in South Africa. Four examples are:
The Tobacco Products Control Act (No 83 of 1993),
which gives the Minister of Health the discretion to
impose stricter controls on tobacco use, including a
total ban on advertising and sponsorship by tobacco
firms
The overall aim of the Competition Act (No 89 of
1998) is to promote and maintain competition in
order to among other things promote the
efficiency, adaptability and development of the
economy; ensure that small and medium-sized firms
have an equitable opportunity to participate in the
economy; and to promote a greater spread of
ownership of the economy
The Electronic Communications and Transactions
Act (No 34 of 2005) regulates online trading
The National Credit Act (No 25 of 2002) will limit and
constrain the amount of credit granted by banks and
retailers (such as furniture retailers), which will
dampen demand and, therefore, sales.
16 The impact of formal trade agreements. The impact of
GATT (General Agreement on Trade and Tariffs) is that
there will be more foreign competition than in the past.
The Southern African Development Community (SADC)
agreement also encourages free trade among member
countries.
17 The relevance of the competitive environment.

Increasing international competition, rising costs and
shortages of resources have heightened domestic
competition. Yet, with an effective marketing mix, small
firms continue to be able to compete with the
international giants.

1
2
4
5
What is the purpose of environmental scanning? Provide

an example.
You have been asked to address a local Chamber of
Commerce on the subject of the banning of alcohol
advertising. Prepare an outline for your talk.
Periods of inflation require firms to alter their marketing
mix. A recent economic forecast expects inflation to be
almost ten per cent during the next 18 months. Your firm
manufactures hand tools for the home gardener. Write a
memo to the marketing director explaining how the firm
could alter its marketing mix.
How does the legal environment affect the marketing
environment for Peter Stuyvesant?
Fill in the LSM questionnaire at:
http://www.eighty20.co.za/databases/show_db.cgi?
db=fulllsmcalculator. Link your classification to your
monthly spending on non-essentials. Who are you a
target market for?
STRATEGY READER >> Retailers urged to shift to

innovative feel-good trading
Retailers can take advantage of the recession by offering value for money, and
bundling feel-good items that are still cost-effective. Gwen Morrison, CEO of
The Stores said last week that there had been a shift in the way consumers
shopped, with down-trading being evident and, in some cases, people opting
out of shopping. Morrison told businesspeople in Johannesburg last week that
travel by plane, for example, was being replaced by video conferencing. She
said companies needed to be innovative and creative in the economic
environment. Consumers faced a lack of credit, no spending power and some
products were starting to see deflation. Discount was king, and companies
that were trading on price and value were reaping the rewards. Morrison said
some people were spending only in the first ten days of the month.
As a result, retailers in countries where the credit crunch had hit hard were
being forced to rethink their strategies lessons South African companies
could learn. Consumers wanted to be able to cut costs without necessarily
having to cut back on their lifestyle, Morrison said. They wanted high value for
low price.
Morrison said, however, that cutting prices could affect the credibility of
the brand, and consumers might wonder whether the initial price point had
been set too high, even though sales might clear shelves. She said retailers
should look at a form of retail therapy that did not break the bank, but did
uplift spirits. For example, Morrison said, retailers in the United States were
starting to promote products that made consumers feel happier, and
indicated that retailers and suppliers were trying to show they were on the
side of the consumer.
SOURCE: Adapted from Mawson, M. 2009. Retailers urged to shift to innovative feel-good trading.
Business Day electronic edition, 20 April
QUESTIONS
1
2
Do you think that the proposed feel-good retailing strategy will be

effective? Justify your response.
Suggest alternative strategies.
KEY CONCEPTS
Baby boomers: people born between 1946 and 1964.
Competitive market: a large number of sellers marketing a standardised product
to a group of buyers who are well informed about the marketplace.
Demography: the study of peoples vital statistics, such as their location, age,
race and ethnicity.
Discretionary income (disposable income): money for purchases other than
necessities and taxes.
Environmental management: when a firm implements strategies that attempt
to shape the external environment within which it operates.
Generation X: consumers born between 1965 and 1976.
Generation Y: consumers born between 1977 and 1994.
Inflation: a general rise in prices without a corresponding increase in wages,
which results in decreased purchasing power among consumers.
Monopoly: an industry in which one firm controls the output and price of a
product for which there are no close substitutes.
Recession: a period of economic activity when income, production and
employment tend to fall all of which reduce demand for goods and services.
Target market: a defined group most likely to buy a firms product.
Time poverty: lack of time to do anything but work, commute to work, handle
pressing family situations, do housework, shop, sleep and eat.
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February 2004, p. 3.
CHAPTER
03
Understanding consumer
decision-making
LEARNING OUTCOMES
1 Explain why marketing managers should understand consumer

behaviour in general and decision-making in particular.
2 Analyse the components of the consumer decision-making
process.
3 Explain the consumers post-purchase evaluation process.
4 Suggest strategies to overcome post-purchase dissonance.
5 Identify the types of consumer buying decisions and discuss the
significance of consumer involvement.
6 Describe the factors that will determine the level of consumer
involvement.
7 Describe the marketing implications of consumer involvement.
8 Identify and describe the individual factors that affect consumer
buying decisions.
9 Critically evaluate the role of perception and processes of
perception in consumer behaviour.
10 Justify the study of motivation, learning, values and beliefs as
consumer behaviour variables.
11 Evaluate the process of changing beliefs and attitudes to
influence consumer buyer behaviour.
12 Discuss the role of personality, self-concept and lifestyle in

consumer behaviour.
13 Relate social factors to consumer buying behaviour.
14 Explain the relevance of cultural influences on consumer
behaviour, particularly in the South African market environment.
15 Expand on the significance of reference groups and opinion
leaders in understanding consumer behaviour.
16 Describe the role of family membership, the family life cycle and
social class in understanding consumer behaviour.
17 Describe the role that a purchase situation can play in buyer
behaviour.
18 Identify the steps in the adoption process.
above outcomes.
>>Marketing in practice
James goes shopping
James Bryant is a ten-year-old boy living in Pretoria. He
is a very enthusiastic tennis player. In fact, he is mad
about tennis. He thinks Rafael Nadal is the greatest
tennis player ever to walk this earth. He has posters of
Nadal on his bedroom walls and his autograph on a
shirt that a friend brought back from Wimbledon. He
recently told his dad that because he has grown so fast,
he needs a new tennis racquet. James is very excited
about this possibility because this will be his first fullsize racquet. He is not sure what brand of racquet
Nadal plays with, but he is determined to get the same
one as his hero. Ill ask one of the first-team players at
school tomorrow, he thinks.
Over the next few days he gets conflicting advice. He
learns that Nadal plays with a Wilson, but a tennis
magazine his uncle gave him suggests that Slazenger is
the best for non-professional players. He remembers
seeing an advertisement for a Kennex racquet in a
Sunday newspaper recently, but cant quite recall what
it said. He also phones his cousin, who is a provincial
player, for his opinion. His dad, who used to play with a
Head racquet, thinks that it is the best brand. James can
recall once having a hit with both a Head and a
Slazenger at a tennis tournament in Cape Town, but
remembers them being very heavy and not well
balanced.
That Saturday, just before James and his dad set off
to their local sports shop, he notices a Wilson
advertisement in the morning newspaper. James
studies the advertisement in detail. After much
agonising, he decides to settle on a Wilson. He could
not be prouder when he gets into the car with his new
racquet safely tucked under his arm. After trying it out
that afternoon he phones Chris, one of his friends, to
tell him of his new racquet.
I dont think you made the right choice, Chris says.
My Dunlop hits the ball a lot harder, and it has a larger
sweet spot than the Wilson.
That is not true, says James. I saw an

advertisement this morning that said the Wilson hits
the ball the hardest and that it is the best-quality
racquet on the market.
Lying in bed that night, James has a bit of a hollow
feeling in his stomach. I hope I did not make the wrong
choice, he thinks. It will be a long time before Ill be
able to afford a new tennis racquet again.
QUESTIONS
1
2
3
4
What made James aware that he needs a new racquet?

Which factors influenced Jamess choice of a racquet?
Which sources of information did he consult?
What can you say about Jamess feelings after the purchase?
1. Introduction
Having read the opening reader about James Bryant, you
may ask the question, why do we have to study consumer
behaviour? The answer is that to be able to implement the
marketing concept, we need to understand consumer needs
and wants. How consumers respond to a firms marketing
strategies is the ultimate test of its success. If consumers
respond favourably and buy its products in sufficient
quantities, then the firm has done a good job in formulating
a successful marketing strategy that appeals to the target
markets needs. Information about consumers, and in
particular how and why they make buying decisions, helps
marketers define the market they want to serve and identify
opportunities and threats.

The discussion of consumer behaviour in this chapter is
based on the premise that we are dealing with rational
buyers. Based on economic buyer theory, we assume that
buyers:
Within reason, know all the relevant facts

Logically compare alternative choices in terms of cost
and value
Do not have enough money to buy everything they want,
so they try to make their money stretch as far as possible
that is, they pursue maximum satisfaction at the lowest
cost.
2. The importance of understanding

consumer behavior
LO1
Consumers product and service preferences and buying

patterns are constantly changing. In order to address this
constant state of flux and create a proper marketing mix for a
well-defined market, marketing managers must have a
thorough knowledge and understanding of consumer
behaviour. Consumer behaviour describes how consumers
make purchase decisions and how they use and dispose of
the purchased goods or services. The study of consumer
behaviour also includes an analysis of factors that influence
purchase decisions and product usage. Research conducted
in South Africa has revealed that when small-business
owners buy electronic gadgets, such as cellphones and other

mobile devices, ease of use is the most important buying
criterion followed by dependability and product quality.
Price is only the fifth most important criterion.1 This is the
type of information marketing managers need to base their
decisions and marketing strategies on.
Understanding how consumers make purchase decisions
can help marketing managers in several ways. For example,
if the management of a motor vehicle manufacturer knows
that petrol consumption is the most important attribute for a
certain target market, they can redesign the product to meet
that need. If the firm cannot change the design in the short
run, it can use promotion in an effort to change consumers
decision-making criteria. For example, the manufacturer
may advertise the vehicles maintenance-free features or
sporty European style while downplaying petrol
consumption. In addition, consumers may differ in their
media preferences in terms of sourcing their information
before buying. For example, younger consumers prefer
electronic media sources such as the Internet to collect their
pre-purchase information while older consumers may
choose traditional sources such as magazines and
newspapers. In other words, marketers can change attitudes
and influence consumers buying decisions if they are
knowledgeable about consumer behaviour, and buying
behaviour in particular.
The purpose studying consumer behaviour by marketers
is therefore not only to understand consumer behavior but
also to predict consumer behaviour given a set of
circumstances and, finally, to influence consumers buying
behaviour. In this quest to understand consumer behaviour,

marketers rely heavily on the rich reservoir of literature
generated by the social sciences over many years. Years of
dedicated research by the worlds psychologists, sociologists
and industrial psychologists have equipped marketers with
an array of concepts, models and techniques to help study
and understand consumer behaviour.
READER 12 >> South African shopping behaviour

unique?
While South Africans are embracing online and mobile shopping, the in-store
experience is as important as ever. About 46 per cent of local shoppers,
according to a worldwide Accenture survey, still lean towards purchasing instore and carrying home 25 per cent are buying online or via mobile and
shipping home. This is the converse of global shoppers, 37 per cent of whom
prefer online over 28 per cent who favour in-store purchasing. This could be
because online shopping in South Africa is less developed than in other
countries delivery constraints, slow and expensive broadband and disparate
online and in-store offerings have been an e-commerce inhibitor in South
Africa.
Where local respondents are using online shopping, the primary reason is
convenience, which is aligned with the global response. However, South
African shoppers lean towards using online to check product availability before
wasting a trip to the store and to compare prices between retailers.
South African shoppers find purchasing via online and mobile more
difficult than other markets. Consequently, after stores close, most shoppers
will wait for the store to open the next morning to purchase from their retailer
rather than buy online at that retailers website, Accenture said. Also, South
Africans are more interested in using their mobile phone while shopping instore than the other markets wanting to gather loyalty points, receive real
time promotions and scan products while shopping.

SOURCE: Moorad, Z. 2014. In-store experience still trumps online buying in SA. Business Day Live, 11
July. Available from http://www.bdlive.co.za/business/retail/2014/07/11/in-store-experience-stilltrumps-online-buying-in-sa (Accessed 24 July 2014)
3. A model of consumer behavior

Buyer behaviour is influenced by three sets of variables:
Individual factors
Social factors
The prevailing purchase situation.
All three are external variables that influence the consumers

decision-making process (an internal process), which will
again determine whether or not a consumer buys a product,
as shown in Figure 3.1. Figure 3.1 forms the basis of our
discussion of consumer behaviour in this chapter.
Figure 3.1 A model of consumer behaviour
SOURCES: Adapted from Lamb, C.W., Hair, J.H. &

McDaniel, C. 1998. Marketing. International Thomson
Publishing, p. 160; Perreault, W.D. & McCarthy, E.J.
1996. Basic marketing. Chicago: Irwin, p. 216
Figure 3.2 The consumer decision-making process
We will follow a bottom-up approach in our study of

consumer behaviour by first considering the consumer
buying decision-making process (see Figure 3.2). The reason

why consumers (potential buyers really) go through this
process is that they want to satisfy a need or a want.
Figure 3.2, therefore, describes the buying process itself
(i.e. the steps a buyer typically goes through when buying
something). Figure 3.1, on the other hand, identifies the
external variables or factors that influence the buying
decision-making process that culminates in the decision to
buy or not to buy. First we will consider the buying process
itself and the associated steps in the process, as illustrated in
Figure 3.2.
4. The consumer decision-making

process
LO2
When buying products, consumers generally follow the

consumer decision-making process shown in Figure 3.2,
namely:
1
2
3
4
5
Problem recognition of an unfulfilled need

Information search
Evaluation of alternatives
Purchase
Post-purchase behaviour.
These five steps represent a general process which moves

the consumer from recognition of an unfulfilled need to the
evaluation of a purchase after the event. This process is a
guideline for studying how consumers make decisions.
It is important to note that this guideline does not assume

that consumers decisions will proceed in an inflexible order
through all of the steps of the process under all
circumstances. The consumer may end the process at any
time. In fact, the consumer may not even make a purchase.
Explanations as to why a consumers progression through
these steps may vary are offered in the section on the types
of consumer buying decisions. Before addressing this issue,
each step in the process (as depicted in Figure 3.2) will be
described in greater detail.
4.1 Problem recognition

The first stage in the consumer decision-making process is
problem recognition that is, realising that an unfulfilled
need exists. A swimmer has a cut on her finger and wants to
keep it dry and hygienic while swimming has a unfulfilled
need (see Elastoplast advertisement on page 86). Problem
recognition occurs when consumers are faced with a
discrepancy between an actual state (I do not have a car)
and a desired state (I want my own car). For example, do
you often feel thirsty after strenuous exercise? Has a
television commercial for a new sports car ever made you
wish you could own it? Problem recognition is triggered
when a consumer is exposed to either an internal or external
stimulus. Hunger and thirst are internal stimuli. The brand
name of a motor vehicle mentioned by a friend, the design
of a package, a television programme featuring the latest
model of a sports car, a new magazine shown to you by a
friend, an advertisement on the radio, or the scent of the
perfume worn by a stranger, for example, are all considered

to be external stimuli.
>> Strategy
A marketing managers objective is to get consumers to
recognise a discrepancy between their present state
and their preferred state. For example, marketers of
motor vehicles are now attempting to create consumer
demand for added features. Car manufacturers are
developing car seats with built-in stereo speakers;
under-seat storage space, electronic temperature
control and more comfortable seat belts.2 Marketers
want consumers to feel that they have to have these
features in their new vehicles. Volkswagen, for
instance, is advertising its new seat belts used in the
Jetta, which accommodate the female figure. The
advertisement says: Fuller breasts and bulky clothing
are the most common causes of seat belt slack, which
in an accident can cause severe backlash and extensive
bruising. This most typically occurs with ordinary
inertia-reel seat belts Volkswagen has replaced
these with a device called a pyrotechnic pre-tensioner
to solve the problem and is using advertising to make
potential female buyers aware of this unfulfilled need.
Marketers cannot create needs, such as hunger or thirst
but they can create consumer wants (e.g. a want for a
hamburger, a cooldrink or a house). A want exists when
someone has an unfulfilled need and has established that a
particular product or service will satisfy the need. Different

people have different wants. Young children might want
toys, ice cream and rugby balls. Teenagers may want
fashionable T-shirts, the right brand of sunglasses and a
smartphone.
A want can be for a specific product, for a certain
attribute or feature of a product or for a specific brand. For
instance, older consumers typically want goods and services
that offer convenience, comfort and security. Remotecontrol appliances, home deliveries, speakerphones and
motorised golf carts are all designed to satisfy the need for
comfort and convenience. Likewise, a transmitter that can
call an ambulance or the police if the person wearing it has
an emergency offers security for older consumers. Wants
can also be related to specific brands and that is the
ultimate objective of marketers. If a teenager wants a
Billabong T-shirt rather than any old T-shirt, a McDonalds
hamburger rather than a home-made hamburger, or a Coke
rather than a Fanta, the marketer knows that he has
succeeded.
Consumers recognise unfulfilled wants in various ways.
The two most common ways occur when a current product
is not performing properly or when the consumer is about to
run out of something that is generally kept on hand.
Consumers may also recognise unfulfilled wants if they hear
about or see a product whose features make it seem superior
to the one currently used. Wants are usually created by
advertising, salespeople or other promotional activities. For
example, a young teenager may develop a strong desire for a
new Billabong T-shirt after seeing it on display in a retail
store.
EXAMPLE >> Marketers selling their products in global markets must

carefully observe the needs and wants of consumers in various regions. General
Motors recently researched Japans new-car buyer market to determine what they
could do to make their Cavalier sedan more appealing to Japanese consumers.
What they discovered was that, to the Japanese car buyer, how a car looks inside
and outside is more important than how it drives. Since Japans typical small
homes cannot accommodate many material possessions, many Japanese regard

their cars as their primary status symbol.
Even for low-end models, Japanese expectations are incredibly high. The
exterior must be flawless, with narrow, perfectly uniform sheet-metal seams and
mirror-like paintwork. Cloth interiors rival the finest of living room furniture. Plush
pile carpeting is a basic requirement. Owing to Japans narrow streets, the
Japanese also prefer fold-up wing mirrors. In addition, self-regulating airconditioning systems, computerised compasses and top-notch stereos are often a
must for them.3
4.2 Information search

After recognising a discrepancy, need or want, consumers
search for information about the various alternatives
available to satisfy their wants. An information search may
occur internally, externally or both internally and externally.
An internal information search is the process of recalling
information stored in the consumers memory. This stored
information stems largely from previous experience with a
product. For instance, while shopping you encounter a
brand of cake mix that you tried some time ago. By
searching your memory, you can probably remember
whether it tasted good, pleased guests and was easy to
prepare.
By contrast, an external information search collects
information from the outside environment. There are two
basic types of external information sources: non-marketingcontrolled and marketing-controlled. A non-marketingcontrolled information source is not associated with
marketers promoting a product. A friend, for example, might
recommend a Dell personal computer because he or she

bought one and likes it. Non-marketing-controlled
information sources include personal experience (e.g. trying
or observing a new product, such as test-driving a car);
personal sources (family, friends, acquaintances and coworkers); public sources, such as advisers; magazine articles
(not advertising); consumer information provided by the
media (such as Matthew Lesters column in the Sunday
Times); product evaluations published in the media, such as
road reports of newly launched cars in Car Magazine;
product comparisons in columns such as Fair Ladys Test
House column; and industry experts (various publications
offer financial and investment advice in newspapers and
magazines). Blogs are other examples of non-marketing
controlled information.
In Table 3.1, Car Magazine compares three 4x2 vehicles
in terms of price, power torque, fuel consumption and other
criteria consumers may base a buying decision on a
wonderful source of independent (non-marketingcontrolled) information for prospective 4x2 buyers.
A marketing-controlled information source, on the other
hand, is by definition biased because it originates with
marketers promoting that product. Marketing-controlled
information sources include mass-media advertising (radio,
newspaper, television and magazine advertising), sales
promotions (contests, displays, premiums and so forth),
salespeople, product labels and packaging. Some
consumers are sceptical and wary about the information
they receive from marketing-controlled sources, arguing
that most marketing campaigns stress the attributes and the
benefits of the product but dont mention its limitations.

When buying a motor vehicle, Car Magazine (or its online
version, www.cartoday.com) would be regarded as a nonmarketing-controlled source of information, whereas a
Toyota advertisement or the Toyota website
(www.toyota.co.za) would be regarded as a marketingcontrolled source of information.
The extent to which individuals conduct an external
search depends on their perceived risk, knowledge, prior
experience and level of interest in the product or service.
Generally, as the perceived risk of the purchase increases, so
the consumer enlarges the scope of the search and
considers more alternative brands. For instance, assume
you want to buy a new car. The decision is a relatively risky
one, mainly because of the high cost, so you are motivated
to search for information about different models and
attributes, such as petrol consumption, durability and
passenger capacity. You may also decide to collect
information about more models because the trouble and
time expended in finding the information are minimal
compared with the cost of buying the wrong car. By contrast,
you are less likely to expend great effort in searching for the
right kind of bath soap. If you make the wrong selection, the
cost is minimal and you will have the opportunity to make
another selection in a short period of time.
A study of the effect of consumers level of perceived risk
in the search for information on computer mail-order
shopping found that those who perceive higher risk with a
purchase expend more effort in an external information
search and consult a greater number of different types of
information sources than those who perceive lower levels of

risk.4 Information searches, therefore, reduce risk.
A consumers knowledge about the product or service
will also affect the extent of an external information search.
If the consumer is knowledgeable and informed about a
potential purchase, he or she is less likely to need to search
for additional information. In addition, the more
knowledgeable the consumer, the more efficiently he or she
will conduct the search process, thereby requiring less time
to search.
Another closely-related factor that affects the extent of a
consumers external search is confidence in ones decisionmaking ability. A confident consumer not only has plenty of
stored information about the product, but also feels selfassured about making the right decision. People lacking this
confidence will continue an information search even when
they know a great deal about the product. Consumers with
prior experience in buying a certain product will perceive
less risk than inexperienced consumers. They will, therefore,
spend less time searching and limit the number of products
that they would consider buying.
A third factor influencing the external information search
is product experience. Consumers who have had a positive
previous experience with a product are more likely to limit
their search to only those items related to the positive
experience. For example, many consumers are loyal to
Honda cars, which enjoy low repair rates and high customer
satisfaction. For these consumers the information search
will be very short, if not completely unnecessary.
Finally, the extent of the search undertaken is positively
related to the amount of interest a consumer has in a

product. That is, a consumer who is more interested in a
product will spend more time searching for information and
alternatives. For example, suppose you are a dedicated
runner who reads jogging and fitness magazines and
catalogues. In searching for a new pair of running shoes, you
may enjoy reading about the new brands available and
spend more time and effort than other buyers in deciding on
the right shoe.
Table 3.1 Example of comparative information for consumers
SOURCE: http://www.car-specs.za.net

The marketspace
We have all heard about the value of the Internet for
business and the influence it has had on the behaviour
of consumers. But what is so special about the Internet?
Why has it had such a huge impact on the way we live
and go about our daily business? Commentators have

pointed out that the Internet changes business in three
fundamental ways. Firstly, the content of the
transaction is different: information about the physical
product replaces the products themselves. In other
words, if we want to find out information about a
second-hand car, we need not visit a number of
second-hand car dealers to find out information about
what cars are available, their condition and their price
because this information is readily available on our
home computer via the Internet. Secondly, the context
in which the transaction occurs is different: an
electronic, on-screen transaction replaces a face-toface transaction with the car salesman. Thirdly, the
infrastructure that enables the transaction to occur is
different: computers and communication lines replace
the shop floor or, in our example, the second-hand car
dealership.
No doubt you will immediately point out that mailorder companies (where one typically orders a product
from a printed catalogue or brochure) have been
following a similar business model for years. Indeed,
the value of a mail-order company and an online
shopping facility both add value by virtue of their
ability to separate information about a product from
the product itself. However, the Internet allows
information to be modified quickly and to be
distributed at a very low marginal cost, which makes it
relatively easy for a business to satisfy an almost
unlimited demand for information in real time. This
virtual marketplace has also been described as the
marketspace, and allows for lower costs, convenience

and a potential market that comprises every user of the
Internet.
SOURCES: Rayport, J.F. & Sviokla, J.J. 1995. Exploiting the virtual value
chain. Harvard Business Review 73(6), pp. 7585; Pitt, L., Berthon, P. &
Berthon, J-P. 1999. Changing channels. The impact of the Internet on
Distribution Channels. Business Horizons, MarchApril 1999, pp. 1928
The consumers information search should yield a group of

brands sometimes called the buyers evoked set (also
called a consideration set) that are the consumers
preferred alternatives and that will be seriously considered
before a purchase. From this set, the buyer will further
evaluate the alternatives and make a choice. Consumers do
not consider all the brands available in a product category,
but they do seriously consider a much smaller set. For
example, there are more than 1 500 types of motor vehicles
to choose from in South Africa, yet most potential buyers
seriously contemplate only two or three models when faced
with a purchase decision.
An information search tool of increasing importance to
many consumers is the Internet. Companies such as Toyota
(www.toyota.co.za) and Volkswagen (www.vw.co.za) offer a
wealth of information on their websites, such as product and
model information, where to find dealers, vehicle prices,
information on motor sports and even the option to
calculate monthly repayments.
Many firms that have established an online presence for
online buying particularly travel agents, airlines, hotels
and car dealers have found that most consumers are still
reluctant to buy online, but use their sites to collect prepurchase information.
WEBSITE
Visit the Car Magazine website at
www.carmag.co.za and see how it makes
information available for the potential
buyer of used motor vehicles (click on
Autocollector).
4.3 Evaluation of alternatives and purchase

After collecting information and compiling an evoked set
(those brands that the consumer seriously considers before
making a purchase) of alternative products, the consumer is
ready to make a decision. They will use the information
stored in their memories and obtained from outside sources
to develop a set of decision-making criteria. These criteria,
or standards, help the consumer evaluate and compare
alternatives. One way to begin narrowing the number of
choices in the evoked set is to pick an important product
attribute and then to exclude all products in the set that do
not have that attribute.
READER 13 >> The role of recommendation and review

sites in online consumer behaviour
One of the significant outcomes of the powerful consumer phenomenon is
the role of personal recommendation as part of the marketing process. Wordof-mouth is an important form of communication and the influence of
individuals comments has also become increasingly important online. Web
businesses have emerged that specialise in providing a platform for consumer

reviews for example, TripAdvisor (travel and tourism industry) and Amazon
have facilities for feedback and comments on products and customer service.
According to some research, 70 percent of Internet shoppers find the personal
ratings and reviews section on a retail website the most useful to them,
particularly when both positive and negative reviews of a product are shown.
Amazon has an interesting take on personal reviews, in that it encourages
other customers to say if they found particular reviews useful. The reviews that
are found to be most useful are found nearer the top of the list of reviews
(whether positive or negative).
TripAdvisor provides easy access worldwide to leading online travel
agencies including Expedia, Orbitz, Travelocity, hotels.com, Priceline,
Booking.com, and more. TripAdvisor branded sites make up the largest travel
community in the world, reaching nearly 260 million unique monthly visitors,
and more than 150 million reviews and opinions covering more than 4 million
accommodations, restaurants, and attractions. The sites operate in 41
countries worldwide, including South Africa. TripAdvisor, however, leads the
way in the use of personal customer reviews, with over 41,6 million users a
month and 40 million reviews on hotels, cities, airlines and even excursions.
Reviews by previous travellers have been found to influence future consumer
purchasing behaviour. TripAdvisor is growing at a rate of 21 new reviews per
minute, which can lead to information overload for wary travellers. The
implication for marketing managers is not only that they have to produce
excellent products that people want to buy, but they also must manage online
reviews, as poor reviews that people trust can have a significant impact on
consumer decision-making.
SOURCES: Adapted from http://www.kwikchex.com (Accessed June 2014); Cohrane.K. 2011. Why
TripAdvisor is getting a bad review. The Guardian, 25 January, p. 6. (Available from
www.theguardian.com (Accessed June 2014); TripAdvisor: Fact Sheet. Available from
http://www.tripadvisor.com/PressCenter-c4-Fact_Sheet.html (Accessed June 2014)
The objective of the marketing manager is to determine

which attributes are most important in influencing a

consumers choice. Several factors may collectively
influence a consumers evaluation of products. A single
attribute, such as price, may not adequately explain how
consumers form their evoked set.5 Moreover, attributes
thought to be important by the marketer may not be very
important to the consumer. For example, one study found
that motor vehicle warranty coverage was the least
important factor in a consumers purchase of a motor
vehicle.6 Another example to illustrate the above is a
cellphone buyer who searched for information on
smartphones and ends up with a decision between the
iPhone and Samsung S5 (the evoked set). The person
believes that buying an iPhone would result in a significant
cost saving and that both models are virtually identical on
other attributes (e.g. reliability, design and speed). Cost
savings are very important to this person and so are thus a
very good attribute to possess. The buyer, therefore, has a
more favourable attitude toward the iPhone.
The Internet has made evaluation very easy and
convenient for certain product categories. In addition to
detailed information about its own products, Hondas
website (www.honda.com) also provides its visitors with a
facility to do a detailed comparison with competing vehicle
models to help them make an informed decision when
buying a motor vehicle.
Following the evaluation of alternatives, the consumer
decides which product to buy or decides not to buy a
product at all. If he or she decides to make a purchase, the
next step in the process is an evaluation of the product after
the purchase.
WEBSITE
Visit the Vodacom website at
www.vodacom.co.za, and click on
cellphone under the shopping button to
compare different cellphone models on a
variety of different criteria. The same
comparison can also be done on tablets,
by click the tablet button instead of the
cellphone button.
>>Technology in action
Comparison websites
The evaluation of the different alternatives and the
decision to buy a product can often be a trying and
time-consuming (and perhaps confusing) process.
Most consumers have limited resources (money) and
are confronted with many choices. In this respect, the
Internet is a paradox. On the one hand, the web is a
source of almost limitless information and opinions
about products (which could confuse purchasers even
more), but on the other hand, the Internet offers a
solution to deal with the overwhelming amount of
information. It is known as comparison websites.
A comparison website is like a virtual salesperson
that asks the individual to enter details about their
needs, and then offers a number of solutions to allow
the shopper to make an informed decision. One such
website is www.Travelocity.com, which focuses on the
tourism sector and offers consumers choices about

products such as holiday packages, flights, hotels and
cruises. On the basis of the information provided
online, the website presents different options to the
consumer who can purchase the product online. A
similar service is offered by www.Pricecheck.co.za,
whose stated purpose is to find and compare products
from established online shops catering for Internet
purchases in South Africa The focus of
www.Pricecheck.co.za is fairly broad, incorporating
products as diverse as electronic items, wine, sporting
goods, used cars and properties.
Although comparison websites may be useful for
some products, there are doubts whether they can be
considered as a universal panacea for bargain hunters.
For example, they may be useful for comparing prices
on products such as electronic goods where the
specifications of the product are easily evaluated, but
their value is less certain when it comes to items such
as houses. It may be difficult to express many of the
intangible (and subjective) factors, such as the
condition of the neighbours property and proposed
new developments in the area, which may affect the
price of a property using this medium. Similarly, many
financial products, such as life insurance, car insurance
and endowments, are complicated, and it may
therefore be difficult to convey the key decision-making
criteria in a simplistic website.
4.4 Post-purchase behavior
LO3
When buying products, consumers expect certain outcomes

or benefits to accrue from the purchase. How well these
expectations are met determines whether the consumer is
satisfied or dissatisfied with the purchase. For example,
when Colleen bought a used car, she had somewhat low
expectations of its actual performance. To her surprise, the
car turns out to be one of the best she has ever owned. So
Colleens satisfaction is high because her fairly low
expectations were exceeded (see Figure 1.1 in Chapter 1).
On the other hand, Eleanor, who bought a brand-new car,
expects it to perform particularly well. If it turns out to be a
flop, she will be very dissatisfied because her high
expectations have not been met.
Price often creates high expectations. A buyer of a R1,3m
Toyota Lexus LS 460 will certainly have higher expectations
of his future driving experiences than a buyer of a R125 000
KIA Picanto. A subscriber who pays about R8 000 a year for
M-Nets DStv service will certainly have higher expectations
than one who pays the SABC R500 a year to use its TV
service.
4.4.1 Post-purchase dissonance
LO4
For the marketing manager, one important element of any

post-purchase evaluation is lingering doubts whether the
purchase decision was sound. When people recognise
inconsistency between their values or opinions and their
behaviour, they tend to feel an inner tension or anxiety
called cognitive dissonance (or post-purchase doubt).
For example, suppose a consumer spends half his

monthly salary on a new high-tech music system. If he stops
to think how much he has spent, he will probably feel
dissonance. Dissonance occurs because the person knows
the purchased product has some disadvantages as well as
advantages. In the case of the music system, the
disadvantage of the cost clashes with the advantage of
technological superiority. In other words, dissonance is
post-purchase uncertainty or anxiety.
Typically, consumers who experience this dissonance or
anxiety try to reduce this unpleasant feeling by justifying
their decision to themselves. They might seek new
information that reinforces positive ideas about the
purchase (confirming that it was the right decision), avoid
information that contradicts their decision or revoke the
original decision by returning the product to the retailer.
People who have just bought a new car often read more
advertisements of the car that they have just bought than for
other cars in order to reduce dissonance and reinforce the
correctness of the decision. In some instances, they
deliberately try to find contrary information in order to
refute it themselves and in this way reduce their dissonance.
Dissatisfied customers sometimes rely on word-of-mouth to
reduce cognitive dissonance by letting friends and family
know they are displeased with their own buying decision.
Marketing managers can help reduce dissonance using
effective communication with purchasers. For example, a
customer-service manager may slip a note inside the
package congratulating the buyer on making a wise
decision. Post-purchase letters sent by motor vehicle
manufacturers and dissonance-reducing statements in

instruction booklets may help new car buyers feel at ease
with their purchase.
Advertising that displays the products superiority over
competing brands and guarantees can also help relieve the
possible dissonance of someone who has already bought the
product. Nissan has an advertisement that says: Experience
the luxury and peace of mind of owning a Maxima and
knowing youve made the right decision. Some car dealers,
for example, offer refunds to new car buyers within three
days of their purchase if they decide they are dissatisfied.
EXAMPLE >> Another example is the winemaker Zonnebloems

advertisement, which says: Do you typically leave the bottle store with a good
wine or with sour grapes? When leaving a bottle store, people often wonder if
theyve just bought an average bottle of wine or spent too much money. Or both.
But if youre leaving with a Zonnebloem youre taking away over fifty years of
award-winning craftsmanship in every bottle.
In the South African life insurance industry, buyers of insurance policies have
a 21-day cooling-off period during which a buyer of an insurance policy can
cancel it without penalty. When buying a house, the cooling-off period is five
days. The chain store Game has a policy of refunding the difference if any buyer
can prove that they could have bought a product more cheaply elsewhere.
Similarly, Morkels calls itself the two-year guarantee store. All these are
strategies used by marketers to reduce post-purchase dissonance.
Good marketing means that the firm needs to monitor and

manage customers post-purchase behaviour by, amongst
others, monitoring social media sites such as Facebook and
Twitter and video-sharing sites such as YouTube, to identify
problems and by responding rapidly to complaints.
5. Types of consumer buying decisions and

LO5
consumer involvement
All consumer buying decisions generally fall along a
continuum of three broad categories: routine response
behaviour, limited decision-making and extensive decisionmaking (see Table 3.2). The placement of goods and services
in these three categories can best be described in terms of
five factors:
The level of consumer (or buyer) involvement

The length of time a buyer takes to make a decision
The cost of the product or service
The degree of information search the buyer does
The number of alternatives the buyer considers before
actually buying.
The level of consumer involvement is perhaps the most

significant determinant in classifying buying decisions.
Involvement is the amount of time and effort a buyer invests
in the search, evaluation and decision processes of
consumer behaviour.
Frequently purchased, low-cost goods and services are
generally associated with routine response behaviour. These
products and services can also be called low-involvement
products because consumers spend little time on
researching the decision before making the purchase.
Usually, buyers are familiar with several different brands in
the product category, but stick with one brand. Consumers
engaged in routine response behaviour do not normally
experience problem recognition until they are exposed to

advertising or see the product displayed in a shop they buy
first and evaluate later (the reverse is true for extensive
decision-making). A parent, for example, will not stand at
the breakfast cereal shelf in a supermarket for 20 minutes
thinking about which brand of breakfast cereal to buy for the
children. Instead, he or she will walk to the shelf, find the
familys usual brand, and put it into the trolley i.e. low
involvement. To illustrate, it has been found that grocery
buyers spend only about ten seconds on average in front of a
grocery shelf for a specific item before moving on.7
Products and services that are purchased regularly and
are not considered expensive are generally associated with
limited decision-making. These are also associated with low
levels of involvement (although higher than routine
decisions), because consumers do expend moderate effort
in searching for information or in considering various
alternatives. Suppose the childrens usual brand of breakfast
cereal, Kelloggs Corn Flakes, is unavailable. With no cereal
at home, the parent now must select another brand. Before
making a final selection, he or she may pull from the shelf
several brands similar to Kelloggs Corn Flakes to compare
their nutritional value and calories and to decide whether
the children will like the new cereal.
Consumers engage in extensive decision-making when
buying an unfamiliar, expensive product or an infrequently
bought item. This process is the most complex type of
consumer buying decision and is associated with high
involvement on the part of the consumer. Extensive
decision-making closely resembles the model outlined in
Figure 3.1. These consumers want to make the right

decision, so they want to know as much as they can about
the product category and available brands. People usually
experience cognitive dissonance only when buying highinvolvement products because of the higher costs associated
with the purchase and the consequent higher risk.
Buyers involved in extensive decision-making use several
criteria for evaluating their options and spend much more
time collecting information. Buying a home, a car or an
overseas holiday, for example, calls for extensive decisionmaking.
The type of decision-making that consumers use to
purchase a product does not necessarily remain constant.
For instance, if a routinely purchased product no longer
satisfies their needs, consumers may engage in limited or
extensive decision-making to switch to another brand.
People who first use extensive decision-making may then
use limited or routine decision-making for future purchases.
For example, a new mother may at first extensively evaluate
several brands of disposable nappies before selecting one.
Provided she is satisfied, subsequent purchases of baby
nappies will then become routine decisions. Converting
potential buyers from using extensive decision-making to
routine decision-making for future purchases depends
heavily on how effective the branding of the product is. The
more effective the brand building the lower the risk for the
buyer and the more likely it becomes that repeat purchases
will take place. Branding thus simplifies the decisionmaking process as the potential buyer does not have to rethink their options every time a need arises.
5.1 Factors determining the level of

LO6
The level of involvement in the purchase depends on five

factors: previous experience, interest, perceived risk,
situation and social visibility.
Previous experience. When consumers have had

previous experience with a product or service, the level
of involvement typically decreases. After repeated
product trials, they learn to make quick choices. Because
they are familiar with the product and know whether it
will satisfy their needs, consumers become less involved
in the purchase over time. For example, people with
pollen allergies typically continue buying the sinus
medicine that has relieved their symptoms in the past.
Interest. Involvement is directly related to consumer
interests, such as motor vehicles, music, movies, bicycles
or electronics. Naturally, these areas of interest vary from
one individual to another. Although some people have
little interest in nursing homes, a person with elderly
parents in poor health may be highly interested. Those
who regard a motor vehicle as no more than a means of
getting from A to B will not be involved in a purchasing
decision for a vehicle to the same extent as those who
eat, sleep and live cars.
Perceived risk of negative consequences. As the
perceived risk in purchasing a product increases, so does
a consumers level of involvement. The types of risks that
concern consumers include financial risk, social risk and
psychological risk. First, financial risk is associated with

exposure to loss of wealth or purchasing power. Because
high risk is associated with high-priced purchases,
consumers tend to become extremely involved when
products are expensive. Therefore, price and
involvement are usually directly related: as price
increases, so does the level of involvement. For example,
someone who is thinking of buying a house will normally
spend a great deal of time and effort to find the right one.
Second, consumers take social risks when they buy
products that may affect other peoples social opinions
of them (examples include driving an old, run-down car
or wearing old-fashioned clothes). Third, buyers
undergo psychological risk if they feel that making the
wrong decision might cause some concern or anxiety.
For example, should a working parent employ a
babysitter or enrol the child in a day-care centre?
Therefore, the higher the perceived risk, the higher the
level of involvement in the purchasing decision.
Situation. The circumstances of a particular purchase
may temporarily transform a low-involvement decision
into a high-involvement one. High involvement occurs
when the consumer perceives risk in a specific situation.
For example, an individual might routinely buy lowpriced brands of liquor and wine. However, when the
boss is invited for dinner, the consumer might make a
high-involvement decision and buy a more prestigious
brand. The prevailing situation may, therefore,
necessitate higher (or lower) involvement in a
purchasing decision.
Social visibility. Involvement also increases as the social
visibility of a product increases. Products often on social

display include clothing (especially designer labels, such
as Pierre Cardin), jewellery, motor vehicles, and
furniture (e.g. a leather lounge suite). All these items
make a statement about the purchaser and, therefore,
carry a social risk. To avoid the social risk, consumers
become more involved in the purchasing decision.
Table 3.2 Continuum of consumer buying decisions
5.2 The marketing implications of consumer

LO7
involvement
The marketing strategy that a marketing manager uses will
depend on the level of involvement associated with the
product. For high-involvement product purchases,
marketing managers have several responsibilities. First,
communication with the target market should be extensive
and informative. A good advertisement gives consumers the
information they need for making the purchase decision as
well as specifying the benefits and unique advantages of
owning the product. For example, when ACDelco launched
the first truly maintenance-free car battery it clearly
highlighted the features that distinguish the product from
competing batteries. These include the fact that it never

needs water, and it has a heat-sealed cover, liquid gas
separators, recessed terminals, calcium expanded grids and
envelope separators to prevent shorting.
With low-involvement product purchases, consumers
may not recognise their wants until they are in a shop.
Therefore, in-store advertising is an important tool when
advertising low-involvement products. Marketing managers
have to focus on package design so that the product will be
eye-catching and easily recognised on the shelf. Examples of
products that take this approach are yoghurts and soft
drinks.
>> Strategy
In-store displays often stimulate the sales of lowinvolvement products. A good display can explain the
products purpose and encourage prompt recognition
of a want. Displays of health and beauty items in
supermarkets and department stores have been known
to increase sales many times above normal. Coupons,
cents-off deals and two-for-the-price-of-one offers
also effectively promote low-involvement items.
Linking a product to a higher-involvement issue is
another tactic that marketing managers can use to
increase the sales of a low-involvement product. For
example, many food products are no longer just
nutritious, but are also low in fat or cholesterol.
Although packaged food may normally be a lowinvolvement product, reference to health issues raises
the involvement level. Special K cereal takes advantage

of todays interest in health and low-fat foods by
advertising that its cereal contains no fat. Likewise, Rice
Krispies promotes the fact that its formula is low in
sugar, and Jungle Oats claims that it is an excellent
source of oat bran. Kelloggs raises the level of
consumer involvement when people buy breakfast
cereal by linking its hi-fibre brand to the prevention of
colon cancer.
As was pointed out earlier in our model of consumer
behaviour (Figure 3.1), buyer behaviour is influenced by
three sets of variables:
Individual factors
Social factors
The prevailing purchase situation.
The impact of each of these sets of variables on consumers

buying decisions is considered in the following sections.
6. Individual factors influencing consumer

LO8
buying decisions
The consumer decision-making process does not occur in a
vacuum. On the contrary, several individual and social
factors strongly influence the decision-making process.
These factors have an effect from the time a consumer
becomes aware of an unfulfilled need or is exposed to a

stimulus (such as an advertisement or another consumers
word-of-mouth) through to post-purchase behaviour. The
individual factors that affect consumer behaviour are
unique to each person. These factors include perception,
motivation, learning, values, beliefs, attitudes, personality
factors, self-concept and lifestyle.
6.1 Perception
The world is full of stimuli. A stimulus is any unit of input
affecting the five senses: sight, smell, taste, touch and
hearing. The process by which we select, organise and
interpret these stimuli into a meaningful and coherent
picture is called perception. It is a means of making sense of
the world around us and determines how we recognise that
we have a consumption problem (discrepancy).
People cannot perceive and internalise every stimulus in
their environment. Therefore, they use selective exposure to
decide which stimuli to take note of and which to ignore. A
typical consumer is exposed to more than 150 advertising
messages a day, but notices only between 11 and 20. The
familiarity of an object, contrast, movement, intensity (such
as increased sound volume or number of exposures) and
smell are cues that influence perception. Consumers use
these cues to identify and define products and brands. The
shape of a products packaging, such as Coca-Colas
signature contour bottle, for instance, can influence
consumers perception. Why? Because most consumers are
familiar with this shape following years of effective brand
building.
Colour is another cue and plays a key role in consumers
perceptions. An advertisement for a type of medicine
featuring a medical doctor in a black overall will influence
consumers perceptions. Marketers use colours creatively
and make sure they avoid others. Would you buy meat in a
green package? Would the green colouring of packaged
meat influence your perception of its freshness? The same
applies to smells. Chemists, Italian restaurants and bakeries
are examples of types of business that use smells to
influence consumers perceptions.
In a study that has illustrated the role of colour in
perception, university students were given three different
flavours of chocolate pudding that were, in reality, all
vanilla pudding with tasteless food colouring added to
varying degrees. The students rated the dark brown pudding
as having the best chocolate flavour and the two lighter
puddings as being creamier. Not one of the students
indicated that he or she had tasted a flavour of pudding
other than chocolate. Thus, colour proved to be a critical cue
for judging chocolate pudding despite the fact that the three
puddings were exactly the same in terms of taste.8
A similar study found that when wine drinkers are
presented with two glasses of wine from exactly the same
bottle of wine but are told that the wine in glass number one
is very expensive and the wine in glass number two is cheap
wine, they consistently report that the more expensive wine
tastes better. Therefore, the price of the wine influences
their perceptions.9
Another important aspect of perception that marketers
must keep in mind is that not all consumers perceive stimuli

in the same way. Toyota once had to withdraw an
advertisement featuring a pig in mud because of objections
from the Muslim community. Some perceived it as a
humorous advertisement. The Muslim community
perceived it as something totally different. Similarly CocaCola had to cut out a section of their Brrr TV advertisement
when Indian consumers in South Africa complaint about
stereotyping.
What is perceived by consumers may also depend on the
stimulus vividness or shock value. Graphic warnings of the
hazards associated with a products use are perceived more
readily and remembered more accurately than less vivid
warnings, or warnings that are written in text (such as those
found on cigarette packaging).
EXAMPLE >> The TV advertisements used by the Arrive Alive campaign

featuring a car accident scene with screaming, injured children lying on the road
is a good example of the use of vividness or shock value. Sexier advertisements
excel at attracting the attention of younger consumers. Brands like Calvin Klein
and Dolce & Gabbana perfume use sensuous ads to cut through the clutter of
competing ads and other stimuli to capture the attention of the target audience.
Similarly, Benetton ads use shock value to cut through the clutter by portraying
taboo social issues, such as racism and homosexuality.
Two other concepts closely related to selective exposure are
selective distortion and selective retention. Selective
distortion occurs when consumers change or distort
information that conflicts with their feelings or beliefs. For
example, suppose a consumer buys a motor vehicle such as
a Corsa. After the purchase, if the consumer receives new
information about a similar alternative brand, such as a

Ford Focus, he or she may distort the information to make it
more consistent with the prior view that the Corsa is better
than the Ford. In a similar vein, business travellers who fly
frequently may distort or discount information about airline
crashes because they have no choice they need to use air
travel regularly in their jobs. And people who smoke and
have no plans to stop smoking may distort information from
medical reports about the link between smoking and lung
cancer.
Selective retention is remembering only information that
supports existing personal feelings or beliefs. The consumer
forgets all information that may be inconsistent with those
prior feelings and beliefs. After reading a pamphlet that
contradicts ones political beliefs, for instance, a person may
forget many of the points outlined in it because the reader
wants to remember what he or she wants to remember.
Which stimuli will be perceived and internalised often
depends on the individual. People can be exposed to the
same stimuli under identical conditions but perceive them
very differently (see Reader 14 Different perceptions of
dance show quality, below). For example, two people
viewing a television commercial may have different
interpretations of the advertising message. One person may
be thoroughly engrossed by the message and become highly
motivated to buy the product. However, 30 seconds after the
advertisement ends, the second person may not be able to
recall the content of the message or even the product that
was advertised. For instance, can you remember which
firms sponsored the 2010 World Cup in South Africa? Some
will be able to identify them all others will not be able to

name one of them.
READER 14 >> Different perceptions of dance show

quality
Dance show of quality
From John Gerryts, Port Elizabeth
Bravo Opera House! On Saturday night, Port Elizabeth was treated to a dance
show of outstanding quality by ten dancers from the State Theatre Dance
Company. What an experience! Those who saw the international gem Dedale
at the Grahamstown Festival must have felt proud when realising that we have
the talent and flair to put on a similarly creative show, though on a smaller
scale. The excellent and accurate review by Ann Knight in the Herald on
Monday told the story to those who missed it. Well done, Olga Hafner and the
Opera House! We look forward to more to come.
Yes, but was it dancing?
From E. Moffat, Walmer, Port Elizabeth
I refer to the State Theatre Dance Companys performance at the Opera House
on Saturday night: Perhaps Ann Knight had been given inside information on
Sur les ailes de Sue, but to my family and [me] it was totally disjointed,
confusing and repetitive. And what was the story? The young people in the
company are very fit, athletic and agile, but their contortions, gyrations and
acrobatic feats to my mind are never dancing. The first part of the show,
Cicadas, was at least understandable, but again I could never describe it as
dancing. The ear-splitting music throughout the show was so untuneful and
mournful I was glad when it all came to an end. I do not think I was the only
one who had this view.
SOURCE: Letters to the Eastern Province Herald, 16 February 2000, p. 4
6.1.1 The marketing implications of perception
LO9
Marketers must recognise the influence of cues, or signals,

on consumers perceptions of products. They should first
identify the important attributes, such as price or quality,
that the targeted consumers want in a product and then
design signals (or cues) to communicate the existence of
these attributes to them. For example, consumers will pay
more for chocolate wrapped in expensive-looking foil
packages. However, shiny labels on wine bottles signify less
expensive wines while dull labels indicate more expensive
wines.
Using price as a cue to influence perceptions, the
American beer brewer Anheuser-Busch raised the price of
many of its less expensive beers to make its premier brand,
Budweiser, more attractive to consumers.10
South African Breweries market their premium brands,
such as Castle Lite, in green bottles.
Marketers often use product warranties as a signal to
consumers that the product is of a higher quality than
competing products. Consumers who perceive these
warranties as credible generally perceive the product to be
of higher quality.11 To convey the message that its tyres are
of a superior quality Firestone markets its Firehawk brand
by emphasising its guarantee under the slogan Whatever
the damage Whatever the cause. Its free Can you afford
to be without it?.
EXAMPLE >> Brand names also send signals to consumers and

influence their perceptions. The brand names of Close-Up toothpaste, Duracell
batteries and Frigidaire appliances, for example, identify important product
qualities. Brand names that incorporate numbers or letters, such as Mazda RX-7
or WD-40, invoke images of masculine, high-tech products.12 Consumers also
associate quality and reliability with certain brand names. Most firms watch their
brand identity closely, largely because a strong link has been established
between perceived brand value and consumer loyalty, especially when the brand
is cool.
Among young people in South Africa the coolest brands are:13
BMW
Coca-Cola
Nike
Samsung
Apple.
Naming a product after a place can also add perceived value

by association. Names such as Western Province Cellars and
Gautrain sometimes add credibility to a brand name. Tabac
after-shave lotion is marketed under the caption German
classic.
Marketing managers are also interested in the threshold
level of perception, which is the minimum difference in a

stimulus that the consumer will notice. This concept is
sometimes referred to as the just-noticeable difference. For
example, how much would Sony have to drop the price of a
DVD player before consumers recognised it as a bargain?
R100? R200? More? One study found that the just-noticeable
difference in a stimulus is about a 20 per cent change. For
example, consumers are significantly more likely to notice a
20 per cent price decrease in price than a 15 per cent
decrease. Mango airlines has increased the legroom on its
aeroplanes by 7,5 cm to improve passenger comfort. Will
passengers notice the difference? This marketing principle
can be applied to other marketing variables as well, such as
package size or the loudness of a broadcast advertisement.14
Besides changing stimuli such as price, package size, and
volume, marketers can change the product. For example,
how many sporty features will Volkswagen have to add to
the Polo before consumers begin to perceive the model as a
sports car? How many new services will a discount store
need to add before consumers perceive it as a full-service
department store?
Marketing managers who intend to do business in global
markets should be aware of how foreign consumers perceive
their products. For instance, in Japan, product labels are
often written in English or French even though they may not
translate into anything meaningful. Nevertheless, many
Japanese associate foreign words on product labels with the
exotic, and with expensive high-quality items.
When the worlds soccer governing body, FIFA, started
marketing tickets for the 2010 Soccer World Cup it was
frustrated by the slow tempo of sales. South Africans are not

used to buying sports tickets months in advance and prefer
to buy over the counter. They are not used to buying tickets
by completing forms or on the Internet. We have come to
accept that South Africa is very different from what we are
used to, FIFA marketing Director, Thierry Weil, said. FIFA,
therefore, had to change its sales strategy to incorporate
over-the-counter sales.15
Whatever the cue (brand, price, product feature) that
forms or influences a persons perception, it is important to
realise that a short-term perception, over time, decays into
a long-term attitude towards the object. Marketers must
carefully consider, therefore, the impact that all cues that are
open to interpretation may have on consumers perceptions
and eventually on their attitude towards the product or
brand. These cues can influence a consumers perceptions,
and those perceptions will determine an attitude. If that
attitude is negative, consumers are unlikely to buy the firms
products. South African winemakers, for instance, struggle
to overcome negative perceptions about Africa and South
Africa in the American market. Charles Back of the Fairview
estate says: The result is that winemakers have to put a
bottle of wine worth US$15 on the market for $10 to offset
those perceptions.16
6.2 Motivation
LO10
By studying motivation, marketers can analyse the major

forces that influence whether consumers buy or do not buy
products. When you buy a product, you usually do so to
satisfy some kind of need. These needs become motives

when aroused sufficiently. For instance, suppose this
morning you were so hungry before going to lectures that
you needed to eat something. In response to that need, you
stopped at a Wimpy for breakfast. In other words, you were
motivated by hunger to stop at the Wimpy. Motives are the
driving forces that cause a person to take action to satisfy
specific needs.
Why are people driven by particular needs at particular
times? One popular theory that addresses this question is
Maslows hierarchy of needs, illustrated in Figure 3.3, which
arranges needs in order of importance. These needs are
ranked in categories: physiological (the most basic needs),
safety, social, esteem, and self-actualisation (the highest
level needs). According to Maslow, as a person satisfies one
need, a higher-level need becomes more important.
Figure 3.3 Maslows hierarchy of needs
According to Maslows theory, the most basic human

needs are physiological that is, needs for food, water and
shelter. Because they are essential to survival, these needs
must be satisfied first. Advertisements showing a juicy

hamburger or a road runner gulping down Energade after a
marathon exemplify the use of appeals to satisfy
physiological needs. Many advertisements are based on a
sexual appeal, another example of a physiological need. An
example is Wonderbras Nights in black satin campaign,
featuring a pretty blonde woman wearing a black bra.
Safety needs include security and freedom from fear, pain
and discomfort. Marketers often exploit consumers fears
and anxieties about safety to sell their products. A few years
ago, Mercedes-Benz used an actual incident during which a
Mercedes-Benz owner survived a crash on Chapmans Peak
near Cape Town as the basis of a television advertising
campaign. The basic message was that the safety features
offered by the Mercedes-Benz ensured the survival of the
occupant a clear appeal to safety needs. Today a
Volkswagen Golf advertisement says: Its roadholding is
legendary. Llumar, a company that sells protective film to
be applied to windows, says Protect your loved ones .
EXAMPLE >> Consumer demand for products containing Vitamin E has

been soaring following several scientific studies that suggest the vitamin inhibits
agents that attack cells and cause deterioration. Marketers have promoted other
studies that conclude that Vitamin E may also help ward off degenerative
ailments, such as heart disease and cancer, and some symptoms of ageing.17
Another example of an advertisement using a security appeal is one used by
Police sunglasses. It proclaims: Get police protection. Total UV protection.
Maslow suggested that after physiological and safety needs
have been satisfied, social needs, especially love and a sense
of belonging, become the focus. Love includes acceptance
by ones peers and friendship, as well as romantic love.

Marketing managers probably appeal more to this need
than to any other. Advertisements for clothes, cosmetics and
holiday packages suggest that buying the product can bring
love. The need to belong is also a favourite appeal used by of
marketers.
Love is acceptance without regard to ones contribution.
Esteem is acceptance based on ones contribution to the
group. Self-esteem needs include self-respect and a sense of
accomplishment. Esteem needs also include prestige, fame
and recognition of ones accomplishments. Mont Blanc
pens, Mercedes-Benz cars and clothing boutiques all appeal
to esteem needs. Imperial Car Rental appeals to esteem
needs by offering a range of luxury cars to a very specific
segment. In an advertisement the firm says: Nobody goes
further to recognise your success. Status cars elevating you
to greater heights. Loral advertisements say Because
youre worth it.
According to Maslow, the highest human need is selfactualisation. This is reflected in the need for finding selffulfilment and self-expression, reaching the point in life at
which people are what they feel they should be, or the
feeling that one has achieved something. Fun, freedom and
relaxation are also needs that can be classified under selfactualisation. Many advertisements focus on this type of
need. For example, American Express advertisements
convey the message that acquiring its card is one of the
highest attainments in life. Barron, a company that sells
corporate gifts, says Ambitious? Successful? Look the part.
EXAMPLE >> Purity advertises its baby food with the slogan No
preservatives, which obviously appeals to a mothers safety needs. A social need

is probably the need Hallmark appeals to when it advertises its cards under the
slogan, When you care enough to send the very best. An example of an appeal to
esteem needs is Oude Molens 100 Reserve Brandy advertisement, Why settle for
less when you can have 100?, suggesting that someone of your status should not
be satisfied with anything less than the very best. Alfred Dunhill appeals to the
need for self-actualisation when it uses the slogan Luxury accessories [pens,
wristwatches, etc.] for the discerning gentleman.
6.3 Learning
LO10
Almost all consumer behaviour results from learning, which

is the process that creates changes in behaviour through
experience and practice. It is not possible to observe
learning directly, but we can infer from a persons action
that learning has taken place. For example, suppose you see
an advertisement for a new, improved medicine for colds. If
you go to a chemist that day and buy that remedy, we can
infer that you have learnt something about the cold
medicine.
There are two types of learning: experiential and
conceptual. Experiential learning occurs when an experience
changes your behaviour. For example, if you try the new
cold medicine when you get home and it does not relieve
your symptoms, you may not buy that brand again.
Experiential learning has led to this decision. Conceptual
learning, on the other hand, is not learned through direct
experience. Assume, for example, that you are standing in
front of a cooldrink vending machine and notice a new diet
cooldrink with an artificial sweetener. But someone has told

you that diet beverages using artificial sweeteners leave an
aftertaste, so you choose a different drink. You have learnt
that you would probably not like this new diet drink without
even trying it. This is an example of conceptual learning.
Reinforcement and repetition enhance learning.
Reinforcement can be positive or negative. If you see a shop
selling frozen yoghurt (stimulus), buy it (response) and find
the yoghurt to be quite refreshing (reward), your behaviour
has been positively reinforced. On the other hand, if you buy
a new flavour of yoghurt and it does not taste good (negative
reinforcement), you will not buy that flavour of yoghurt
again. Without positive or negative reinforcement, a person
will not be motivated to repeat the behaviour pattern or to
avoid it. Therefore, if a new brand (such as Virgin Cola)
evokes neutral feelings, some marketing activity such as a
price change or an increase in promotion may be required
to induce further consumption. Learning theory is helpful in
reminding marketers that concrete and timely actions are
what reinforce desired consumer behaviour.
Repetition is a key strategy in marketing communication
campaigns because it can lead to increased learning. South
African Airways uses repetitive advertising so consumers
will learn that SAA provides Africas warmest welcome.
Generally, to heighten learning, advertising messages
should be spread over time rather than concentrated in a
short period of time.
A related learning concept useful to marketing managers
is stimulus generalisation. In theory, stimulus generalisation
occurs when one response is extended to a second stimulus
similar to the first. Marketers often use a successful, wellknown brand name for a family of products because it gives
consumers familiarity with and knowledge about each
product in the family. Such brand-name families spur the
introduction of new products and facilitate the sale of
existing items.
EXAMPLE >> Examples of brand-name families are Colgate marketing

shampoos after the successful marketing of its Colgate soap, and Nashua adding
cellular phones to its range of office products using the same brand name. When
StaSoft added a new peach fragrance to its existing line of fabric softeners, it
used exactly the same shaped bottle and labelling used for all the other versions
in the product line. Why? Because StaSoft wanted potential buyers to associate
the new product with its existing brands (stimulus generalisation) and, therefore,
overcame the risk and consumer resistance typically associated with buying new,
unknown products.
Sometimes, however, marketers do not want new products
to be associated with any existing product or brand. They
prefer a clear differentiation not influenced by any existing
associations. This is referred to as stimulus discrimination,
the direct opposite of stimulus generalisation.
EXAMPLE >> When Coca-Cola introduced Powerade to compete with

Energade in the energy drink market, Powerade was never associated with the
Coca-Cola brand at all. It was not marketed as Coca-Cola Powerade just as
Powerade. The marketers of Powerade wanted the brand to stand alone and did
not want any consumer association with the Coca-Cola brand. This is an example
of stimulus discrimination.
Marketers, therefore, either use the learning process so that
consumers learn to associate certain things with their

products and brands or not to. These associations are ways
in which they differentiate their products or brands from
those of competitors. With some types of products, such as
aspirin, petrol, bleach and paper towels, marketers rely on
marketing communication to point out brand differences
that consumers would otherwise not recognise. This
process, called product differentiation, is sometimes based
on superficial differences. For example, Bayer tells
consumers that it is the aspirin doctors recommend most.
6.4 Values, beliefs and attitudes
LO10
Learning helps people shape their value systems. In turn,

values help shape a persons self-concept, personality and
even lifestyle. A value is an enduring belief that a specific
mode of conduct is personally or socially preferable to
another mode of conduct. Peoples value systems exert
considerable influence on their buyer behaviour.
Consumers with similar value systems tend to react alike to
marketing-related stimuli, such as advertisements, prices
and product packaging. Values are also related to
consumption patterns. In other words, what and where
people buy is influenced by their value systems. For
instance, people who want to protect the environment try to
buy only products that dont harm it, and some firms have
responded by marketing environmentally friendly products.
Values can also influence consumers TV viewing habits, the
magazines they read or the radio stations they listen to.
Many Christians in South Africa listen to radio stations
such as Radio Pulpit and Radio Kingfisher. Others who

strongly object to violence avoid shows on television that
depict a lot of crime. Likewise, people who object to public
displays of nudity do not buy Playboy magazine.
EXAMPLE >> Value systems can vary quite a bit across cultures and
subcultures. For example, leisure time is valued in South Africa. Consumers spend
a considerable amount of time and money on sports events, outdoor activities
such as mountain-biking, movies, restaurants, holidays and amusement parks.
South African workers traditionally expect eight-hour days, five-day work weeks
and holiday leave. Japanese workers, on the other hand, typically work 12-hour
days and often work on Saturdays as well. Only half of Japanese workers use all
their leave. One reason most Japanese do not take more time off is that they do
not want to burden their colleagues by leaving early or taking a holiday.
Traditional Japanese workers also feel that their work will suffer if they put effort
into other things. These Japanese values contrast sharply with the values of some
South Africans, who regard sick leave as a fringe benefit that ought to be fully
utilised.
The personal values of target consumers often have
important implications for marketing managers. Beliefs and
attitudes are closely linked to values. A belief is an organised
pattern of knowledge that an individual holds as true about
his or her world. A consumer may believe that Sonys video
camera makes the best home videos, tolerates heavy use
and is reasonably priced. These beliefs may be based on
own experience, faith or hearsay. Consumers tend to
develop a set of beliefs about a products attributes and
then, through these beliefs, form a brand image a set of
beliefs about a particular brand. In turn, the brand image
shapes consumers attitudes towards the product.
Attitudes tend to be more enduring and complex than

beliefs because they consist of clusters of interrelated
beliefs. An attitude is a learnt tendency to respond
consistently to a given object, such as a brand. Attitudes also
encompass an individuals value system, which represents
personal standards of good and bad, right and wrong, and so
forth. From a marketing perspective, the objective is to
cultivate a positive attitude towards a firm, product or
brand.
Consider the different attitudes of consumers around the
world towards the habit of purchasing on credit. Americans
have long been enthusiastic about charging goods and
services to a credit card and are willing to pay high interest
rates for the privilege of postponing payment. But to many
European consumers, doing what amounts to taking out a
loan even a small one to pay for anything seems absurd.
Germans especially are reluctant to buy on credit. Italy has a
sophisticated credit and banking system well suited to
handling credit cards, but Italians prefer to carry cash
often huge wads of it. Most Japanese consumers have credit
cards, but card purchases amount to less than 1 per cent of
all consumer transactions. The Japanese have long looked
down on credit purchases, but acquire cards to use while
travelling abroad.18
If a product or service is meeting its profit goals, positive
attitudes towards the product merely need to be reinforced.
However, if the brand is not succeeding, the marketing
manager must strive to change target consumers attitudes
towards it. This change can be accomplished in three ways:
changing beliefs about the brands attributes, changing the
relative importance of these beliefs and adding new beliefs.
6.4.1 Changing beliefs about attributes
LO11
The first technique is to turn neutral or negative beliefs

about product attributes into positive ones. For example,
pork was losing sales to chicken because consumers thought
pork was fatty and unhealthy. To counter this belief, pork
producers launched the Pork: the other white meat
campaign to reposition their product in the minds of
consumers. The campaign tells consumers that pork is
leaner, lower in calories, and lower in saturated fat than they
think. It took wine makers a long time to convince wine
lovers that screw caps are better at preserving wine than
cork. It will probably take just as long to convince them that
wine in marketed polyethylene terephthalate (or PET)
bottles similar to those soft drinks are sold in, will not affect
the quality or taste of wine.
EXAMPLE >> When South African red meat faced negative attitudes,
the South African Feedlot Association launched the Beef it up campaign to
convince consumers of the hygiene and wholesomeness of South African beef.
Likewise, in America, BMW is continuing its efforts to reposition itself as a safe,
affordable vehicle for the entire family and to steer away from its image as a
yuppie statement. Its new television advertising concentrates on safety features,
such as traction control; its print advertisements show children for the first time.
BMW also hopes the campaign will convince consumers that the cars are not as
expensive as they might think.19
The South African Sugar Association launched an advertising campaign to try
and change the belief that sugar is fattening. In the campaign they pointed out
that:
Sugar is a natural carbohydrate

The sugar consumed by the average South African only contributes about 60
calories to his/her diet
A tomato sandwich contains 240 calories and a teaspoon of sugar contains
15 calories
A human body will burn away 15 calories during 15 minutes of sleep.
When margarine was first marketed in South Africa,

marketers had a tough time convincing consumers that
margarine was healthier than butter and not a cheap
substitute for those who could not afford butter.
6.4.2 Changing the importance of beliefs

The second approach to modifying attitudes is to change the
relative importance of beliefs about an attribute. For years,
consumers have known that bran cereals are high in natural
fibre. The primary belief associated with this attribute is that
the fibre tends to act as a mild, natural laxative. Today,
however, cereal marketers promote the high fibre content of
bran cereals as a possible factor in preventing certain types
of cancer, vastly increasing the importance of this attribute
in the minds of consumers.
>> Strategy
General Electric (GE) has tried to change Japanese
consumers beliefs about the attributes that are most
important to them in a refrigerator. Japanese
manufacturers believe that Japanese consumers prefer
stylish and feature-studded appliances that domestic
makers sell in small sizes. A typical Japanese-made

refrigerator is a nine-cubic-foot $1 300 model with
three doors and a compartment for raw fish. Larger
Japanese models have six doors and sell for around $3
200. GE discovered, however, that many Japanese
would gladly trade these characteristics for larger,
simpler and cheaper models. Since more Japanese
women work after marriage and cannot shop for food
on a daily basis as their mothers did, big, inexpensive,
two-door refrigerators suddenly make sense. As a
result, GE quickly increased sales in the Japanese
market with its modest $800 model.20
Research done by the marketers of the cordial drink
Oros to understand their declining sales revealed that
many mothers were concerned about the quality of
some concentrated beverages. Product quality is
important to them and Oross image and positioning as
fun for the kids and affordability were not enough.
Pure fruit juices were viewed as being good quality and
recognised for their goodness. To stop the slide in
sales, the marketers of Oros believed it needed to
reassure mothers about its quality, while retaining and
enhancing childrens enjoyment of Oros. The
marketers decided to embark on an advertising
campaign to change the importance of mothers
beliefs. The campaign objectives were to reassure
mothers about Oross goodness and quality, so they
would feel they were doing the right thing when buying
Oros for their children.21
Whirlpool has tried to change European consumers
beliefs about the attributes that are most important to

them in a washing machine. European manufacturers
believe that European consumers prefer washing
machines that are narrow and load from the top owing
to the limited space available in most European homes.
Whirlpools research, however, indicates that
Europeans prefer machines with superior overall
performance a reliable machine that cleans well, is
easy to use and economises on water, detergent and
energy. Whirlpool contends that if all these criteria are
met, other features such as where the machine opens
and how big it is become less important to
consumers. Whirlpool used this information to change
its marketing strategies in Europe.
6.4.3 Adding new beliefs

The third approach to transforming attitudes is to add new
beliefs. Although changes in consumption patterns often
come slowly, the marketers of rooibos tea are trying to
convince consumers that rooibos is more than just an
everyday beverage. They want to convince consumers that
rooibos tea also has some medicinal properties including
its curative effect for colicky babies, insomnia and allergies
and that it can be used as a flavouring ingredient in baking
and cooking.22 Similarly, some breakfast cereal producers
promote eating the cereal straight from the box as a snack.
Makers of chewing gum are also attempting to add new
beliefs about the uses of their products. Advertisements tout
chewing gum as an alternative to smoking or as a way to
remove food residue from ones teeth. For example, Trident
sugarless gum advertises that it actually helps fight cavities

when you chew it after meals.23
>> Strategy
Adding new beliefs is not easy. For example, when the
American beer brewer Anheuser-Busch, owner of the
Budweiser brand, first introduced Bud Dry beer,
consumers were confused because the word dry is
commonly used to describe wines or cider.
Nevertheless, many consumers have since added the
new belief that beer, too, can be described as dry. Volvo
faced a similar problem in introducing its sporty 850
model. For over a quarter of a century, Volvo has
successfully crafted an image of being the safest car on
the road. Indeed, Volvo did such a good job of driving
home its safety message that consumers had a hard
time imagining a Volvo as anything other than an
unglamorous, boxy, steel-reinforced tank.
When Procter & Gamble first introduced disposable
nappies in Japan, interest was limited. Research
suggested that price and health concerns were a
sticking point, as was the product fit. The nappies
leaked because the design was too large for most
Japanese babies. From a production vantage point,
these were problems that could be solved quite easily.
However, another powerful cultural force was also at
work. At that time, most Japanese mothers were
expected to dedicate themselves to caring for their
babies. Many women who could afford the
convenience of disposable nappies felt guilty using

them. Furthermore, it was often a womans mother-inlaw who aggressively kept that guilt burning. Although
fathers were typically uninvolved in caring for babies, it
was the Japanese mother-in-laws traditional role to
oversee how the mother cared for the grandchild. And,
by tradition, caring mothers always sacrificed their own
convenience for the babys well-being. Japanese firms
that entered the market later used advertising to
emphasise that disposable nappies were best for the
baby. That appeal relieved the mothers guilt and
simultaneously helped with the mother-in-law
problem. Even so, it took time for basic attitudes to
change.24
Firms attempting to market their goods overseas
may need to help consumers add new beliefs about a
product in general. Many hygiene practices common in
South Africa, for example, are unheard of in foreign
countries. In rural India, most Indians have never
handled such products as a toothbrush or a tube of
toothpaste. For generations, they have used charcoal
powder and indigenous plants to clean their teeth. To
educate Indians on the benefits of toothpaste, ColgatePalmolive sends marketers to rural villages on market
days equipped with a half-hour infomercial featuring
Colgate toothpaste. A story of a couple on their
wedding night sends Colgates message: Colgate is
good for your breath, teeth and love life. The
infomercial ends with a dentist explaining that the
traditional oral-hygiene methods, such as charcoal
powder, are less effective. Free samples are handed out
while a Colgate marketer demonstrates how to use the

Colgate toothpaste and toothbrush.25
6.5 Personality, self-concept and lifestyle
LO12
Each consumer has a unique personality. Personality is a

broad concept that can be thought of as a way of organising
and grouping the consistencies of an individuals reactions
to situations. Thus, a persons personality is a combination
of his/her psychological make-up and environmental forces.
Personality includes peoples underlying dispositions,
especially their most dominant characteristics. Some
marketers believe that personality influences the types and
brands of products purchased. For instance, the type of car,
clothes or jewellery that a customer buys may reflect one or
more personality traits. Personality characteristics, such as
autonomy, aggressiveness, dominance, sociability and selfconfidence, may be used to describe a consumers
personality.
Self-concept, or self-perception, is how consumers
perceive themselves. Self-concept includes attitudes,
perceptions, beliefs and self-evaluations. Although selfconcept may change, the change is often gradual. Through
self-concept, people define their identity, which, in turn,
constitutes consistent and coherent behaviour.
Self-concept combines the ideal self-image (the way an
individual would like to be) and the real self-concept (how
an individual actually perceives himself or herself).
Generally, we try to raise our real self-image towards our
ideal self-image (or at least narrow the gap). Consumers

seldom buy products that jeopardise their self-image. For
example, someone who sees himself as a trendsetter would
not buy clothing (such as a safari suit) that does not project a
contemporary image.
Human behaviour depends largely on self-concept.
Because consumers want to protect their identity as
individuals, the products they buy, the stores they patronise
and the credit cards they carry support their self-image.
Mens and womens fragrances, for example, tend to reflect
the self-images of their wearers. Chanels Egoste is for the
man who has everything and knows it. Likewise, Elizabeth
Taylors White Diamonds perfume is the fragrance dreams
are made of, for all those women who strive for legendary
beauty.26
By influencing the degree to which consumers perceive
goods or a service to be self-relevant, marketers can
influence their motivation to learn about, shop for and buy a
certain brand. Marketers also consider self-concept
important because it helps explain the relationship between
individuals perceptions of themselves and their buying
behaviour.
An important component of self-concept is body image
how one perceives the attractiveness of ones own physical
features. For example, individuals who have plastic surgery
often experience significant improvements in their overall
body image and self-concept. Moreover, a persons
perception of body image can be a stronger reason for
weight loss than either good health or other social factors.27
EXAMPLE >> Sales of at-home hair colour to ageing baby boomers in

the United States have substantially increased as more middle-aged men and
women colour their hair in order to age gracefully.28 GNC is capitalising on
consumers desire for quick fixes by marketing pills that should produce quick
energy.29 In South Africa a whole category of lifestyle-enhancing treatments has
developed over recent years. These include Celebra for arthritis, Detrol for
incontinence, Evista for osteoporosis, Propecia for hair loss and Sonata for sleep
enhancement.30 Likewise, health clubs and gymnasiums, such as Virgin Active,
exercise-equipment manufacturers, such as Energym, and diet plans, such as
WeighLess, target consumers who want to improve their self-concept by exercising
and losing weight.
A persons personality and self-concept are reflected in their
lifestyle. A lifestyle is a mode of living as identified by a
persons activities, interests and opinions (see the Jeep
advertisement below). Psychographics is the analytical
technique often used by marketers to examine consumer
lifestyles and categorise consumers. Unlike personality
characteristics, which are hard to describe and measure,
lifestyle characteristics are useful in segmenting and
targeting consumers.
Many industries now use psychographics to analyse and
better understand their market segments (see Chapter 6).
For example, the motor vehicle industry has a
psychographic segmentation scheme for classifying car
buyers into one of six groups according to their attitudes
towards cars and the driving experience. At one extreme are
gearheads, true car enthusiasts who have petrol in their
veins and who enjoy driving and working on their cars
themselves. At the other extreme are the negatives those
who view cars as a necessary evil that they would have liked
to do without.
Mobil Corporation has used psychographics to classify
petrol buyers into five groups: road warriors, true blues,
generation F3, homebodies and price shoppers.31 These
groups vary in their brand loyalty, amount purchased,
method of payment, location preference and usage of
convenience stores. Psychographics and lifestyle
segmentation schemes are discussed in more detail in
Chapter 6. Suffice to say at this stage that people with
different personalities and lifestyles buy different products
at different shops. As marketers, we need to understand the
reasons for their behaviour.
7. Social factors influencing consumer

buying decisions
LO13
The second major group of factors that influence consumer

decision-making are social factors (see Figure 3.1). Social
factors include all effects on buyer behaviour that result
from interactions between a consumer and the external
environment. Social factors include factors such as culture
and subcultures, reference groups, opinion leaders, family
life-cycle, as well as the consumers social class.
7.1 Culture
Culture is the set of values, norms and attitudes that shape
human behaviour, as well as the artefacts, or products, of
that behaviour as they are transmitted from one generation

to the next. Culture is environmentally orientated. The
nomads of Finland have developed a culture for Arctic
survival. Similarly, people who live in the Brazilian jungle
have created a culture suitable for tropical living, as have the
San for the conditions prevailing in the Kalahari Desert. The
warmer climate in Africa has contributed to behaviour such
as outdoor cooking, which is uncommon in colder
countries, such as Norway and Sweden.
Human interaction creates values and prescribes

acceptable behaviour for each culture. By establishing
common expectations, culture gives order to society.
Sometimes these expectations are encoded as laws. For
example, drivers in Western culture are expected to stop at a
red traffic light.
As long as a value or belief meets the societys needs, it
remains part of the culture. If it is no longer functional, it
fades away. Large families, for example, were valued in the
19th and early 20th centuries. Children were considered an

asset because they could help with the farm work and look
after the parents in their old age an attitude that probably
still exists in most African countries. Today, in an industrial
economy, large families are not necessary, and in some
countries (such as Germany), the population growth rate is
close to zero.
It is important that marketers realise that culture is
dynamic. It adapts to changing needs and an evolving
environment. The rapid growth of technology in this century
has accelerated the rate of cultural change. Television has
changed
entertainment
patterns
and
family
communication, and heightened public awareness of
political and other news events. Automation has increased
the amount of leisure time we have and, in some ways, has
changed the traditional work ethic. Cultural norms will
continue to evolve because of our need for social patterns
that solve problems.
Without understanding a culture, a firm has little chance
of selling products to that cultural group. Colours, for
example, may have different meanings in overseas markets
from those at home. In China, white is the colour of
mourning, and brides wear red; in South Africa, black is for
mourning, and brides wear white. Pepsi had a dominant
market share in Southeast Asia until it changed the colour of
its coolers and vending equipment from deep regal blue to
light ice-blue. In that part of the world, light blue is
associated with death and mourning.
Language is another important aspect of culture that
global marketers must deal with. They need to take care
when translating product names, slogans and promotional

messages into foreign languages so as not to convey the
wrong message.
EXAMPLE >> Consider the following examples of blunders made by

marketers when sending their messages to non-English-speaking consumers:
when Kentucky Fried Chicken introduced its brand in China their finger-lickengood slogan came out eat your fingers off; the brewery Coors encouraged its
English-speaking customers to Turn it loose, but the phrase in Spanish means
suffer from diarrhoea; and when the American slogan for Salem cigarettes
(Salem Feeling free) was translated into Japanese it came out as When
smoking Salem, you feel so refreshed that your mind seems to be free and
empty.
>> Strategy
McDonalds had to adapt its marketing approach in the
UK when research revealed that the firm was perceived
as loud, brash, uncaring, insensitive, insincere and
arrogant by the British. Owing to the cultural gap
between the two countries, McDonalds had to make
radical changes to the way it served its customers. To
succeed in the UK, McDonalds had to adapt to the
needs of its customers, who wanted warmth,
helpfulness, time to think before ordering a meal,
friendliness and advice.
As more firms expand their operations globally, the need to
understand the cultures of foreign countries becomes more
important as the above firms soon found out. Marketers
should become familiar with the culture and adapt to it.

What works well in Bloemfontein could be a flop in Durban
if marketers are not sensitive to the nuances of the local
culture.
7.1.1 Cultural values in South Africa32
LO14
South Africa can today be classified as a developing country,

a contrast of First World technology and ideas and Third
World roots and reality. Because its population represents a
multicultural, heterogeneous society, change in values and
lifestyles is an ongoing process. Major changes among
urban whites during the past decade have been a decline in
the role of hierarchical authority and the Protestant ethic, an
increase in the need for self-expression and an acceptance
of political reform. Among black consumers, there is also a
shift to a more ambitious outlook on life, a move away from
being conservative and traditional to becoming selfmotivated, with a drive for self-improvement and education.
The emergence of churches such as the Rhema Church
and Christian Harvest Church shows that South Africans
values are also becoming more religion-orientated albeit
not necessarily as members of the traditional mainstream
churches. More people are seeking spiritual guidance to
deal with immorality, violence and crime, despite the fact
that in political terms South Africa is now a secular state.
Although we have religious freedom, no mention is made of
God in the new constitution. Yet religious values create a
sense of equality and justice.
The need for cultural synergy is also emphasised by many
leaders in South Africa today. The common assumption that
only one cultural tradition matters is wrong, because one

culture is not something in which all people should or could
share. Any dominant culture would inhibit freedom, as it
would reject the value of other cultures, thereby making it
impossible for people to express their deepest selves in an
open and accepting environment.
The primary belief underlying Afrocentricity is the
concept of ubuntu. This concept means a person can be a
person only through other people. It can be defined as: A
person is a person through other human beings or I am
because you are; you are because we are. Ubuntu
emphasises supportiveness, co-operation, cohesion of
family and community, and group solidarity. A disadvantage
of ubuntu, from a Eurocentric viewpoint, is that the group
does not always recognise, value or support individual
performance, achievement or success.33 Firms who wish to
capitalise on the collectivist values of segments of the
market that underwrite these values will typically use
advertising that shows groups of people (families, sports
teams, and so on) rather than individuals as illustrated by
the Amante Bridalwear advertisement on page 111.
Eurocentric, westernised values, by contrast, focus on
individualism, materialism, a strong work ethic and
individual achievement and success. Individualism places a
high value on being oneself. Self-reliance, self-interest, selfconfidence, self-esteem and self-fulfilment are popular
expressions of individualism, implying a rejection of
dependency on others.34 In the South African context,
privacy is part of this value, strengthened by the drive for
security of ones property, vehicles and other possessions
against crime. Materialism reflects the accumulation of

wealth and objects. It demonstrates personal comfort, the
good life, and symbolises material success and status in
society.
Some subcultures work ethic and achievement can be
traced to the Protestant work ethic, which considers hard
work to be wholesome, spiritually rewarding and an
appropriate end in itself. Many South Africans cherishing
westernised values today do not feel guilty about their
achievements or wealth because they feel they have worked
hard for them. Some are critical of this value system.
Former-president Thabo Mbeki recently criticized what he
termed conspicuous material consumption. Referring to
the objective of personal enrichment, Mbeki says: Cecil
Rhodes and other successful businesspeople after him came
to represent the very epitome of human success, which all of
us had to emulate. Today, the best South African is the
person, whether black or white, who is dressed in the most
expensive clothes. He or she owns the most expensive car
and lives in the most luxurious house. He or she consumes
the most exotic products and spends holidays at the most
expensive locations in South Africa and the rest of the world.
He or she will have the most expensive coffin and funeral.
Anybody who questions this value system is a moegoe or a
mampara.35
South African marketers must be particularly sensitive to
cultural differences. Despite these differences in values held
by South Africans, the country is on the path of developing
shared values. Evidence of this is seen in joint support for
our sports stars, musicians and national symbols, and the
realisation that we need a team-building effort as a nation to

create a united South African loyalty and pride. Shared
values are developed by:
Adopting the demonstrated values of people we admire

Using experience to evolve a set of values that work well
for us
Responding to social influences from people with whom
we mix.36
Cultural values that are often used in advertising are:
Wisdom knowledge, expertise

Practicality effectiveness, durability, convenience
Family nurturing a family, happy home, getting
married
Health fitness, vigour, athleticism
Sexiness good appearance, glamorousness.
7.2 Subculture
A culture can be divided into subcultures on the basis of
demographic characteristics, geographic regions, political
beliefs, religious beliefs, national and ethnic background,
and the like. A subculture is a homogeneous group of people
who share elements of the overall culture as well as cultural
elements unique to their own group. Within subcultures,
peoples attitudes, values and purchase decisions are even
more similar than within the broader culture. Subcultural
differences may result in considerable variation within a
culture in terms of what, how, when and where people buy
goods and services.
>> Strategy
If marketers can identify subcultures, they can then
design special marketing strategies to serve their needs.
The US firm Kraft recently launched a brand of fastmelting white cheese and rich cream called Valle
Lindo, Spanish for beautiful valley, especially for
Hispanic consumers. Advertisements for the products
are in Spanish and are aired on Spanish-language
television and radio stations. Kraft is also expanding its
Spanish-language advertising for existing brand
products popular among Hispanic consumers.37
Similarly, Simon & Schuster is launching a line of
Spanish-language books, including translations of
popular American titles.38
7.2.1 Subcultures in South Africa

As pointed out earlier, a subculture is a distinct cultural
group that exists as an identifiable segment within a larger,
more complex society. Members of a subculture possess
beliefs, values and customs that set them apart from other
members of the same society.39 Subcultures can be
identified by age, geography, ethnic identity and activities
(see Reader 15 The Harley-Davidson legend lives on).
In South Africa there is a debate over whether there really
is such thing as a black market. In the 1990s it was argued
that certain products were bought predominantly by black
consumers. Examples given were sorghum beers, such as

King Korn and iJuba; foods such as mealie meal, samp and
sour milk; and personal products, such as skin lighteners,
hair straighteners and laxatives.40 There is also evidence that
black peoples physical features differ from other market
segments. Many black women do not fit into the average
white womans evening gown or bikini, and black men need
special styles of suits more often than non-black men.41 The
jeans brand Levi Straus has adapted its marketing strategy
for this market segment. Nuholt Huisamen, their marketing
manager says: The black middle class will be a key part of
our growth. Their shopping behaviours are different and
branded companies will have to communicate differently
through their marketing campaigns.42
Other cultures found in South Africa include the
Protestant, white Anglo-Saxon Protestant (WASP), Jewish,
Catholic and Muslim subcultures. These so-called
subcultures often differ in terms of the products they buy
and do not buy, where they buy them and when they buy
them. Retail shops that target Muslims often experience
demand up to four times higher than normal after the
fasting period associated with holy month of Ramadan.
Christians spend three times more in December (the
Christmas period) than in any other month of the year.
READER 15 >> The Harley-Davidson legend lives on

A Harley-Davidson motorcycle is a special kind of investment. A man or,
occasionally, a woman who buys a Harley is buying into a tradition, a
fellowship, a global family, a way of life all those things that draw
aficionados to Harley-Davidson rallies by the hundreds of thousands every

year.
During World War II, Harleys were used by allied troops all over the world,
and many thousands of soldiers learnt to ride, maintain and love them. After
the war, a new breed of biker emerged, the antisocial nonconformists
disillusioned with the American way of life. They made Harley-Davidson
motorbikes, stripped and modified into choppers, a symbol of rebellion and
freedom from the norm. This trend was epitomised in the films The Wild One
and Easy Rider, both influential among the youth of their time. Out of the
rebels habit of modifying their bikes to suit themselves grew the phenomenon
of customising bikes, today a full-scale industry.
The archetypal roughneck biker became part of the Harley heritage and
helped it to attain cult status, which endured even after the rebels reached
middle age and were reabsorbed into society. The image of the Harley rider
evolved into that of the long-haired, bearded, beer-bellied older individual.
Nowadays in South Africa at least he is a respectable suburbanite with a
social conscience, with an average age of 44. And his nostalgia for the classic
old-style machines is greater than ever. After seven decades, the business was
still run by Harleys and Davidsons and the machines were still being partially
hand-assembled by lifelong employees in the time-honoured way.
SOURCE: Innes, G. 2000. Me and my Harley. Personal Wealth, supplement to the Financial Mail, third
quarter, pp. 3940
In South Africa, ethnic subcultures are often based on

language, religion and race. As far as religious subcultures
are concerned, South Africa has various religious groups, of
which Catholics, Protestants, Jews, Muslims and Hindus
form the major groups.
Besides religious subcultures, many other subcultures
can be identified. Some are concentrated geographically.
People belonging to the Muslim religion are found mainly in
and around Cape Town. The majority of South Africans of
Indian origin is located in Durban and its surrounds. Many

artists have converged on areas such as Melville in
Johannesburg, Knysna and, more recently, Darling in the
Western Cape. Many wave surfers converge on Jeffreys Bay,
and fly-fishermen on Dullstroom. Other subcultures are
geographically more dispersed. Christians, for instance, are
found almost anywhere in South Africa, as are many Xhosaspeaking people. All subcultures have identifiable attitudes
and values that distinguish them from the larger culture.
The fact that South Africa has eleven different official
languages makes the home language an important factor to
be considered when distinguishing among subcultures. For
instance, Afrikaans-speaking citizens generally used to be
more conservative and religion-orientated, whereas
English-speakers were more liberal and adaptable to
change. These stereotypes, however, may no longer apply in
the new South Africa. The same argument goes for
geographical location as a basis to distinguish among
subcultures particularly between urban and rural people.
For example, although a large proportion of the poorer
sectors of the population still reside in the rural areas, it
would be a gross generalisation to state that these people
have stronger moral convictions or are slower to adapt to a
changing environment than urban dwellers.
Subcultures can also be grouped around lifestyle choices.
The gay community in urban centres or youth groups in the
townships are examples. Research carried out in Soweto in
the early 1990s identified nine different subcultures among
township teenagers Pantsulas, Mshosas, Ivys, Rastas,
Punks, Cats, Hippies, Comrades and Inkatha. Each of these
groups had distinctly different lifestyles, wore different

clothes and spoke a township lingua franca that was difficult
for the ordinary citizen to understand.
7.3 Reference groups
LO15
All the formal and informal groups that influence the buying
behaviour of an individual are that persons reference

groups. Consumers may use products or brands to identify
with, or become a member of, a group. They learn from
observing how members of their reference groups consume,
and they use the same criteria to make their own consumer
decisions.
Reference groups and opinion leaders alike possess what
is known as social power the power to influence the actions
of others. Generally, four bases of power can be
distinguished:
Information power the power that emanates from

superior knowledge. Your university professor or
medical doctor has information power over students (to
study for an exam) or patients (to take medication)
owing to their superior knowledge
Legitimate power the power accorded to someone by
virtue of their connection with some legitimate structure,
such as the law. Police officers and judges derive their
power from legal structures, such as laws
Referent power the power accorded to a group or
person who is admired and emulated. An actress or
sports star may have the power to influence teenagers
buying behaviour
Expert power the power derived from possessing a
specific skill or expertise.
Reference groups can be categorised very broadly as either

direct or indirect (see Figure 3.4). Direct reference groups
are face-to-face membership groups that touch peoples
lives directly. They can be either primary or secondary.
Primary membership groups include all those with which

people interact regularly in an informal, face-to-face
manner, such as family, friends and co-workers. By contrast,
people associate with secondary membership groups less
consistently and more formally. These groups may include
sports clubs, professional groups and religious groups.
Figure 3.4 Types of reference groups
Consumers are also influenced by many indirect, nonmembership reference groups that they do not belong to.
Aspirational reference groups are those that a person would
like to join. An example is the aspiration to become a
professional cricketer. To join an aspirational group, a
person must at least conform to the norms of that group.
(Norms are the values and attitudes deemed acceptable by
the group.) Thus, a person who wants to be elected to public
office may begin to dress more conservatively, as other
politicians do. He or she may go to many of the restaurants
and social engagements that city and business leaders
attend and try to play a role that is acceptable to voters and
other influential people. A teenager, on the other hand, may
dye his hair, experiment with body-piercing and tattoos, and
listen to alternative music to fit in with the in group.
Similarly, a student who has just qualified as a chartered

accountant is likely to exchange his earring for the
customary grey suit in an attempt to conform to the norms
of his chosen profession.
Some firms try to position their products or services in a
way that makes consumers aspire to be a client. Products or
services using a status appeal are typical examples. There
are at least seven financial institutions that provide private
banking to wealthy South African clients. Absa private bank
says: Private banks want to maintain a discreet mystique
theyre aspirational.43
Non-aspirational reference groups, or dissociative groups,
influence our behaviour when we try to maintain distance
from these groups. A consumer may avoid buying some
types of clothing or cars, going to certain restaurants or
stores, or buying a home in a certain neighbourhood in
order to avoid being associated with a particular group.
Some people may deliberately not drink Black Label from a
quart bottle, smoke Lucky Strike cigarettes or wear a white
vest with holes in public. However, others will do exactly
these things because they identify with a certain reference
group.
The activities, values and goals of reference groups
directly influence consumer behaviour. For marketers,
reference groups have three important implications: they
serve as information sources and influence perceptions;
they affect an individuals aspiration levels; and their norms
either constrain or stimulate consumer behaviour. For
example, more than 40 per cent of Americans seek the
advice of family and friends when shopping for doctors,
lawyers and car mechanics,44 and South Africans are no

different. Individuals are also likely to solicit others advice
when selecting a restaurant for a special occasion or
deciding which movie to see.
7.4 Opinion leaders
LO15
Reference groups frequently include individuals known as

group leaders or opinion leaders. These are people who
influence others. A school career-guidance teacher who
helps a high-school pupil with the choice of a career is an
example of an opinion leader. Obviously, it is important for
marketing managers to persuade such people to purchase
their products or services. Many products and services that
are integral parts of our lives today got their initial boost
from influential opinion leaders. For example, when tablet
computers were first introduced they were embraced by
opinion leaders well ahead of the general public. Opinion
leaders were also among the first to turn 4x4s into the family
vehicle of the 1990s.45
>> Strategy
When Swedish liquor firm Facile entered the
overcrowded vodka market in the UK with its seriously
brand (spelt with a lower-case s), it had very little
money to spend on advertising and promotion. Faciles
research, however, showed that 43 per cent of people
who approach a bar counter have not made up their
mind what drink they are going to order. People behind

bars, therefore, have tremendous influence over the
buying decisions of their patrons. Facile decided that
the barmen in the 12 000 licensed outlets in the UK
should be turned into opinion leaders who could
recommend their brand to potential buyers. This they
did by giving bar owners a financial stake in the success
of the seriously brand by offering them a 16,7 per cent
share in the company.46
Opinion leaders are often the first to try new products and
services out of pure curiosity. They are typically activists in
their communities, on the job and in the marketplace.
Furthermore, opinion leaders tend to be self-indulgent,
which makes them more likely to explore new, unproven
but intriguing products and services. This combination of
curiosity, activism and self-indulgence makes opinion
leaders trendsetters in consumer markets.47 Opinion
leadership is a casual, face-to-face phenomenon and is
usually very inconspicuous, so locating opinion leaders can
be difficult. As a result marketers, often try to create opinion
leaders. They may use high-school cheerleaders to model
new summer fashions or civic leaders to promote insurance,
new cars and other merchandise. On a national level, firms
sometimes use movie stars, sports figures and other
celebrities to promote products, hoping they are appropriate
opinion leaders. The marketers of sports goods in South
Africa give free equipment, such as tennis racquets and
cricket bats, to teachers who double up as coaches of sports
teams, because they know they can influence the buying
behaviour of school children. Other examples are Ryk

Neethling (Tag Heuer watches), Trevor Immelman (Rolex),
Lucas Radebe (Aquafresh), Charlize Theron (Dior) and
David Beckham (Pepsi).
The effectiveness of celebrity endorsements depends
largely on how credible and attractive the spokesperson is
and how familiar people are with him or her. Endorsements
are most likely to succeed if an association between the
spokesperson and the product can be established. For
example, comedian Bill Cosby failed as an endorser for
financial products, but succeeded with such fun products as
Kodak cameras. Consumers could not mentally link Bill
Cosby with serious investment decisions, but could
associate him with leisure activities and everyday
consumption. The use of Daryll Cullinan (a former
professional cricketer) to advertise Vicotops the complete
mobile office solution may be questioned on similar
grounds. Similarly, celebrities actions or words can
sometimes undermine a brands values. For example, when
actress Sharon Stone said that an earthquake in China was
karma for the way the country had treated Tibet, Dior was
forced to issue an apology and pull all advertisements in
China featuring Sharon Stone. Similarly, the consulting
giant Accenture ended its six-year relationship with Tiger
Woods following news of his extramarital affairs, stating the
company has determined that he is no longer the right
representative for its advertising.
Additionally, in the selection of a celebrity endorser,
marketers must consider the broader meanings associated
with the endorser. Although the endorser may have certain
attributes that are desirable for endorsing the product, he or

she may also have other attributes that are inappropriate. A
marketing manager can also try to use opinion leaders
through group sanctioning or referrals. For example,
Mentadent-P toothpaste is recommended by dentists, and
manufacturers such as Hella automotive products refer in
their advertising to the fact that they are holders of the South
African Bureau of Standards ISO 9002 Quality Management
System award.
Marketers sometimes use endorsements from a variety of
organisations rather than from individuals. The sports drink
Powerade is marketed as the official sports drink of the
Olympic Games, and MTN is the official supplier of the
South African cricket team. Seeking an endorsement is a
form of group opinion leadership. Flora margarine, for
instance, claims it is endorsed by the Heart Foundation.
Salespeople often ask to use opinion leaders names as a
means of cultivating greater personal influence in a sales
presentation.
7.5 Family
The family is the most important social institution for many
consumers. The family strongly influences values, attitudes,
self-concept and buying behaviour. For example, a family
that strongly values good health will have a grocery list that
is distinctly different from that of a family that views every
dinner as a gourmet event. Moreover, the family is
responsible for the socialisation process, the passing down
of cultural values and norms to children. Children learn by
observing their parents consumption patterns, and will

tend to shop in a similar pattern and buy similar products.
Decision-making roles among family members tend to
vary significantly, depending on the type of item purchased.
Family members assume a variety of roles in the purchase
process. Initiators are the ones who initiate, suggest or plant
the seed for the purchase process. The initiator can be any
member of the family. For example, sister might initiate the
product search by asking for a new bicycle as a birthday
present. Influencers are those members of the family whose
opinions are valued. In our example, Mom might function as
a price-range watchdog, an influencer whose main role is to
veto or approve price ranges. Brother may give his opinion
on certain styles and brands of bicycles. The decision-maker
is the member of the family who actually makes the decision
to buy or not to buy. For example, Dad may choose the final
brand and model of bicycle to buy after collecting further
information from sister about cosmetic features, such as
colour, and imposing additional criteria of his own, such as
durability and safety. The purchaser (probably Dad or Mom)
is the one who actually exchanges money for the product.
Finally, the consumer is the actual user sister, in the case of
the bicycle.
Marketers should consider family purchase situations
along with the distribution of the consumer and decisionmaker roles among family members. Ordinary marketing
views the individual as both decision-maker and consumer.
Family marketing adds three other possibilities: sometimes
more than one decision-maker is involved; sometimes more
than one consumer is involved; and sometimes the
decision-maker and the consumer are different people.

Children today can have considerable influence over the
purchase decisions of their parents (see Chapter 2). In many
families, with both parents working and with limited time
available, children may be encouraged to participate in
decision-making. In addition, children in single-parent
households become more involved in family decisionmaking at an earlier age than children in two-parent
households.
Children are especially influential in decisions about
food. Children often help decide where the family goes for
fast food, provide input into the kinds of food the family eats
at home, and many even influence the specific brands that
their parents buy. Finally, children influence purchase
decisions for toys, clothes, holidays, recreation and motor
vehicles even though they are usually not the actual
purchasers of such items.
7.5.1 Family life cycle

The life cycle stage of a family can also have a significant
impact on consumer behaviour. The family life cycle is an
orderly series of stages through which consumers attitudes
and behavioural tendencies evolve, through maturity,
experience and changing income and status.
Marketers often define their target markets in terms of
family life cycle. For instance, young singles spend more
than average on electronic devices such as cell phones and
computers, education and entertainment. New parents
typically increase their spending on healthcare, clothing,
housing and food, whereas they decrease their spending on
their own education, entertainment and transport.

Households with older children spend more on food,
entertainment (such as holidays), personal-care products
and their childrens education, as well as cars and petrol.
After their children leave home, spending by older couples
on travelling, vehicles, womens clothing, healthcare and
long-distance phone calls typically increases. Marketers
should also be aware of the many non-traditional life cycle
paths that are common today, which provide insights into
the needs and wants of such consumers as divorced parents,
lifelong singles and childless couples.
7.6 Social class
LO16
A social class is a group of people who are considered nearly

equal in status or community esteem, who regularly
socialise among themselves both formally and informally
and who share behavioural norms. South Africa, like other
societies in the rest of the world, has a social class system. In
some countries, the class system is fairly rigid. In Japan, for
instance, people of unequal status do not sit together during
meetings, and the Japanese language contains expressions
to be used only when addressing those of a higher status.
The UK is a highly class-conscious country, and
consumption patterns are often preordained by family
background and ones inherited position. The upper classes
have typically tended go to educational establishments such
as Oxford, Cambridge and Eton. Wealthy young men are
referred to as Hooray Henrys and like to engage in
expensive pastimes, such as playing polo.
A number of techniques have been used to measure

social class, and a number of criteria have been used to
define it. One view of the contemporary status structure in
the United States is discussed below:
Upper class: The upper class consists of the very rich

and the well-to-do. Upper-class individuals seem to
think of themselves as nice-looking people and are
concerned with personal appearance. They are more
confident, outgoing and culturally orientated than
people of other social classes. They also seem a bit more
permissive and are willing to tolerate alternative views.
The upper social classes are more likely than other
classes to try to contribute something to society for
example, by volunteer work for charitable organisations,
or active participation in civic affairs. In terms of
consumer buying patterns, the affluent are more likely to
own their own home, purchase new cars and 4x4s, and
are less likely to smoke. The very rich typically spend
more on owned holiday homes, overseas holidays,
housekeeping and gardening services than other social
classes.48
Middle class: Middle-class consumers have a particular
perspective on life. Attaining goals and achieving status
and prestige are important. Compared with the lower
classes, members of the middle classes have a stronger
orientation towards society in general, and towards
peers in particular. Apparently, the middle-class lifestyle
is more dynamic than the relatively static lifestyle of the
lower classes. Educational attainment seems to have the
biggest impact on a persons social and economic status.
People who fall into the middle class live in the gap
between the haves and have-nots. They aspire to the
lifestyle of the more affluent, but are constrained by the
economic realities and cautious attitudes that they share
with the working class.49
Working class: This group is a distinct subclass of the
middle class. The working-class person depends heavily
on relatives and the community for economic and
emotional support. Members of this social subclass rely
on relatives for tips on job opportunities, for advice on
purchases and for help in times of trouble. The emphasis
on family ties is one sign of this groups intensely local
view of the world. For instance, working-class people
prefer the local news far more than middle-class
audiences, who show greater enthusiasm for national
and international coverage. Working-class people also
holiday closer to home and are more likely to stay with
relatives when they do go on holiday.
Lower class: Lower-class members typically fall at or
below the poverty level. This social class has the highest
unemployment rate, and many individuals or families
are subsidised through the welfare system. Many are
illiterate, with little or no formal education. Lower-class
members also have poorer physical and mental health
and a shorter lifespan than members of other classes.
Compared with more affluent consumers, lower-class
consumers have poorer diets and typically purchase
staple of foods when they shop.
Lifestyle distinctions between the social classes are greater

than the distinctions within a given class. The most
significant separation among the classes is between the

middle and lower classes. It is here that the biggest gap in
lifestyles is evident.
Marketers do not believe that any class is superior to
another, but are interested in social class for a number of
reasons. Different social classes have different buying and
consumption patterns. Marketers must, therefore, market
products and services differently to the different class
groups. For instance, social class often indicates which
medium to use for advertising. Suppose an insurance firm
wants to sell its policies to middle-class families. It may
advertise during the local evening news because middleclass families tend to watch more television than other
classes. However, if the firm wishes to sell more insurance
policies to individuals in higher social classes, it may instead
place a print advertisement in a business publication, such
as the Financial Mail, or an upmarket magazine, such as
Elle, which are read by more educated, affluent people.
Social class can also indicate to marketers where certain
types of consumers shop. Wealthy, upper-class shoppers
tend to frequent expensive stores, such as Woolworths, for
food and boutiques for clothing places where members of
the other classes may feel uncomfortable. Marketers also
know that middle-class consumers regularly visit large
shopping centres. Therefore, marketers with products to sell
to the middle class may decide to distribute their products
through large shopping centres, such as Tyger Valley and
Canal Walk in Cape Town, and Eastgate in Bedfordview,
Johannesburg.
Although social class is becoming less of an indicator of
purchase behaviour in some markets, in many overseas

markets social class has become a key determinant. Russias
transition to a market economy, for instance, has created a
distinct class structure with upper-, middle- and lower-class
markets. While the super-rich who capitalised on the
emerging markets opportunities appeared almost instantly,
lately there have been a surprising number of Russians who,
despite high inflation and a weak currency, are working
harder, earning more and living better. These middle-class
Russians buy consumer goods ranging from televisions to
automatic breadmakers, and are bolstering Russias political
and economic stability. At the core of Russias new middle
class are its young professionals and small-business owners
in the big cities. Russias middle class has become the prime
target for consumer goods marketers, such as Sony
Corporation of Japan, which views Russia as one of its prime
growth markets for colour televisions.50
8. The influence of the purchase situation

LO17
on buying decisions
Individual consumers buying behaviour is affected by the
purchase situation they find themselves in at the time of
purchasing (see Figure 3.1). Three variables that can play a
role are purchase reason, time influences, and physical
surroundings:
Purchase reason affects buying. Why a consumer

makes a purchase can affect buying behaviour. For
example, a person buying a watch to wear during longdistance running will buy a different type of watch as a
gift for his mothers 70th birthday.
Time affects buying. Time influences a purchase
situation. When consumers make a purchase, and the
time that they have available for shopping, both
influence their behaviour. A Valentines Day dinner (see
Reader 17 Valentines Day sales expected to soar) is
different from a quick meal before a rugby match.
Physical surroundings can affect buying behaviour.
The excitement of an auction may stimulate impulse
buying, for example. And surroundings may discourage
buying too. For example, some people dont like to stand
in a checkout queue in a supermarket where others can
see what they are buying even if the other shoppers are
complete strangers. In the case of medical services, and
when applying for a loan at a bank, the physical
environment ought to provide privacy. If not, many
consumers will simply walk away.
Needs, benefits sought, attitudes, motivation and even how

a consumer selects certain products all vary depending on
the purchase situation. So different purchase situations may
require different marketing mixes even when the same
target market is involved.
READER 16 >> Online shopping means no impulse

buying
For consumers, one of the great things about shopping online is bypassing the
queue to check out. For producers of the candy, magazines and drinks often
sold there, its a problem. In Britain, the country where e-commerce is most
popular, about 13 percent of people do all or most of their grocery shopping
online. Yet this only accounts for 5 percent of overall spending, suggesting
consumers spend more when they visit a store. That is because online
shoppers search for what they need, usually sticking close to their shopping
lists. They dont spontaneously buy magazines they opened while waiting to
pay, or chocolate to eat on the go. Elizabeth Clark, a 40-year-old teacher in
Liverpool, England now does most of her shopping on the Internet, and says
she ends up buying fewer sweets, newspapers, toys and wine. In the
supermarket, obviously you walk past it and you see a special offer and you
think Oh, Ill have that, she said. Even though retailers try to do the same
thing by flagging special offers at online check-out, it doesnt usually work. I
always just press next, next, next, next without even reading them,
deliberately, because I dont want to be tempted.
Companies most at risk are Mondelez International, Mars Inc and Nestle,
the top three candy makers, soda makers like Coca-Cola and PepsiCo, and
magazine publishers like Time Warner and Hearst Corp. The latest survey of
European shoppers by IRI found that 73 percent spent more time planning
shopping in order to avoid non-essential purchases amid the economic
slowdown. Shoppers are reducing their impulse purchasing, said Cristina
Lazzaroni, who monitors the confectionary market for IRI in Italy, where online
shopping is less of a habit. And when they do buy chocolate at stores, more
Italian shoppers are buying larger take-home tablets instead of single-serve
snacks, Lazzaroni said, noting that the shift can hurt the bottom line as
smaller packages often carry higher margins.
SOURCE: Adapted from Geller, M. and Thomasson, E. 2013. Online shopping means no impulse buying.
Business Day, 28 April, p. 19
READER 17 >> Valentines Day sales expected

to soar
Tough times and mounting personal debt will not deter enthusiastic lovers
celebrating Valentines Day on Thursday from saying I love you in style. There
are 30 to 40 per cent more customers than last year this time, e-commerce
firm Netflorist MD Ryan Bacher said on Tuesday. Netflorist sends bouquets,
arrangements, gifts, perfumes and a range of jewellery to loved ones, friends
and associates both locally and around the world. Over the next two days the
company will deliver more than 18 000 orders nationally.
The standard bouquet of red roses is still the most popular and costs
R399. There are more men using Netflorist than women, but women are
buying the more expensive gift hampers for their men, Mr Bacher said.
Wednesday and Thursday is so busy that the company had hired an extra 800
temporary workers to cope with delivery, he said.
And for those who still prefer to talk the talk, cards are still big. Hallmark
expects to sell 145-million cards and 151-million to change hands globally.
The company reportedly has 1 400 variations of Valentines Day greeting
cards.
SOURCE: C. Goko. 2014. Valentines Day sales expected to soar. Business Day, 13 February 2014, p.
5
9. Buying new-to-the-world products
LO18
When consumers buy brand-new products that have not

been on the market before (e.g. an iPod Touch), a buying
process is used which is slightly different from the one
described earlier in the chapter (based on Figure 3.1). It is
called the adoption process, and consists of six basic steps,
namely:
Awareness the consumer becomes aware of the new

product, but does not have any details
Interest if interested, the consumer will start collecting
general information on an informal basis
Evaluation a mental trial follows to assess its possible
need-satisfaction properties
Trial experimental use, such as a test drive
Decision the consumer adopts or rejects the product
Confirmation the adopter continues to rethink the
decision. Was it the right decision?
These steps are discussed in more detail in Chapter 9.
10. Buying behaviour and technology
51
Lastly, we have to consider the impact of modern

technology on consumer behaviour. Some argue that
technology is breeding a new type of consumer. Empowered
by the Internet, consumers are increasingly taking control of
the buying process. It is already commonplace for a
consumer to walk into a computer shop and pull out his
phone, connect to the Internet, compare the price with the
price in another shop (using a website such as
Takealot.com) and instantly order the other shops
merchandise. That, says McCann-Ericksons Don Dillon, is
one of the ways in which technology is creating a world
unlike any we have ever known. According to Dillon, the
new reality is a consequence of the connectivity of the Web:
Information can now be transferred and turned into

knowledge instantly from everywhere. There are few
competitive technologies, tools, product insights or
knowledge areas in London or New York that are not
available in Buenos Aires or Bangkok. Because so
many companies have access to this technology, the
speed at which they need to compete has dramatically
increased. But the central motivation of the
purchasing model remains the same. Consumers are
drawn to value. This has always been a value based
on cost, quality and convenience. But technology has
driven the perception of value to embrace new
dimensions. Consumers want to buy now. Weve
never before dealt with such powerful consumers.
And because they have more control, they expect
more personal attention.
<<< LOOKING BACK

Returning to the discussion that opened the chapter, you
should now be able to see how individual and social factors
affect the consumer decision-making process. In the
Marketing in Practice example, you saw how James
became aware of his need for a new tennis racquet and how
he consulted a number of different sources of information.
The range of racquets he considered makes up what is
known as an evoked set. You also saw an illustration of how
the human mind selects and interprets information.
Finally, you also read about Jamess post-purchase
doubts (cognitive dissonance). Cognitive dissonance refers
to the post-purchase question: did I make the right choice?
As a marketing scholar, you know that the concept of

cognitive dissonance is important in understanding
consumer behaviour. You also know that there are certain
approaches available to overcome the impact of cognitive
dissonance.
SUMMARY
1
Why marketing managers should understand

consumer behaviour. Consumer behaviour describes
how consumers make purchase decisions and how they
use the products they buy. An understanding of
consumer behaviour reduces marketing managers
uncertainty when they are defining a target market and
designing a marketing mix.
The components of the consumer decision-making
process. The consumer decision-making process begins
with problem recognition, when stimuli trigger
awareness of an unfulfilled want. If additional
information is required to make a purchase decision, the
consumer may engage in an internal or external
information search. The consumer then evaluates the
additional information and establishes purchase
guidelines. Finally, a purchase decision is made.
The consumers post-purchase evaluation process.
Consumer post-purchase evaluation is influenced by
pre-purchase expectations, the pre-purchase
information search and the consumers general level of
self-confidence. Cognitive dissonance is the inner
tension that a consumer experiences after recognising a
purchased products disadvantages. When a purchase

creates cognitive dissonance, consumers tend to react by
seeking positive reinforcement for the purchase
decision, avoiding negative information about the
purchase decision or revoking the purchase decision by
returning the product.
4 Strategies for reducing post-purchase dissonance.
Marketing managers can help reduce dissonance
through effective communication with purchasers.
Advertising that displays the products superiority over
competing brands or guarantees can also help relieve the
possible dissonance experienced by someone who has
already bought the product.
5 The types of consumer buying decisions and the
significance of consumer involvement. Consumer
decision-making falls into three broad categories. First,
consumers exhibit routine response behaviour for
frequently purchased, low-cost items that require very
little decision effort. Routine response behaviour is
typically characterised by brand loyalty. Second,
consumers engage in limited decision-making for
occasional purchases or for unfamiliar brands in familiar
product categories. Third, consumers practise extensive
decision-making when making unfamiliar, expensive or
infrequent purchases. High-involvement decisions
usually include an extensive information search and a
thorough evaluation of alternatives. By contrast, lowinvolvement decisions are characterised by brand loyalty
and a lack of personal identification with the product.
The main factors affecting the level of consumer
involvement are price, interest, perceived risk of negative
consequences, situation and social visibility.

6 The factors determining consumer involvement are:
Previous experience
Interest
Perceived risk of negative consequences
Situation
Social visibility.
7 Marketing implications of consumer involvement. The
overall implication is that consumer involvement
influences the marketing strategies that could and
should be used. For low-involvement goods convenient
availability (distribution) and low prices are important.
For high-involvement goods quality, image, shopping
assistance and information may be more important. In
both cases, branding is very important.
8 The individual factors that affect consumer buying
decisions. These factors include perception, motivation,
learning, values, beliefs and attitudes, personality, selfconcept and lifestyle. Perception allows consumers to
recognise their consumption problems. Motivation is
what drives consumers to take action to satisfy specific
consumption needs. Almost all consumer behaviour
results from learning, which is the process that creates
changes in behaviour through experience. Consumers
with similar values, beliefs and attitudes tend to react
similarly to marketing-related inducements. Finally,
certain products and brands reflect consumers
personality, self-concept and lifestyle.
9 The role of perception. The world is full of stimuli. A
stimulus is any unit of input affecting the five senses:
sight, smell, taste, touch and hearing. The process by
which we select, organise and interpret these stimuli into

a meaningful and coherent picture is called perception.
Perception is a means of making sense of the world
around us and determines how we recognise that we
have a consumption problem (discrepancy). Consumers
perceptions of products, brands, advertising, and so on
will, over time, determine their attitudes and
consequently the likelihood of purchase.
10 Motivation, learning, values and consumer behaviour.
Motivation drives consumers to take action (to buy) to
satisfy specific consumption needs. Almost all consumer
behaviour results from learning, which is the process
that creates changes in behaviour through experience.
Consumers with similar values, beliefs and attitudes
tend to react similarly to a marketing mix. Certain
products and brands, such as a sports car or a cigarette
advertisement, reflect a consumers personality, selfconcept and lifestyle.
11 Changing beliefs. Perceptions, over time, become an
attitude. To change an attitude, first perceptions have to
be changed. This change can be accomplished in three
ways: changing beliefs about the brands attributes,
changing the relative importance of these beliefs and
adding new beliefs. It is a valid and important skill in
marketing to for instance reposition a product.
12 Personality, self-concept and lifestyle. Each consumer
has a unique personality. Personality is a broad concept
that can be thought of as a way of organising and
grouping the consistencies of an individuals reactions to
situations. Therefore, personality combines
psychological make-up and environmental forces. It
includes peoples underlying dispositions, especially

their most dominant characteristics. Some marketers
believe that personality influences the types and brands
of products purchased. Self-concept is how consumers
perceive themselves. Human behaviour depends largely
on self-concept. Because consumers want to protect
their identity as individuals, the products they buy, the
shops they patronise, and the credit cards they carry
support their self-image and lifestyle.
13 Social factors and consumer behaviour. A major group
of factors that influence consumer decision-making are
social factors, which include all effects on buyer
behaviour that result from interactions between a
consumer and the external environment. Social factors
include cultures and subcultures, reference groups,
opinion leaders, family, life cycle and social class.
14 Cultural influences in consumer behaviour. Cultural
values influence consumers perceptions and attitudes
and, therefore, their buyer behaviour. As marketers, we
have to understand and be sensitive to those values to
ensure that we satisfy their needs and avoid offending
potential customers.
15 The role of reference groups in affecting consumer
buying decisions. Social factors include external
influences, such as reference groups and opinion
leaders. Consumers may use products or brands to
identify with or become a member of a reference group.
Opinion leaders are members of reference groups who
influence others purchase decisions.
16 The role of family membership in understanding
consumer buying decisions. Family members also
influence purchase decisions. For example, children

tend to shop in patterns similar to those of their parents.
Marketers often define their target markets in terms of
consumers life cycle stage, social class, culture and
subculture; consumers with similar characteristics
generally have similar consumption patterns. Because all
consumer behaviour is shaped by individual and social
factors, the main goal of marketing strategy is to
understand and influence them.
17 The role that a purchase situation can play in buying
behaviour. Individual consumers buying behaviour is
affected by the purchase situation they find themselves
in at the time of purchasing. Three variables that can
play a role are the purchase reason (i.e. why a consumer
makes a purchase), time influences (when consumers
make a purchase, and the time they have available for
shopping) and physical surroundings. Needs, benefits
sought, attitudes, motivation, and even how a consumer
selects certain products all vary depending on the
purchase situation.
18 The steps in the adoption process are:
Awareness
Interest
Evaluation
Trial
Decision
Confirmation.

The American electronics company Apple markets its

1 products under the following brand names: iMac, iPod,
iPhone, and iPad. In terms of consumer behaviour, how
would you describe the choice of brand names? Why do
business firms use this approach in the choice of their
brand names?
2 Choose a recent purchase which involved you and other
people in the decision-making. What decision-making
process did you go through? At each stage try to
remember what your were thinking about and what
activities took place.
3 Recall an occasion when you experienced cognitive
dissonance about a purchase. In a letter to a friend,
describe the event and explain what you did about it.
4 To which needs do the following advertising slogans
appeal:
Blue Seal Vaseline: No. 1 skin protection
Pulsar watches: The living watch. Driven by

adrenaline
American Express travellers cheques: Peace of

mind when travelling
John Rolfe cigarettes: The taste for adventure
Dimple whisky: For the person who hasnt sat

around for the past 15 years?
5 Family members play many different roles in the buying
process: initiator, influencer, decision-maker, purchaser,
consumer. In your family, name who might play each of
these roles in the purchase of a personal computer
system, breakfast cereals and dinner at a fast-food
restaurant.
6 You are a new marketing manager for a firm that
produces a line of athletics shoes to be targeted at the

university student subculture. Write a memorandum to
your boss listing some product attributes that may
appeal to this subculture and recommend some
marketing strategies.
STRATEGY READER >> Multicultural marketing in South

Africa
South Africa is described as the rainbow nation in an effort to reflect the
diversity of its people. Multicultural marketing is used in South Africa as a
means of improving the effectiveness of marketing communication
programmes by simultaneously targeting a number of different South African
cultural groups. However, effective execution of this strategy requires an indepth understanding of cross-cultural differences and similarities, as well as
socio-cultural values. Compounding this challenge for marketers is that, in
many instances, there are different languages spoken by the diverse cultural
groups in South Africa.
One trait that advertisers feel is generic amongst all South Africans is their
sense of humour. However, what can be funny to one cultural group may be
offensive to another. Consider, for example, the Castrol advertisement where a
white man places Castrol cans under his bed as protection against the
mythical creature in Xhosa culture, the Tokoloshe. Although white viewers
found this advertisement funny, many Xhosa people found the image
inappropriate (the Tokoloshe mainly attacks women and not men) and
perceived the advertiser as poking fun at their culture. It follows that
marketers also need to be careful in their use of language and make sure that
cultural groups are not alienated by what they perceive to be the offensive use
of their language. However, this is no easy task, as language is a dynamic
medium in South Africa. In addition to the 11 official languages, a 12th
language is emerging known as Scamto. This language (formerly known as
tsotsi taal ) comprises a mix of languages, with nicknames for beer, cars and
weapons, and has become the language of choice for South Africas black
urban youth. For example in Scamto the latest word for a Mercedes-Benz is a
TY (Tony Yengeni) and for a 3 Series BMW, a G-string (because of the look of
the front grill).
SOURCE: http://www.iol.co.za (accessed 25 June 2010)
QUESTIONS
1
2
Why is it important to take into consideration cultural influences when

designing advertising strategies?
Can you list examples when South African firms or brands suffered
reputational damage due to their failure to take cognisance of cultural
perspectives of advertising?
KEY CONCEPTS
Aspirational reference group: a group that someone would like to join.
Attitude: a learned tendency to respond consistently to a given object, such as a
brand.
Belief: an organised pattern of knowledge that an individual holds as true about
his or her world.
Cognitive dissonance: inner tension that a consumer experiences after
recognising an inconsistency between behaviour and values or opinions.
Consumer behaviour: the study of how consumers make purchase decisions
and how they use and dispose of the purchased goods or services.
Consumer decision-making process: the step-by-step process used by
consumers when buying goods or services.
Culture: the set of values, norms, attitudes and other meaningful symbols that
shape human behaviour, as well as the artefacts, or products, of that behaviour
as they are transmitted from one generation to the next.
Evoked set (consideration set): a group of brands resulting from an information
search, from which a buyer can choose.
Extensive decision-making: the most complex type of decision-making
exhibited by consumers buying unfamiliar, expensive or infrequently bought
items; requires use of several criteria for evaluating options and much time for
seeking information.
External information search: seeking information in the outside environment.
Ideal self-image: the way an individual would like to be.
Internal information search: the process of recalling information stored in the
memory.
Involvement: the amount of time and effort a buyer invests in the search,
evaluation and decision processes of consumer behaviour.
Learning: the process that creates changes in behaviour through experience and
practice.
Lifestyle: a mode of living identified by a persons activities, interests and
opinions.
Limited decision-making: the type of decision-making exhibited by consumers
buying regularly purchased, inexpensive goods and services; requires moderate
search and decision time.
Marketing-controlled information source: a product information source that
originates with marketers promoting the product.
Maslows hierarchy of needs: a popular theory of motivation that arranges
needs in ascending order of importance physiological, safety, social, esteem
and self-actualisation.
Motive: the driving force that causes a person to take action to satisfy specific
needs.
Non-aspirational reference groups: groups that influence peoples behaviour
when they try to maintain distance from them; also known as dissociative
groups.
Non-marketing-controlled information source: a product information source
that is not associated with advertising or promotion.
Norms: the values and attitudes deemed acceptable by a particular group.
Opinion leaders: group leaders who influence others.
Perception: the process by which we select, organise and interpret stimuli into a
meaningful and coherent picture.
Personality: ways of organising and grouping the consistencies of an
individuals reactions to situations. Personality reflects a persons traits, attitudes
and habits.
Primary membership groups: all groups with which people interact regularly in
an informal, face-to-face manner, such as family, friends and co-workers.
Problem recognition: result of an imbalance or discrepancy between actual and
desired states.
Real self-image: how an individual actually perceives himself or herself.
Reference groups: all formal and informal groups that influence the buying
behaviour of an individual.
Routine response behaviour: a type of decision-making exhibited by consumers
buying frequently purchased, low-cost goods and services; requires little search
and decision time.
Secondary membership groups: groups with which people associate less
consistently and more formally, such as clubs, professional groups and religious
groups.
Selective distortion: the phenomenon whereby consumers change or distort
information that conflicts with their feelings or beliefs.
Selective exposure: the process whereby a consumer notices certain stimuli and
ignores other stimuli.
Selective retention: remembering only information that supports personal
feelings or beliefs.
Self-concept: how consumers perceive themselves (self-perception).
Social class: a group of people who are considered nearly equal in status or
community esteem, who regularly socialise among themselves both formally
and informally and who share behavioural norms.
Socialisation process: passing down cultural values and norms to children.
Stimulus: any unit of input affecting the five senses.
Stimulus discrimination: learning to differentiate among similar products.
Stimulus generalisation: a learning process that occurs when one response is
extended to a second stimulus similar to the first.
Subculture: a relatively homogeneous group of people who share elements of
the overall culture and cultural elements unique to their own group.
Value: an enduring belief that a specific mode of conduct is personally or
socially preferable to another.
Want: an unfulfilled need that someone has determined will be satisfied by a
particular product or service.
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CHAPTER
04
Analysing the competitive

situation
LEARNING OUTCOMES
Distinguish between the four levels at which competitive activity

can occur.
2 Differentiate between the customer-based and the strategicgroup approaches to identify competitors.
3 Use customer-based approaches to identify competitors.
4 Use the strategic-group approach to identify competitors.
5 Compare the different competitive situations faced by marketers
in terms of the four industry structures.
6 Use the five competitive forces to analyse the competitive
structure of an industry.
7 Discuss the value of analysing key competitors.
8 Describe the process of analysing current competitors.
9 Describe the process of analysing potential competitors.
10 Compare a firm with its key competitors using the key success
factors of the industry.
11 Highlight the typical reaction patterns of firms in a competitive
market.
12 Describe the factors that determine the extent of direct rivalry in
a competitive market.
13 Advise a firm on which competitors to attack and which to avoid.

above outcomes.

The launch of Ariel has sent Unilever
into a froth
Household goods giants Unilever and Procter &
Gamble have gone to war in SA over laundry
detergents. Unilever has enjoyed market dominance for
years through brands like Omo, Surf and Skip. But now
P&G has entered the market aggressively with Ariel and
the marketing gloves are off. Since Ariels launch
Unilever has been forced to shuffle its marketing
strategy to protect its market share. In the short time
Ariel has been in SA, it has quickly achieved awareness
in consumers minds, says Craig Page-Lee, MD of
outdoor media agency Posterscope. Its marketing has
been particularly effective in the out-of-home sector,
which includes billboards, experiential and brand
activations. It is also running a TV campaign. To
counter all this, Unilever has had to switch marketing
spend from other parts of its marketing budget.
Page-Lee says Ariel has won market share through
its distinctive brand identity and resonance with a

broader spread of buyers. The power of its green
branding is very visible and has made a big impact, he
says. It has positioned itself to a cross-section of
society, not just the lower-income market (Surf and
Omo) or the higher segments (Skip).
Ariel spokesman Khululiwe Mabaso says that in its
first three months in SA the product has received very
positive feedback. Justin Aspey, Unilevers vicepresident for brand building in the homecare division,
is coy about the groups marketing response. He says
Unilever will increase its advertising spending, but not
on what. It is South Africas biggest advertiser, having
spent R 1,8bn in 2012.
SOURCE: Mokgata, Z. 2013. War of the soaps. Financial Mail, 1924 July
2013, p. 58
QUESTIONS
1
How do you think Unilever should respond to the competitive threat of

Ariel?
1. Introduction
In Chapter 1, the importance of identifying and utilising
opportunities to ensure the long-term survival and growth of
the firm was emphasised. In Chapter 2, we pointed out that
these opportunities manifest themselves in the so-called
marketing environment. In other words, progressive firms
need to scan the external environment continually in search

of opportunities to utilise profitably. Unfortunately, it is not
only opportunities that are found in the external
environment, but also threats. One of the main threats for
any firm is its competitors. As a result of competition or
pending competition, a new firm should assess the likely
impact of competition before it decides to invest resources
in an attempt to utilise an opportunity. By the same token,
existing firms also need to continually assess the likelihood
of new competitive forces emerging in their industry and
markets that may threaten their profitability and survival.
Todays competitive markets are populated by
consumers with changing and increasingly diverse needs.
The same markets are crowded with competitors whose
intensifying rivalry inevitably reduces the overall prospects
for profitability for all industry players. Private road hauliers,
for instance, have significantly reduced the profitability of
Transnet. And private courier firms have harmed the Post
Offices profitability. The competition offered by online
music has harmed the profitability of the music retailer
Musica to such an extent that it has been forced to close
many of its stores. An understanding of competitive forces is
critical, therefore, when considering the choice of
opportunities to utilise in market segments that offer
exceptional profit potential.
From a strategic point of view, firms need to be sensitive
to and detect, understand, and possibly participate in new
forms of competition as they emerge. Unfortunately, the
temptation to keep on doing things the way they have always
done them is too comforting for many firms, especially if it
has been profitable for a long time. As a result, newer, more

innovative, alternatives are often overlooked or ignored. To
avoid that trap, one has to be sensitive to new business
forms by studying them as they emerge, even if they are
small or very different in concept. A regular and thorough
competitor analysis provides one vehicle for doing so.
This chapter examines the role that competition plays in
marketing and marketing planning. It also provides
guidelines for a so-called competitive analysis, which ought
to be a key component of the strategic marketing plan of all
firms (see Chapter 14).
2. Identifying competitors
LO1
It would seem a simple task for a firm to identify its

competitors. However, it is not as straightforward as it
appears. The range of actual and potential competitors
faced by a firm is often far broader than appears to be the
case at first sight. Therefore, it is important to acknowledge
the difficulties of defining the boundaries of an industry. It is
also important to realise that most firms are more likely to
be taken by surprise and hit hard by latent competitors than
by current competitors whose patterns of marketing
behaviour are largely predictable. It is against this
background that a firm should view competition operating
at four levels, ranging from narrow to broad:1
Level 1: Level 1 competition consists only of those firms

that offer a similar product or service to the same target
market (see Reader 18 Lesson in selling concerning

Zaras entry into the clothing retail market). These firms
are known as direct competitors. For example, Beacon
competes directly against Nestl and Cadbury in the
market for chocolate sweets. Vodacom knows that MTN,
Cell C and Virgin Mobile are its major competitors, Defy
knows that LG is a major competitor, and Apple knows
Samsung is a major competitor in the cell phone market.
But the range of a firms actual and potential competitors
is in fact much broader, as illustrated by levels 2 to 4.
Level 2: Competition can emanate from all firms
operating in the same product or service category. These
firms are known as indirect competitors. For example,
Beacon also competes against manufacturers of nonchocolate sweets, such as Cadburys Endearmints,
Chappies or Halls.
Level 3: This level of competition consists of all firms
that manufacture or supply products and services that
satisfy the same need. Chocolate manufacturers also
compete against, for example, manufacturers of snacks
(Simba), ice cream (Ola) and dried fruit (Safari). In a
similar vein, long-distance coach operators compete not
just against each other, but also against railways, cars,
airlines and motorcycles.
Level 4: Competition is made up of all firms competing
for the same spending power (e.g. sweets vs soft drinks,
tea, coffee or takeaways).
READER 18 >> Lesson in selling

Spanish retailer Zara, a company in the Inditex Group, entered the SA clothing
market with a bang when it opened a store in Sandton Citys new Protea Court
in November 2011. The 2 700 m2 store is the trendy retailers largest
worldwide, and sold all its floor stock on debut. As a result, there is definitely
a lot of nail biting among local players, says Flux Trends trend analyst Dion
Chang.
Others agree. Zara will clearly have an impact on the retailers, says
Nedbank Group retail analyst Syd Vianello, adding that it will initially affect the
established retailers growth more than their profits. The company has a
unique business model, using the customer as the main business driver.
Customer feedback is used to direct Zaras 250-strong design team, says
Chang. New stock is delivered twice weekly to each store, customised for
different cultures, shopping habits, local environments and climates, and the
shops are in prime locations in major shopping centres.
When it comes to consumer loyalty, Chang says, I dont think there is
much loyalty at all. Little wonder that established retailers may be nervous
Zaras fresh approach to customer care could redefine the market. Chang says
the SA consumer has been underestimated. Decisions about what is or is not
too outrageous have been made for shoppers for too long. Evidently, locals
have reacted positively to the liberty and respect Zara provides.
SOURCE: Gorecki, R. 2011. Lesson is selling. Financial Mail, 22 December 2011
Often a firm is more likely to be hurt by new competition or

new kinds of technology than by current, known
competitors (see Specsavers advertisement on page 130). In
recent years, many businesses have failed, for example, to
consider the Internet and the capabilities this medium offers
to potential competitors. For instance, a few years ago, the
US book store chains Barnes & Noble and Borders were
competing to see who could build the most mega-stores,
where book browsers could sink into comfortable couches
and sip cappuccino. However, while these massive chains

were deciding which books and coffee to stock in their cafs,
Jeffrey Bezos was building an online empire called
Amazon.com. Bezoss innovative new cyberstore had the
advantage of offering an almost unlimited selection of books
without the expense of stocking inventory. Now both Barnes
& Noble and Borders are playing catchup in building their
own online stores. Competitor myopia focusing on
current competitors rather than latent ones has the very
real potential of rendering some businesses and even whole
industries extinct.2 This is exactly what a competitor analysis
attempts to avoid.
The term competition defies definition because the view
of competition held by many different groups (e.g.
economists, government officials and businesspeople)
varies. Most firms define competition in crude, simplistic
and unrealistic terms; some firms fail to identify the true
sources of competition; others underestimate the
capabilities and reactions of their competitors.3 When the
business climate is stable, a shallow outlook towards the
competition might work over the short term, but in an everchanging business environment, marketing strategies must
be competitively oriented. A competitor analysis starts by
identifying current as well as potential competitors. There
are two very different ways of identifying current
competitors: the customer-based approach and the
strategic-group approach.4
2.1 Approaches to identifying competitors

LO2
The first approach to identifying potential competitors

examines the perspective of the potential customer who
must make choices among the products, brands or services
of competing firms. The customer-based approach,
sometimes also referred to as a market perspective of
competition,5 groups competitors together according to the
degree to which they compete for a buyers choice. The
second approach, on the other hand, attempts to place
competitors in strategic groups on the basis of their
competitive strategy.
READER 19 >> Is cycling the new golf?

The notion of competition can be implicit in a number of different contexts,
one of which is the business of sport. The trendy (and sometimes garish)
outfits of spandex-clad cyclists, compared to the traditional and conservative
values typically associated with golfers, seem to suggest that these two sports
have totally different target markets. However, arguably the fastest-growing
sport in South Africa, cycling has taken the nation by storm and many believe
it will usurp the prized position long-held by golf as the corporate sport of
choice. Conservative estimates put the value of the cycling-as-sport industry in
South Africa at R600m. But Stephen Reardon, CEO of More Cycle, which
houses Cycle Lab, thinks this figure is around R1bn.
The year-on-year growth of this industry is certainly in double-digit figures,
while weve seen the numbers of registered golfers remain relatively static with
participation trends flat lining, Reardon says. Our general view is that cycling
offers double the opportunity that golf does, if you look at the participants and
what they are spending.
SOURCE: Adapted from Barry, H. 2014. Cycling is the new golf. Money Web, 17 January 2014.
http://www.moneyweb.co.za/moneyweb-business-of-sport/cycling-is-the-new-golf (Accessed on 2 August
2014)
Once competitors have been identified, the analyst must try

to understand both the nature of the competitors and their
strategies. Particularly important is a critical analysis of the
strengths and weaknesses of each competitor or strategic
group of competitors.
2.1.1 Using a customer-based approach to identify

competitors
LO3
The essence of customer-based approaches5 is that they give

full recognition to the broader range of products or services
that are capable of satisfying customers needs. Customerbased approaches to identifying competitors regard all firms
or organisations that satisfy the same customer needs as
competitors. Using this approach, a consumer who buys a
motor vehicle buys private transport, and all firms that
satisfy the need for privately-owned transport are
competitors. In other words, firms that market bicycles,
scooters and motor bikes are, therefore, regarded as
competitors, not just other motor vehicle manufacturers. By
contrast, firms operating in the public-transport sector must
realise that customers who need transport will consider
railways, airlines, bus companies and cars as possible
options to satisfy their needs. The definition of competition
according to the customer-based approaches to competitor
identification is much broader than when using the
strategic-group approach to identify competitors it allows
one to distinguish between direct competitors and indirect
competitors. In most instances, primary or direct
competitors are quite visible and easily identified. In the
case of a consumer who buys motor vehicles, it would
include other current and potential motor vehicle

manufacturers. Therefore, everyone marketing other forms
of private transport can be considered as indirect
competitors.
EXAMPLE >> For instance, Coca-Cola competes with Pepsi and with other
cola brands, such as Virgin Cola, and some private labels marketed by large
retailers. Nedbank competes with ABSA, Standard Bank, First National Bank and
other major banks. The SABC competes with etv and M-Net. It is important to
cast the proverbial net wider to include in the analysis more than the primary
(direct) and conventional competitors. Hotels, for instance, never thought twenty
years ago that small bed-and-breakfast establishments in suburban
neighbourhoods would present a threat to them. The manufacturers of cameras,
such as Canon and Kodak, never thought that one day they would compete with
cellphone manufacturers.
In many markets, however, the nature of competition is

changing because consumer needs and requirements are
changing (see the section on buying behaviour and
technology). Colas are no longer as dominant in the
beverages industry as they used to be, as more and more
people switch to bottled water and fruit juices. The need for
banks to have extensive distribution (branch) networks is
diminishing as more and more people are using ATMs, the
Internet and cellphones to conduct their banking business.

Because some of the new competitors are small, or appear to
be very different, they may not appear to be significant but
that does not make them less dangerous. Following a
conceptual basis for identifying competitors using a
customer-based approach, a distinction can be drawn
between two approaches, namely those based on customer
choices and those based on product-use associations.
Customer choices
One approach to identify competitor sets is to consider
competitors from the perspective of the choices customers
make. A Nescaf buyer, for example, could be asked what
brand of coffee (or refreshment) they would have purchased
had Nescaf not been available. A buyer for a nursing-home
meal service could be asked what would be substituted for
rice if the price of rice quadrupled. Answers to questions
such as these can bring new insights into which products
and brands make up the consumers evoked set.
Product-use associations
Another approach that provides insight into competition is
to analyse the consumers specific use contexts or
applications associated with certain products. Product users
could be asked to identify what they use products for, or
when, and in what situations they use them. Some people
use Jik to remove mould from windows and shower doors,
for example not the manufacturers intended use of Jik.
Others use Disprin to lower blood pressure not the
manufacturers intended use of Disprin. For each use
context, respondents would be asked to name all the
products that are appropriate. Then for each product the

respondents would identify appropriate use contexts so that
the list of use contexts would be more complete. Another
group of respondents would then be asked to indicate how
appropriate each product is for each context.
A group of consumers could be asked about the use of
Vienna sausages. Some may use them as a snack for
children; others may use them for making hot dogs; some
may use them as a cocktail snack; and yet others may braai
them. In all of these areas of use, a firm such as Enterprise
has to compete with different competitors. In the case of a
snack food for children, Enterprise would be competing with
potato chips; in the case of hot dogs, it would be competing
with the manufacturers of meat patties; in the case of a
cocktail snack, the competition could be olives, feta cheese
and savoury biscuits; and when it comes to the roaring braai
fire, the competition is the local butchery.
Once different uses have been identified, products would
be clustered on the basis of the similarities of use they share
with other products also considered appropriate for a
specific setting or occasion for example, a braai. Each of
the products in a cluster would compete primarily with
products similarly perceived by consumers.
READER 20 >> PharmaShop24

The PharmaShop24 concept and design can be found all over Europe, Japan, USA and now in South
Africa. The South African team has been actively modifying and adapting this concept since early 2012.
This is not a typical vending machine. It is specially designed to dispense health care products, and your
daily medical essentials from A-Z at a simple push of a button. The local PharmaShop24 team has vast
experience, directly and indirectly within the pharmaceutical industry. They have tailored a sustainable,
self-funding solution to recapture the convenience market. This all happens while offering customers a
discreet 24/7 shopping experience. They want retail stores at garages to enjoy a 24-hour, 7 day a week
sales opportunity. Customers must realize that healthcare is available even when the pharmacy is
closed.
There are no competitors on the market that can offer the value or service
that PharmaShop24 provides. The traditional vending machine does not
compete with PharmaShop24 in that they do not have the technological
capability to provide real time interaction with the providers, advertisers, or
customers.
Source: Company profile: Pharmashop24. Available from http://www.pharmashop24.co.za/companyprofile (Accessed on July 31 July 2014) Reprinted by permission of Pharmashop24 (Pty) Ltd.
Both the customer-choice and product-use approaches

suggest a conceptual basis for identifying competitors.
These approaches can be utilised by managers even when
marketing research is not available. The concept of
alternatives from which consumers can choose and the
concept of appropriateness for a product-use context can be
powerful tools in helping to understand the competitive
environment.
2.1.2 Using the strategic-group approach to

LO4
identify competitors
With this approach, sometimes also referred to as the
industry concept of competition,6 almost all competition
and competitive activity must be seen in the context of a
particular industry, such as the oil industry, the
pharmaceutical industry or the beverage industry. The point
of departure is that all firms that exist in the same industry
are de facto competitors.7 An industry is a group of firms that
offer a product or class of products that are close substitutes
for each other. Industries are classified according to the
number of sellers; the degree of product differentiation; the
presence or absence of entry, mobility and exit barriers; the
cost structure; the degree of vertical integration; and the
degree of globalisation. From an industry point of view,
Pepsi might see its competition as Coca-Cola and other softdrink manufactures. From a market point of view, however,
the customer really wants a product that is thirst
quenching a need that can be satisfied by bottled water,
energy drinks, fruit juice, iced tea or other forms of liquid.
When analysing an industry, it is important to realise that
there are different groups of firms within an industry and
that firms are fairly homogeneous within groups, along a set
of strategic attributes, and fairly heterogeneous compared
with other groups.8 The strategic-group concept is based on
the idea that the strategic diversity and complexity of an
industry can be simplified by classifying firms into different
strategic groups. A group of firms that follow the same
strategy in a given target market is called a strategic group. A
strategic group is a group of firms that:
Over time pursue similar competitive strategies (for

example, the use of the same distribution channel, the
same type of communication strategies or the same price
and quality position)
Have similar characteristics (e.g. size, aggressiveness)
Have similar assets and competencies (such as brand
associations, logistics capability, global presence or
research and development).
The strategic-group method is used with the hope that the

firms classified into the strategic group will essentially react
to the same environmental changes owing to their
similarities.
>>Strategy
Historically, there have been three strategic groups in
the South African clothing industry. One strategic
group consists of very large diversified, branded firms,
such as Foschini and Truworths. They all distribute
their products using mass merchandisers and enjoy
economies of scale. At the other extreme is a second
strategic group that consists of highly focused, ultrapremium, private-label producers (for example, Jenni
Button), and includes boutiques that market exclusive
garments for the higher-income group. Their suppliers
will not enter distribution channels such as mass
merchandisers and supermarkets. The third strategic
group consists of basic producers targeting the lower

middle-income and low-income groups. They include
retailers such as Pep Stores and Mr Price. Similarly in
the major appliance industry, General Electric and
Whirlpool belong to the same strategic group. Each
produces a full line of medium-price appliances
supported by good service. In contrast, Bosch and
Miele belong to a different strategic group. They
produce a narrower line of higher-quality appliances,
offer a higher level of service and charge a premium
price.
Each strategic group has mobility barriers that inhibit or
prevent businesses from moving from one strategic group to
another. Each of the strategic clothing groups discussed in
the strategy reader above, is protected by entry barriers. The
ultra-premium group (i.e. boutiques) has the brand
reputation, product and manufacturing knowledge needed
to target the upmarket segment, access to the influential
opinion leaders and retailers, and a local customer base and
close relationships with customers. For Pep Stores and even
the likes of Woolworths to start competing with boutiques
would take a significant investment of resources.
>> Strategy
Consider the personal computer and server markets.
Dell and a few others have marketed computers
directly to consumers first by catalogues and
telephone, and then via the Internet. They developed a
host of assets and competencies to support their direct

channels, including an impressive product-support
system. Competitors such as Compaq, Lenovo and HP
(which have used indirect channels involving retailers
and systems firms), have found it very difficult to shift
strategies. Not only is the development of assets and
competencies costly and difficult, but their links with
their existing channels create significant barriers to
change.
When Virgin Mobile entered the cellular phone operator
market it had to ask: what is our strategic group? This is an
important question because the height of the entry barriers
differs for each group. The entry barriers to the cellular
network industry are much higher than those of the video
rental market, for instance. If a firm successfully enters a
group, the members of that group become its key
competitors.
Conceptualising strategic groups can make the process of
competitor analysis more manageable. Most industries
contain many more competitors than can be analysed
individually. Often it is simply not feasible to consider
dozens of competitors, to say nothing of hundreds (such as
bed-and-breakfast establishments). Reducing this set of
potential competitors to a small number of strategic groups
makes the analysis more focused, feasible and more usable.
For example, in the wine industry, a competitor analysis by a
firm like Distell (owners of the Nederburg brand) might
examine three strategic groups: boxed wines, popular wines
and premium wines. Analysing strategic groups rather than
individual competitors (or brands) should not lead to a loss

of insight because firms in a strategic group are affected by
and react to industry developments and environmental
influences in very similar ways. Therefore, the concept of
strategic groups can be helpful when anticipating the future
strategies of competitors.
READER 21 >> Battle of the tablets

There hasnt been this much fuss about tablets since Moses walked up a
mountainside. On Monday Microsoft took the wraps off Surface, a product line
it hopes will help it win market share from Apples iPad, which remains king of
the tablets. If its priced right, a tablet war is in the offing. It had all the
hallmarks of an Apple keynote. No-one knew exactly what Microsoft would be
announcing in Los Angeles, but the excitement among gadget junkies about a
potentially game-changing product from the US software giant was palpable.
What Microsoft CEO Steve Ballmer announced in the end was a new line of
tablets called Surface that will run the upcoming Windows 8 Pro and Windows
RT operating systems. Ballmer was drawing a line in the sand in the companys
protracted war with Apple. The subtext was clear: Microsoft has had enough of
the iPads dominance and is prepared to do something it hasnt done before
build its own hardware running Windows, potentially risking the ire of its
partners in the PC industry - in an effort to eat into Apples market share.
Still, outside PC peripherals and the Xbox gaming console, Microsofts
ventures into the hardware market havent exactly flourished. Its last big
attempt to tackle Apple head-on at its own game - by developing the Zune
MP3 player to take on the iPod - failed. Its tempting to suggest its again
coming to the market too late, taking on a product in the iPad that has
established its dominance. But thats the wrong call. Tablets are not yet
ubiquitous and business customers are more likely to embrace Windowspowered tablets simply because theyll play nicely with their IT systems and
allow more granular control. And with Microsoft pushing Metro across all its
consumer-facing products its building a powerful proposition that plays to its
strengths in enterprise IT. If it prices the Surface tablets right, then Apple has
a fight on its hands.
SOURCE: McLeod, D. 2012. Battle of the tablets. Financial Mail, 22 June, p. 16
Analysing strategic groupings and their competitive

behaviour can help refine strategic investment decisionmaking. Instead of considering which industries to invest in,
the decision can focus on which strategic group can be
considered for investment. Therefore, the current and future
profitability of each strategic group must be analysed.
Investing in attractive strategic groups in which a firms
existing assets and competencies can be best utilised to
create a competitive advantage should be a strategic
objective (see Reader 21 Battle of the tablets).
3. Defining the competitive arena

After the identification of firms within an industry, the next
step is to develop descriptive information on the industry
and its members. It is important to examine industry
structure beyond domestic market boundaries, since
international industry developments often affect regional,
national and international markets.9 It is possible to
distinguish between four industry structure types, namely a
monopolistic situation, pure competition, an oligopoly, and
monopolistic competition. After considering these four
industry structures, one can then proceed to analyse the

competitive structure of an industry.
3.1 The four industry structures
LO5
These four basic models of competition are based mainly on

the number of competitors and the nature of the products
produced. Table 4.1 summarises the characteristics of the
four basic models and the key task of the marketing
manager within each form of competition. The type of
competition has a considerable effect on a firms pricing
strategies and ability to set a target price (see Chapter 13).
Table 4.1 Types of economic competition
At one extreme of economic competition is a monopoly, in

which one firm controls the output and price of a product
for which there are no close substitutes. In other words, the
firm is the industry, as there are no direct competitors.
Parastatals such as the Ports Authority (managing South
Africas harbours), Eskom (electricity producer) and Telkom
(fixed telephone lines) are examples of the most common
forms of regulated monopoly in South Africa.
Telkoms competitive situation is slowly changing,
however. Some of South Africas telecommunication
operators are gaining traction in the market in competition

to Telkom SA, using wireless technologies such as CDMA
and WiMAX to provide alternatives to Telkoms copper
access network. In addition, the government has created
Broadband InfraCo, a national infrastructure firm to provide
cheap backbone network capacity to service providers. The
major mobile network operators, Vodacom and MTN, are
moving into the fixed-line sector under a new converged,
service-neutral licensing regime. In May 2014 Vodacom, the
countrys largest cellular network, acquired Neotel (the
second-largest fixed-line player), which has put the merged
firm in a strong position to offer converged services. The
combination of Neotel and Vodacoms networks would
improve overall network availability and cut the cost of
serving customers. The acquisition of Neotel will help
Vodacom to innovate and integrate new solutions to a
variety of customer segments. A similar share of network
between MTN and Telkom may be concluded soon.10
Not only have these activities signalled the end of the
monopolised telecommunications industry, they have also
ensured a more competitive environment. The arrival of
Seacom as the second international submarine fibre optic
cable in South Africa in 2009, for instance brought down the
cost of international bandwidth dramatically. Previously,
Telkom had been monopolising access to the only major
cable serving the country, SAT-3/WASC/SAFE.
A few private-sector firms, such as South African
Breweries (SAB), have a virtual monopoly in this case, in
the beer market. It must be pointed out, however, that SAB is
not protected by any law. It is thus an economic monopoly.
Often a patent right can give a firm monopoly power for a

time. Xerox, for example, held the patent on the dry-paper
copying process for many years. Not until the patent expired
and competitors entered the market did dry-paper copiers
fall significantly in price. In a regulated monopoly market
the monopoly firm or organisation often charges high
prices, does not spend much money on advertising, and its
service delivery is often poor. The National Ports Authority,
for instance, has been described as topping the inefficiency
list in South Africa, yet it made a profit after taxation of R1,9
billion in 2013 and has been described as Transnets cash
cow.11
At the other extreme of the competitive spectrum is pure
competition. A purely competitive market is characterised
by a large number of sellers marketing a fairly standardised
product (difficult to differentiate, such as commodity
markets) to a group of buyers who are well informed about
the market. Farmers selling wheat to food manufacturers,
such as Bokomo, is an example. New competitors can easily
enter the market (low entry barriers), but have to sell their
wares at the prevailing market price. In a purely competitive
market characterised by no or poor differentiation, it would
not make sense for one firm to raise the price of a product,
because a buyer would simply get the same product at the
prevailing market price from a competitor. Because of the
absence of a sustainable competitive advantage, firms
trading in this kind of market condition (pure competition)
often do not even advertise their product(s). A purely
competitive market seldom exists in the real world.
However, some industries closely mirror the model most
notably, agricultural markets for wheat, cotton, soybeans,
salt and maize. Examples of pure competition can be found

on the Internet. Advances in web technology have made
markets more competitive. It has reduced barriers to entry
for firms wanting to compete with well-established
businesses for example specialist toy retailers such as Toy
Zone are better able to battle for market share with the
dominant retailers such as ToysRUs and Reggies. One of the
most important aspects of the Internet is the ability of
consumers to find information about prices for many goods
and services. There are several price comparison sites on the
Internet covering everything from digital cameras to
package holidays, car insurance to CDs and jewellery.12
When a relatively small number of firms dominate the
market for goods or a service, the industry is an oligopoly. In
South Africa, airlines (South African Airways, British
Airways/ Kulula.com, Mango); private healthcare providers
(Medi-Clinic, Netcare); and cellular phone operators
(Vodacom, MTN, Cell C, Virgin Mobile) compete in
oligopolistic markets. Oligopolies can also exist at a lower
competitive level. The close relationship among so few
competing firms can often lead to collusion and price fixing,
which are illegal. Rather than fixing prices, some industries
simply follow a price leader. The leader is typically the
dominant firm in terms of financial resources, assets, market
share or geographic coverage. Marketing managers do not
have a lot of pricing flexibility in an oligopoly market. They
must be alert to price changes and quickly match price
decreases or lose a significant amount of market share. For
instance, when Cell-C offered their clients an all day flat
rate option their competitors, Vodacom and MTN, quickly
followed suit with similar offers. To further secure a position
in this type of market, marketing managers should

emphasise their competitive advantage whether it is
service, a strong brand, product quality, or any other nonprice form of differentiation. If they are able to establish
some sort of ascendancy over competitors on some attribute
and succeed in getting significant numbers of customers to
prefer their product, they can possibly afford to charge a
small price premium as British Airways has done to some
extent in the domestic airline market. Telkoms changing
competition (outlined above) means that it is also moving
into an oligopoly-type situation.
Monopolistic competition refers to a situation in which a
relatively large number of suppliers offer similar, but not
identical, products. Examples include fridges, televisions
and motor vehicles. Each firm has a comparatively small
percentage of the total market, so each has limited control
over market price. As competitive pressures increase, input
costs rise and available resources become scarcer and most
firms then find that they need to work harder to maintain
their profits and market share regardless of the form of the
competitive market. Recently, the holding company of 7Eleven went bankrupt because it could not withstand the
competition from competitors such as Spar and spaza
shops.
Firms in monopolistic competition industries or markets
attempt to differentiate their products and services by using
tactics such as brand names, trademarks, packaging,
advertising or special product features (see Reader 22 Sony
tablet takes aim at Apple iPad). With monopolistic
competition, consumers tend to prefer the products of
specific firms or brands and will be prepared to pay a higher

price (a price premium) to get it within reason. In other
words, they tend to think, I like British Airways because its
service is better than that of South African Airways. But if the
price goes up too much, I know British Airways is not that
much better, so Ill switch to something else if I have to. So
the seller has some control over price, but only within a
limited range. If the marketing manager raises prices too
high, the firm could lose some of its market share to
competitors.
Smaller firms can often survive in highly competitive
markets by generating products of exceptional quality or by
offering products and services that fulfil distinct needs.
Mercedes-Benz South Africa, for example, is a relatively
small firm. Yet it is highly successful because of its quality,
good service and overall effective marketing focused on
satisfying the needs of a specific market segment. The
Mercedes-Benz example illustrates that, with a good
marketing mix, smaller firms can still compete effectively
against the giants. Regardless of the size of the firm, the
marketing mix of product, distribution, marketing
communication and price represents managements tools of
competition. A competitive situation is seldom static,
however. Besides competition from existing competitors,
there is always the threat of new competitors entering the
market or the emergence of substitute products.
EXAMPLE >> Mercedes-Benz developed a unique product range in order

to compete. Woolworths has used product quality to gain and hold market share
in a very competitive food retail market. Coca-Colas competitive advantage is its
highly effective distribution system. Firms like Mr Price and Tempest Car Hire use
price as a primary means of competition. Some firms, like SAB and Toyota, are
superior competitors in every aspect of their marketing mix. They have excellent
research staff who enable them to bring out the right products, an efficient
distribution system involving hundreds of outlets or dealers, aggressive pricing
and a very large marketing communication budget.
Poor performance often draws new competitors. We have
already referred to the emergence of so many courier firms
in South Africa. It did not take minibus taxi owners long to
spot the inability of many public and even privately-owned
bus firms to satisfy the needs of urban commuters for a
flexible, reliable and affordable transport service. Although
SAB controls about 98 per cent of the beer market in South
Africa, it realises very well that it faces strong competition
from alternative products, such as wine, soft drinks, fruit
juices and bottled water. The marketers of sugar face
competition from artificial sweeteners, such as Canderel
and Sweetex. Airlines and hotels realise, we hope, that they
face competition from such unexpected sources as videoconferencing.
READER 22 >> Sony tablet takes aim at Apple iPad

Sony is betting its tablet computers will rival Apples iPad by luring buyers with
music and movies, even as the Japanese company arrives more than a year
late in the booming market for such devices. Since the iPad entered the
market there have been about 100 rival versions offered from a host of
makers, but few have captured market share.
Yes, yes, Apple makes an iPad, but does it make a movie? Sony CEO
Howard Stringer said in a presentation at Berlins annual consumer electronics
fair on Wednesday. We will prove that its not who makes the tablet first who
counts but who makes it better.

Sony, which is reeling from three successive years of losses without a hit
product, is matching the iPads price in Japan and the US. Mr Stringer needs
to differentiate the device from those of its rivals by adding the ability to
download PlayStation Suite games, movies and music from its subscription
services.
The tablet has to be significantly better than the iPad for consumers to
want to buy it at that price point, says Alexander Peterc, an analyst at Exane
BNP Paribas. Sonys big advantage is that they have the content. If they can
make it easy to use and hassle-free, they have half a vote from me.
Neil Mawston, an analyst at Strategy Analytics, says the Sony tablets will
need to make these content services as easy to use as Apples iTunes music,
film, television and application offerings. There was also concern at the
shortage of applications (apps). Apple has more than 100 000 while Sony has
just a few hundred. Worldwide sales of tablets are set to triple by value to
$30,6bn this year, according to Strategy Analytics estimates. Apple will
probably dominate with a share of 73 per cent, compared with 88 per cent
last year.
We will aim to win the Number 1 share in the Android-based tablet
market in 2012, Akihiro Matsubara, a director at Sonys marketing unit, said
in Tokyo.
SOURCE: Kjetland, R. 2011. Sony tablet takes aim at Apple iPad. Business Day, 2 September 2011
4. The competitive structure of an

industry
LO6
Different industries have different structures, which results

in very different rules of the game when it comes to
competitive behaviour. The competitive structure of an

industry and the critical rules of the game set by this
structure can be explained by using Michael Porters model
of competitive forces in an industry.13 The five forces are:
The threat of entry from new competitors

The threat of substitute products
The bargaining power of buyers
The bargaining power of suppliers
The rivalry between the existing direct competitors.
Each of these five forces identified by Porter consists of a

number of elements that combine to determine the strength
of each force and its effect on the degree of competition.
These competitive forces are discussed next.
4.1 Threat of new entrants

A segments attractiveness varies with the height of its entry
and exit barriers. The most attractive segment is one in
which entry barriers are high (provided you have adequate
resources) and the exit barriers are low. This means that few
new firms can enter the industry because it is so expensive
(high entry barriers), and firms that perform poorly can
easily exit (low exit barriers). When both entry and exit
barriers are high, profit potential is high, but competing
firms face more risk because the firms that perform poorly
stay in and fight it out. The South African cellphone industry
is an example. The barriers to entry such as capital
expenditure, infrastructure, retail distribution network are
high, but those operators that are in (Vodacom and MTN)
are very profitable. Those that arrived later (Cell C and

Virgin) are struggling, but still fighting.
When both entry and exit barriers are low, firms easily enter
and leave the industry, and the returns are stable, but low.
Opening a video shop does not require much investment
(low entry barriers) and to withdraw is relatively easy (low
exit barriers). The worst case is when entry barriers are low
and exit barriers are high. Then competing firms enter
during good times, but find it hard to leave during bad
times. The result is chronic overcapacity and poor earnings
(profits) for everyone in the industry. The wine industry
faces overcapacity, and a firm like Distell has admitted that
sales of its brands such as Chateau Libertas and Graa have
been harmed by the oversupply. In the investment banking
market, for instance, there are about fifty firms offering
investment banking services in addition to the competition
with global banks such as JP Morgan and Deutsche Bank.
Investec has warned that there were too many investment
banks competing for a shrinking pool of business in South
Africa, and competitors were slashing fees to stay afloat.
There is overcapacity in the market at every level and this is
taking its toll, says Investec.14 Bank executives acknowledge
the threat posed by nontraditional competitors, such as
retailers and mobile service providers. With revolutionary
technology that lowers barriers to entry, and increased
customer migration to electronic products, innovative
partnerships between different sectors are also penetrating
the market. Examples include partnerships between banks
and retailers and banks and mobile service providers.
Easy-to-enter markets soon become overcrowded, which
harms the future profit prospects for everyone competing in

the industry. One reason is the increased power handed to
customers, who can wring concessions from existing
suppliers by threatening to go to a competitor or help a new
competitor to enter the market. Once the new entrants have
established themselves, they frequently go on to assault the
entire market and intensify the level of competition.
The seriousness of the threat of entry depends on the
height of the entry barriers that impose disadvantages on
prospective entrants and depress their expectations of
profitability. These barriers are created by the following
factors:15
Factor cost advantages for incumbents are created by

lower labour or capital costs, preferred access to raw
materials, favourable locations or proprietary
technology. Any large international grocery retailer that
wishes to compete in South Africa with the likes of Pick n
Pay, Shoprite Checkers and Spar will find it difficult
because the incumbents have taken all the best available
retail sites. Smaller airlines in South Africa, such as
British Airways and Mango, have to make do with
inferior landing facilities at South African airports
compared with those of South African Airways, making it
difficult for them to compete effectively.
Economies of scale are a deterrent if incumbents force
the prospective entrant to spend heavily on facilities,
advertising, sales-force coverage, distribution, and so
forth in order to gain cost parity with the incumbents, or
to come in at a smaller scale or to suffer a cost
disadvantage. The aircraft engine business has very high
barriers to entry, which severely limits the number of

possible competitors in the industry. Concorde,
competing with regular airlines, such as British Airways
and United Airlines, faced the disadvantage of low
economies of scale, which eventually contributed to its
demise.
Effective differentiation and high switching costs limit
the extent of direct competition, but they also deter new
entrants from entering the industry. The opposite is also
true. Few bottlers of mineral water have succeeded in
effectively differentiating their products and brands, and
it is easy for consumers to switch brands. As a result, it is
a highly competitive market.
Channel crowding. Most distribution channels have
limited capacity, and channel members, such as retailers
and wholesalers, often restrict the number of product
lines they will handle. Computer retailers have space for
about five manufacturers at a time. Each new line of
computers creates additional fixed costs for the retailer,
ranging from training staff, to the allocation of shelf
space, additional spare parts management, and so forth.
To convince distribution channel members to carry new
products, marketers often have to pay substantially
larger margins to offset the retailers extra costs.
Sometimes the competing incumbents have blocked
potential new entrants through long-run or exclusive
distribution arrangements with retailers, forcing the
prospective new entrant to face the cost of establishing a
completely new distribution channel.
One must never underestimate the threat of new

competitors. Nestl, with it Nespresso capsules learnt it the

hard way, as they no longer have a monopoly on those
colorful pods it sells for its fancy coffee machines. Nestl has
tried to maintain its grip on the Nespresso capsule market
by means of patents and legal action against some copycat
rivals. It has also added small hooks inside its machines,
which make some of the generic pods stick, rendering them
incompatible.16 Despite these efforts many companies,
chasing this highly-profitable market, entered the coffee
capsule segment in 2013, after Nestl (the worlds biggest
food and drinks company), lost its patent covering the
Nespresso coffee system. 17
4.2 Threat of substitute products

A segments degree of attractiveness is influenced by
whether there are actual or potential substitutes for the
product. Substitute products place a limit on prices and,
therefore, on the profits that competing firms in a segment
can earn. For example, tea and coffee are fairly close
substitutes to each other. Raising the price of coffee,
therefore, could make tea more attractive. Alert firms
monitor the price trends of substitutes closely. If technology
advances are imminent or competition increases in these
substitute industries, prices and profits in the segment are
likely to fall. The South African telecommunications
industry is an example. The South African government has
tried for years to find a competitor for Telkoms fixed-line
telephone business. One reason is that there are so many
substitute products that consumers can use for
communication purposes these days (such as cellular

phones,
SMSs
and
e-mails)
that
fixed-line
telecommunications have become an unattractive option
for many potential new entrants. With the arrival of Neotel
on the scene, the situation may change.
READER 23 >> Coffee to go: The worlds first

disposable coffee machine
Coffee fans get can their fix anywhere thanks to the worlds first disposable
coffee machine. The innovative product works like a teabag for coffee and
promises to brew a quality cup just by adding hot water to the bag. The water
mixes with ground coffee then drips through a special filter into another
chamber, from which is can be poured into cups.
SOURCE: Growers Cup 2008-2014 Coffeebrewer Nordic A/S
Designer Ulrik Rasmussen came up with the idea from studying teabags
after running out of coffee filters for his home coffee machine. He has spent
nine years developing the product. It all started one morning when he went to
make himself a cup of coffee and realised he had run out of filters for his
machine. I needed my coffee fix and I was getting annoyed that it was so
difficult to make a decent cup of coffee. As I slammed the kitchen drawer
shut I noticed some tea bags and I started thinking about why there wasnt a
similar product for coffee. I cut up a few tea bags and put coffee grounds
inside them and found there was some potential for a similar product so I
started doing research into it.
SOURCE: Webb, S. 2014. Coffee wars: Tesco launches espresso shot pods to rival Nespresso luxury
coffee capsules endorsed by George Clooney. Daily Mail, Available from http://www.dailymail.co.uk/
(Accessed in June 2014)
Consider the impact that a substitute such as facsimile

machines has had on the revenue of the Post Office. The
ability of facsimile machines to meet buyers needs for
immediate delivery of documents had a severe impact on

the Post Office. The initial impediments to buyers using
these machines fell fast, the prices dropped quickly, and
these days there is a huge network of facsimile machines on
the receiving end, which, in turn, is threatened by e-mail
devices that can deliver scanned documents.
A substitute product will have a significant impact on the
competitive situation in a market if it offers additional
benefits that the consumer perceives and values. These
include the following:
Performance benefits such as saving time, improving

output or providing new functions. The electronic cash
registers used by large retailers, such as supermarkets,
cost more than their mechanical forerunners, but
provide extensive benefits, such as online transactions,
data that can be used to control inventory costs and
improved procurement.
Security benefits that result in improved safety,
resistance to burglary or invulnerability to fire damage.
The opposite is also true: security concerns about
providing financial information online (such as credit
card numbers), have severely limited the use of the
Internet as a substitute medium for shopping and
banking.
Availability benefits gained from the assurance of
immediate, reliable delivery, which permits lower
inventory levels.
Flexibility benefits that mean the product can be used
in a wider variety of situations. Many South African
consumers have switched from landline telephones to
cellphones because of the superior flexibility offered by

the latter.
The incentive to switch varies for different consumers, and
depends on how they use and derive value from their
present products. The economic value of a new superminicomputer will depend on whether it is substituting a
mini- or micro-computer, and on whether it is used for a
production-line control, distributed processing or energysaving applications. Thus, whether or not a substitute
product enters a market is a question that can be resolved
only within a distinct segment of consumers who have
similar needs or requirements.
The availability of substitutes depresses the profit
prospects of the firms in a market when there is a significant
economic incentive for consumers to switch and the costs of
switching are low. Consumers switching from CDs to
storing data or music on flash discs is an example. This
threat to profitability is increased if the rivalry among the
firms offering the substitute is intense, and leads to rapid
declines in the price of the substitute or improvements in its
relative performance.
4.3 Threat of buyers growing bargaining power

A segment is unattractive if the buyers in that market have
strong or growing bargaining power. Often buyers will try to
force prices down, demand more quality or services and set
competitors off against each other, which reduces seller
profitability. Buyers bargaining power grows when they
become more concentrated or organised; when the product

represents a significant portion of the buyers costs; when
the product is undifferentiated; when the buyers switching
costs are low; when buyers are price-sensitive because of
low profits; or when buyers can integrate upstream. To
protect themselves, sellers may select buyers who have the
least power to negotiate or switch suppliers. A better defence
consists of developing superior offers that strong buyers
cannot refuse. Financial institutions such as Liberty, Old
Mutual and Sanlam face this type of situation in the
business-to-business market when they compete to
administer the pension funds of large firms, the government
and semi-government corporations (such as Eskom). The
buyers all have significant bargaining power when dealing
with these financial institutions.
The ability of large suppliers to withstand bargaining
efforts by their customers (and potential new buyers)
depends on:
Their size in relation to that of the customers. Large

suppliers are less likely to succumb to pressure from
smaller buyers, especially in a fragmented market. This
situation is especially noticeable in the advantages that
large textile manufacturers have in relation to their
small, dispersed customer base. Similarly, small video
shops are increasingly losing out to large convenience
chains.
The reliance of the customer on the suppliers product
either because the customer cannot get the equivalent
quality elsewhere, or is contracted to the supplier to the
extent that the cost of switching is much greater than any
benefits a new supplier can promise. An example of the

latter is when large firms consider switching banks. Will
the advantage of lower transaction costs or higher daily
interest rates by one bank promised to a firm such as
Pick n Pay be sufficient to make the switch to a
competing bank worthwhile?
The credibility of their threats to integrate forward in
their value chain and sell directly to the end customer.
An example would be if SAB threatened to open its own
bars. This threat will blunt aggressive attempts by buyers
to get better prices from manufacturers or suppliers.
Motor vehicle manufacturers can issue a similar threat to
their dealerships, or airlines can set up their own travel
agencies to sell tickets directly to large corporate firms.
4.4 Threat of suppliers growing bargaining power

A segment is unattractive if the firms suppliers are able to
raise prices or reduce the quantity supplied at will. Suppliers
tend to be powerful when they are concentrated or well
organised, when there are few substitutes, when the
supplied product is an important input to their production
process, when the costs of switching suppliers are high and
when the suppliers can integrate downstream. The best
defense mechanisms are to build win-win relations with
suppliers or use multiple sources of supply. A hypothetical
example could be users of sugar, such as soft-drink
manufacturers (e.g. Coca-Cola) and confectionery
manufacturers (e.g. Cadbury and Nestl). If the producers of
sugar (for example, Huletts) become fewer and fewer or
organise themselves into a single selling unit, they (the sugar

producers) will increase their bargaining power, perhaps to
such an extent that potential entrants would avoid the
market. It is for this reason that Coca-Cola has a stated
policy that it is never reliant on a single supplier for any of its
raw materials.
4.5 Threat of intense segment rivalry

A segment is unattractive if it already contains many, strong
or aggressive competitors. It is even more unattractive if the
segment is not growing or declining, if fixed costs are high, if
exit barriers are high or if competitors have high stakes in
staying in the segment. These conditions will lead to
frequent price wars, advertising battles and new-product
introductions, which will make it expensive to compete. The
carbonated soft-drinks market is such a market. The sales of
carbonated soft drinks in South Africa and worldwide have
been declining as more and more consumers adopt
healthier lifestyles. Also, the industry is dominated by one or
two very dominant competitors globally (Coca-Cola and
Pepsi) and in South Africa (Coca-Cola). Any firm wanting to
compete with Coca-Cola and its brands (which include
Fanta, Sprite and Stoney Ginger Beer) must know that it is
taking on a formidable competitor as Pepsi found out
when it first tried to enter the South African market.
As seen in the discussion till date, the competitive
structure of an industry and the critical rules of the game set
by this structure can be explained by using Porters model of
competitive forces in an industry. As shown, these forces are
the threat of entry from new competitors, the threat of

substitute products, the bargaining power of buyers and
supplies and the rivalry between the existing direct
competitors. The intensity of rivalry between existing
competitors in the industry therefore depends on the five
factors. The five competitive forces also highlight the
existence of vertical and horizontal forms of competition.
The intensity of vertical competition is related, in part, to the
bargaining power of suppliers and buyers. The location
(level) of a firm in its value chain and the extent of its control
over the distribution channel, have a major influence on the
firms marketing strategy. Indeed, a strategic option may be
to take action to change the impact of competitive forces on
a firm, for example through collaboration and alliance,
rather than accepting the existing situation.18
Relations between customers and sellers sometimes
range from tight, just-in-time manufacturing systems such
as in the motor industry, where suppliers of motor vehicle
parts almost become extensions of the motor vehicle
assembling factory to mass-market encounters. The ability
of motor vehicle manufacturers to force down prices by
playing suppliers off against each other is legendary to the
detriment of the suppliers profitability. Pharmaceutical
firms marketing a range of medicines are not as vulnerable
to bargaining pressure because their end customers are
often not price-sensitive, but they still face aggressive
retailers, such as Clicks and Dis-Chem, who control access
to the shelves and extract sizeable marketing
communications allowances, quantity discounts and other
charges for the privilege of having their products on their
shelves. The extent of customer power in these and other
situations depends on the credibility of their bargaining

leverage and their customers sensitivity to price.
Bargaining leverage is enhanced by the following
scenarios:
When there are few customers making large-volume
purchases. A firm making television documentaries in
South Africa can sell them to only one of three potential
buyers (the SABC, M-Net or etv). Consequently, the
supplying firm becomes dependent on one or only a few
customers, and faces considerable excess capacity if the
relationship is severed. This is also the plight of privatelabel suppliers to large retailers, such as Woolworths.
When there are few constraints on customers to make a
switch from one supplier to another. This will be the case
when there is little differentiation, the costs of switching
are low or there is a cost-effective substitute. If that is the
case, loyalty is virtually non-existent, and price becomes
the only issue of concern. Whether a large organisation,
such as a university or a municipality, buys its stationery
from firm A or firm B will in all probability depend on
their prices. One stationery seller is not likely to be
differentiated from the next they both sell the same
products and it will be easy to switch if the price is
right.
When a buyer makes realistic threats to manufacture the
product themselves rather than buy it. This threat (the
so-called make-or-buy decision) can and will be used
to wring concessions on prices and terms under the
guise of making the make alternative more attractive
than continuing to buy. In the United States, this threat
continually hangs over the beverage can manufacturers

more than 25 per cent of all cans are made by the
breweries and soft-drink firms themselves. Similarly,
large firms whose employees need to travel frequently
often contemplate bypassing travel agencies and set up
their own travel offices. Some large-liability insurance
customers are protesting against the high premiums
demanded by insurance firms by self-insuring and
spreading the risk among their many operating units.
When a customer is knowledgeable enough to know
their suppliers costs, or have learnt that the supplier
badly needs their business to be able to utilise expensive
excess capacity. For example, a major newspaper printer
whose printing presses are idle for long periods may
offer the management of a new magazine bargaining
power to negotiate a very good price to print the
magazine for them.
During periods of high price sensitivity. Price sensitivity
refers to how important lower prices are to the customer,
and hence the intensity of their demands for price
concessions. Price sensitivity is heightened when:
> The product or service has little influence on the
performance or quality of the end product
> The cost of the product is a significant proportion of
the customers total costs
> The customer is suffering poor profitability, and
looks to the supplier for help. When survival is at
stake the pressure for concessions can be intense.
When these factors describe buyers who perceive little

differentiation among the competing suppliers, the pressure
on the demand for lower prices is further intensified.
5. Analysing key competitors
LO7
A key competitor is any firm targeting the same market

segment as the firm conducting the analysis. The objective
of a key competitor analysis is to be able to predict key
competitors potential actions, especially those taken in
response to the actions of the local business.
EXAMPLE >> In the video-game-console business, the strategies of

Microsoft and Sony, which are attempting to dominate next-generation systems,
are largely predictable based on each companys tangible and intangible assets
and current market position. For Sony, which has valuable businesses in
consumer electronics and in audio and video content, it is important to establish
the PlayStation as the living-room hub, so that any cannibalization of the
companys consumer electronics businesses comes from within. The PlayStation,
which plays only Blu-ray disks, is thus one of the companys most important
vehicles in driving demand for Blu-ray gaming, video, and audio content.
Microsoft on the other hand has limited hardware and content businesses but
dominates personal computers and network software. Establishing the Xbox as
the living-room hub would therefore help to protect and extend its software
businesses. For Microsoft, it is crucial that the digital living room of the future
should run on Microsoft software. If an Apple product became the hub of future
iHome living rooms, Microsofts software business might suffer. Sony and
Microsoft therefore have different motives for fighting this console battle. Yet the
current market positions (existing businesses and economies of scope), tangible
assets (patents, cash), and intangible assets (knowledge, brands) of both
companies suggest that they will compete aggressively to win. It was predictable
that they would produce consoles which, so far, have been far superior
technologically to previous systems and interconnect seamlessly with the Internet,

computers, and a wide variety of consumer electronics devices. It was also
predictable that both companies would price their consoles below cost to
establish an installed base in the worlds living rooms quickly. The competition to
win exclusive access to the best third-party developers games, as well as
consumer mind-share, will also probably continue to be waged more aggressively
than it was in previous console generations. For Microsoft and Sony, the resourcebased view of strategy helps us to understand that this battle is about far more
than dominance in the video game industry and thus to identify the aggressive
strategies both are likely to follow. Nintendo, in contrast, is largely a pure-play
video game company and thus an asymmetric competitor to Microsoft and Sony.
The resource-based view of strategy explains why Nintendos latest console, the
Wii, focuses primarily on the game-playing experience and isnt positioned as a
digital hub for living rooms. The Wiis most innovative feature is therefore a new,
easy-to-use controller appealing to new and hardcore gamers alike. The Wii has
few of the expensive digital-hub features built into the rival consoles and thus
made its debut with a lower retail price. 19
Today, competition is not only rife in most industries, but
intensifying every year. Many US, European and Japanese
firms are bringing cheaper goods to global markets by
setting up production facilities in lower-cost countries, such
as China, Malaysia and South Africa. Many of these are in
the motor vehicle and related industries, of which
Volkswagens assembly plant in Uitenhage is an example.
These developments explain the importance of competitive
intelligence systems. Because markets have become so
competitive, understanding customers only is no longer
enough.
The competitive environment is also an important
consideration given the need to provide superior value to
target customers. However, competition in the online world

is incredibly intense. It is not unusual for a firm to develop a
clear business plan only to have new competition emerge
prior to the launch date. Hence it is critical that existing and
emerging competitors are understood and constantly
monitored. Competitors must be evaluated in both the
online and offline environments. The online environment is
distinctive in two respects. First, the degree of competitive
intensity is different from the offline world (specifically, in
terms of the number of new competitors that are emerging
both within the product category and across product
categories). Second, it is much easier to analyse competitors
given the emergence of Internet sources. Successful firms
place a strong emphasis on understanding their
competitors. General Electric, for instance, once ran an
exercise for its managers called destroyyourbusiness.com,
which forced managers to think about where they were most
vulnerable to new-economy competitors.20
Partnerships between banks and non-financial
institutions (e.g. retailers, telecom companies and thirdparty platform providers) will be more prevalent in the
future as banks attempt to broaden their distribution and
reach unbanked segments of the market. South African
banks wanting to expand into Africa might also have to
consider partnering with local banks in those markets, as
local businesses often enjoy advantages in terms of doing
business in Africas complex environment. As a result, it is
important to consider local banks, not only as competitors
but also as potential business partners.21
To summarise, a competitor analysis is conducted for the
firms directly competing with each other (i.e. current

competitors) and for other firms that management may
consider important in strategy analysis (i.e. potential
competitors).
6. Understanding current competitors
LO8
It is important to have an understanding of current

competitors. Aspects to consider include size, growth and
profitability; image and positioning strategy; competitor
objectives and commitment; current and past strategies of
competitors; competitive culture; cost structures; and exit
barriers.
6.1 Size, growth and profitability

An understanding of current competitors should start with a
thorough analysis and understanding of their broad-based
business strategy. Coca-Cola, for instance, wants to offer a
total beverage solution. What does this say about CocaColas business strategy? It says it is not going to market only
carbonated soft drinks any more. It also means that CocaCola will from now on add non-carbonated drinks, such as
mineral water, nutritional beverages, such as Vitingo, and
energy drinks, such as Play, to its product mix. The idea is
that no matter what a consumer wants to drink, there must
be a Coca-Cola product available. The level and growth of
sales and market share provide indicators of the success of
the business strategy. Obviously, the maintenance of a
strong market position or the achievement of rapid growth

usually reflects a strong competitor (or strategic group) and
a successful strategy. By contrast, a deteriorating market
position can signal financial or organisational strains that
may affect the interest and ability of the business to
compete.
Besides size and growth, the profitability of competitors
needs to be assessed. A profitable business will generally
have access to capital for investment unless it has been
designated by the parent to be milked (being milked means
the cash that the product or business unit generates is used
elsewhere in the business, but the unit receives no or limited
resources itself see Chapter 14). A business that has lost
money over an extended time period or has experienced a
recent sharp decrease in profitability may find it difficult to
gain access to capital either externally or internally, which
will weaken its competitive capabilities.
6.2 Image and positioning strategy

Often the cornerstone of a business strategy is a mental
association consumers have of a product or brand, such as
being the most economical dishwasher, the most durable
lawnmower, the smallest cellphone or the most effective
toothpaste. Mr Price has clear value for money positioning,
for instance. In order to develop the firms positioning in
relation to alternatives, marketers need to study the
positioning of competing firms and products. Besides formal
research, the promotion and advertising, and packaging and
pricing of competing firms will provide clues on their market
positioning (see Chapter 7).

When British Airways launched its no-frills airline,
Kulula.com, it was careful about its positioning. Kulula is
isiZulu for its easy, which is the key focus of Kulula.com.
The whole concept of Kulula.com is a departure from the
norm in South Africas airline industry, said Gidon Novick,
CEO of Kulula.com. To reinforce the fun, easy aspects of the
new airline, we have opted for a young, modern look and
feel throughout our marketing campaign. The campaign
embodies the idea [that] anyone can fly and brings in
elements of ordinary people becoming superheroes who can
fly, he says. The successful positioning of Kulula.com has
contributed significantly to its financial success and
contributed to South African Airways financial woes in the
local market.22
6.3 Competitor objectives and commitment

The firm needs to know the relative importance that a
competitor places on current profitability, market share
growth, cash flow, technological leadership, service
leadership and other objectives. Knowing a competitors
mix of objectives reveals whether the competitor is satisfied
with its current situation and how it might react to different
competitive systems. For example, a firm that pursues lowcost leadership will react much more strongly to a
competitors cost-reducing manufacturing breakthrough
than to the same competitors increased advertising
expenditure. A firm should also monitor its competitors
objectives for clues on which market segments they are
likely to target. If a firm finds that a competitor is targeting a

new segment, this may offer a new opportunity. If it finds
that competitors plan new moves into segments now served
by the firm, it will be forewarned and hopefully forearmed.23
To illustrate, Woolworths is increasingly competing with
the bigger supermarkets, particularly targeting both higher
and middle-income LSM groups. It has made it clear that it
will open more outlets, will increase its product range and
continue to add more branded products.24 A statement of
this nature would provide a clear indication to competing
firms, such as Pick n Pay and Checkers, as to the areas in
which they would experience competition from
Woolworths.
Firms in an industry often differ in the importance they
attach to short-term and long-term profits. Most South
African firms operate on a short-run profit-maximisation
model, largely because their current performance is judged
by shareholders and market analysts, who may lose
confidence in the firm, sell their shares and cause the firms
cost of capital to rise if they do not perform well over the
short term. Japanese firms, on the other hand, take a longterm view. They use what is called a market-sharemaximisation model. This means that Japanese firms
receive much of their funds from banks at a lower interest
rate, and in the past the banks have readily accepted lower
profits. Clicks, for instance, in its first year of competing in
the pharmaceutical market with its in-house pharmacies,
made a loss of R38 million, but the firm took the long-term
view that profitability would return.
Another model or school of thought is that each
competitor pursues some mix of different objectives. The

particular mix will depend on a given set of circumstances,
such as improving cash flow, market-share growth,
technological leadership or service leadership. Knowing the
importance each competitor attaches to different objectives
will help the firm anticipate their reactions. Many factors
shape a competitors objectives, including its size, history,
current management and financial situation. If the
competitor is a division of a larger firm, it is important to
know whether the parent firm is running it for growth or
milking it. Finally, a firm must monitor its competitors
expansion plans. In the computer industry, Dell which is a
strong force in selling personal computers to individual
users is also pursuing commercial and industrial buyers,
and selling servers. Other incumbents may, therefore, wish
to set up mobility barriers to Dells expansion into their
markets.25
6.4 The current and past strategies of

competitors
Knowledge of current strategies and past strategies also
helps one anticipate and understand how competitors
behave. Mercedes-Benz has consistently targeted only the
top end of the passenger vehicle market. Surprisingly, the
firm decided in the 1990s to add the Honda Ballade to its
product mix in a classic example of a downward stretch,
which was inconsistent with its previous strategy. This
decision has since been rescinded. Competitors can,
therefore, expect Mercedes-Benz to continue with its niche
strategy of the past.
6.5 Competitor culture

Just as current and past strategies are helpful in
understanding competitive behaviour, so is knowledge of
competitors culture. Nandos organisational culture is
epitomised by its advertising strategy of humour and a
daredevil, no-holy-cows approach. Competitors of
Nandos, such as KFC, know exactly what to expect of
Nandos anything!
6.6 Cost structure

Each industry has a certain cost burden that shapes much of
its strategic conduct. For example, steelmaking requires
heavy manufacturing and raw-material expenditure,
whereas toy manufacturing relies heavily on expensive
distribution, and other marketing costs are considerable.
Firms will continually try to reduce these costs. The steel
firm with the most cost-efficient factory, for instance, will
have a great advantage over other steel firms. Another
example is Nampaks decision to invest in a new
manufacturing plant in Kliprivier at considerable cost to
make the Cuddlers nappy brand locally rather than
importing it. The firm believes that by manufacturing
locally, it can be priced more competitively against the
major international brands, such as Huggies and Pampers.26
Also, cost structures change over time. When Cell C
launched its bid to become South Africas third cellular
phone operator, it estimated its set-up cost at R4,5 billion.

The actual cost turned out to be R2,5 billion.27
READER 24 >> Priced to go

Despite tough business conditions in 2014 retailer Mr Price has increased its
profits by 23%. Why has this cheap and chic retailers budget-conscious
offerings competed so effectively with well-entrenched competitors such as
Foschini and Truworths? Mr Price began as a small chain of factory shops, an
image that management decided to change to a trendy, value outlet. Though
the directors are loath to admit it, the factory shop reputation sticks in the
minds of some shoppers. Value retailing has taken time to catch on in South
Africa. The distinction between factory shops and value retailing may seem a
fine line. But when a group image is at stake, its important. It has taken time
to persuade people that lower prices dont always mean poor quality. Until
recently, some upmarket shopping malls wouldnt accommodate Mr Price
outlets. This attitude has changed as poor trading conditions have forced
many established competitors to close or downsize. Mall managers, seeing Mr
Price was thriving even in this trading climate, invited the chain to open
outlets. Walk into a Mr Price outlet, and the difference between it and a
clothing chain with more luxurious branding and decoration is immediately
apparent. Mr Prices fittings are clearly cheaper, its price signs bolder.
Assistants are informally dressed, in keeping with the chains weekend gear
range. And the shops in-house radio fits this atmosphere. We are able to
supply competitively priced goods because of the groups low-cost structure.
We dont have a luxurious head office; the stores have inexpensive fittings.
But Mr Price is still a volume business. With sales of about R11 300/m, it
beats most. Moreover, the chain needs fewer sales assistants per R100 000
worth of sales than many competitors.
SOURCE: Adapted from: Moorda, Z. 2014. Mr Price bucks retail sector gloom. Business Day, 18
November, p. 11; Joubert, M. 2000. Priced to go. Financial Mail, 4 February 2000, pp. 4849
Knowing the cost structure of firms in an industry provides

clues on competing firms future pricing options and staying
power. When challenged on pricing by cheaper competitors
in the past, South African Airways has often responded with
an attitude of: We know what it costs to operate an airline in
South Africa. We know cheaper fares are not sustainable
over the long term. We will wait till the storm blows over.
6.7 Exit barriers

Exit barriers are an important consideration for a firm
wanting to withdraw from a market. Firms often face exit
barriers, which include legal or moral obligations to
customers and creditors; employee-related expenditure,
such as contract payments and severance packages;
government restrictions; low asset salvage values due to
over-specialisation or obsolescence; lack of alternative
opportunities; high vertical integration; and emotional
barriers which all make it difficult for a firm to withdraw
from a market. Many firms stay in a very competitive
industry as long as they cover their variable costs and some
(and hopefully later all) of their fixed costs. Their continued
presence, however, dampens profits for everyone. When
General Motors (GM) disinvested from South Africa in 1986
by selling its operations to the then local management team
to become Delta Motor Corporation, GM had $800 million of
debt to settle after six years of losses a considerable exit
barrier even in todays money. Knowing that these factors
have an impact on competing firms helps one to understand
their competitive activities.
7. Understanding potential competitors
LO9
In addition to current competitors, it is important to

consider potential market entrants, such as firms that might
engage in the following:28
Market expansion: perhaps the most obvious source of

potential competitors is firms operating in other
geographic regions or other countries entering the firms
market. Examples are Tata (Indian), Renault and
Peugeot (both French) entering the South African motorvehicle market. A Botswana grocery retailer called
Choppies (who has 67 stores throughout Botswana) has
recently entered the South African retail market and
already has 23 store dotted around the country
competing with stores such as Checkers and Shoprite
USave.
Product expansion occurs when firms add new products
to their existing product line. Oros, an orange-squash
drink, used to be available only in relatively large bottles
in a syrup form that needed to be mixed with water at
home. Now Oros has launched the Oros Dinky, a readyto-drink version, packaged in a plastic pouch with a
straw, to compete directly with Coca-Colas Bibo.
Integration can consist of vertical, forward, and
backward integration strategies all sources of potential
competition. General Motors bought dozens of
manufacturers of components during its formative years
(backward integration). Major users of cans, such as
tinned soup manufacturer Campbell Soup, have
integrated backwards manufacturing their own cans

and other containers, thereby making life difficult for
many can manufacturers. Vertical integration can,
however, create certain disadvantages, such as high
costs in certain parts of the value chain and a degree of
inflexibility (in this example, because they can only use
their own cans).
The export of assets or competencies can occur when a
current small competitor with critical strategic
weaknesses can turn into a major entrant if it is
purchased by another firm that can reduce or eliminate
those weaknesses. Predicting such moves can be
difficult, but sometimes an analysis of a competitors
strengths and weaknesses may suggest some possible
synergistic mergers. Clicks entered the pharmaceutical
market by opening pharmacies in its current retail
outlets in the hope that its retail competencies and
current health-and-beauty product ranges synergy with
pharmaceutical products as well as its higher buying
power will allow it to compete effectively with
independent pharmacies.
Retaliatory or defensive strategies can be used by firms
that are threatened by a potential or actual move into
their market. For example, Microsoft has made several
moves (including into the Internet space) in part to
protect its dominant software position. CD Warehouse
and Musica reacted to the increased competition from
the Internet (where songs can be downloaded) by
discounting the most popular 20 CDs to encourage
music fans to return to the CD as a music-listening
format.
7.1 Entry barriers

Entry barriers are an important consideration when
analysing potential competitors. Industries differ greatly in
respect of ease of entry. It is easy to open a new restaurant,
but difficult to enter the aircraft industry. Major entry
barriers include high capital requirements, high economies
of scale requirements, patents and licensing requirements,
scarce locations, raw materials, difficulty in getting access to
intermediaries and reputational requirements.
Several overseas beer brewers have eyed the South
African beer market over the years (including the worlds
largest brewer, Anheuser-Busch), but have decided not to
take on South African Breweries, mainly because of the high
barriers to entry and particularly the investment required to
match SABs formidable distribution network. Pepsi is again
entering the South African market, but is finding the going
tough against Coca-Colas well-established market position.
When satellite network Top TV entered the television
market to challenge DStv they knew that they needed deep
pockets to overcome the entry barriers R1,2 billion to be
exact.
8. Evaluating competitors strengths and

LO10
weaknesses
A precise understanding of a competitors strengths and
weaknesses is an important prerequisite for developing a
strategy to compete against it. The critical question is what

can our competitors do? Firms normally learn about their
competitors strengths and weaknesses through secondary
data, personal experience and word-of-mouth. They can
also conduct primary marketing research with customers,
suppliers and dealers. An alternative is to benchmark
themselves against other firms, comparing their own
products and processes with those of competitors or leading
firms in other industries to find ways to improve quality and
performance. Benchmarking has become a powerful tool for
increasing a firms competitiveness.29 In essence, the
objective will be to overcome competitors strengths and
exploit their weaknesses. When benchmarking, firms should
also review competitors websites, identifying not only best
practices, but also worst practices (to be avoided at all costs)
and next practices. Next practices refers to a firm looking
beyond its industry sector at what leading Internet firms,
such as Amazon (www.amazon.com), are doing. For
instance, a firm in the financial services industry could look
at what portal sites are providing and see if there are any
lessons to be learnt on ways to make information provision
easier. When undertaking scanning of competitor websites,
the key differences that should be watched out for are new
approaches from existing competitors and new firms
starting on the Internet. It is also important to be alert to
new technologies, design techniques and customer support
on their websites, which may give a competitive advantage.30
When TopTV launched it knew that DStv had a lot of capital
and a strong brand which will make it a formidable
competitor. Based on the analysis of current and potential
competitors, discussed in the previous sections,
management needs to decide to what extent elements of

information are worth pursuing. One approach that may be
used to structure and focus this component of a competitor
analysis is that of comparing the firm with its key
competitors on the key success factors (KSFs) in the
industry. A KSF analysis can be performed using a threestep process.31
8.1 Step 1: Identify key success factors in the

industry
KSFs can be defined as those characteristics or conditions in
a particular industry that have a significant impact on the
performance of the firm in that industry (see the section
Defining the competitive arena, p. 118). For individual
firms these success factors translate into particular assets,
skills or competencies required in order to succeed in the
industry. The better the fit between the firms unique
competencies (strengths relative to weaknesses) and the
success requirements of the industry, the more successful
the firm is likely to be. It is important to restrict the number
of KSFs to about six to eight, or else the analysis becomes too
complicated. The identification is a matter of managerial
judgement, but answers to the following questions may
guide the identification of KSFs:32
Why are successful competitors successful and

unsuccessful competitors unsuccessful?
What are the most important motivators of customers
choices? What do customers consider as important?
Which phase(s) in the production process and supply

chain creates the highest added value? The activities that
contribute to the highest added value are most likely to
be key factors that determine success.
What are the entry barriers in the industry and between
segments in the market? The factors that make it difficult
for a competitor to enter a market or segment are typical
KSFs.
Competitors sources of success may be functional (e.g.

financial strength or flexible production) or more generic
(e.g. the ability to respond quickly to customer needs, the
quality of innovativeness or the ability to provide after-sales
service). Since these factors are critical for success, they
should be used to compare the firm with its competitors (see
Reader 25 Mugg & Bean no mug in dealing with the
competition, below).
READER 25 >> Mugg & Bean no mug in dealing with

the competition
The light meals and coffee shop brand, Mugg & Bean, was recently awarded
the best place to grab a cup of coffee at The Times and Sowetan 2009
Retail Awards. This was the pinnacle of the career of veteran restaurateur and
CEO of Mugg & Bean Franchising, Ben Filmalter. The award follows the steady,
if not stellar, growth of the Mugg & Bean brand since the opening of its first
branch at the Victoria and Alfred Waterfront shopping centre in Cape Town in
1996.
Competition has always been intense in the coffee-shop market due to low
barriers to entry. These difficult trading conditions have been compounded in
recent years by the entry into the South African market by such international
giants as Starbucks, and the pressure that the recession has put on
discretionary consumer spending. However, Mugg & Beans carefully defined
focus on a particular niche market (the firms website www.themugg.com
describes the business as a coffee-themed restaurant franchise focused
mainly on the shopping market) has allowed the business to expand to more
than 100 locations in South Africa, as well as internationally.
In addition, Filmalter further explains why Mugg & Bean has been able to
grow, despite the tough economic climate and competitive environment: We
have reviewed the value proposition of every dish on the new menu and ensure
that it complies with our ethos of generosity. We offer more beautiful food,
more plentiful plates, more fresh products and a friendlier atmosphere. This is
our secret to rising out of the current challenging economy.
The reason for the brands world-class success is because of the cutabove quality and extraordinary value for money. We are always more generous
with our portions, offer high-quality food and have outstanding signature
dishes and baked items. We have meaning in consumers lives and will
continue during these difficult times to meet the needs of our consumers.
SOURCES: The Times and Sowetan Expanded 2009 Retail Awards proves sector is highly competitive.
Media update online newsletter, http://mediaupdate.co.za/, 9 October 2009; Roberts, C. 2001.
Coffee Break. Hotel and Restaurant Magazine online, May 2009
In Table 4.2, the KSFs identified following the above

guidelines are listed in the left-hand column. Next it is
critical to decide on a relative importance score (relative to
each competitor) for each of the KSFs. To do this, weights
must be allocated to each KSF to reflect its importance. The
different weights allocated to the KSFs must add up to 1. For
example as indicated in Table 4.2 it may be that product
quality, financial strength and the skills and expertise of staff
are the most important KSFs for competitive success within
this hypothetical sector, and innovativeness, technical

assistance to customers and extensive distribution networks
are relatively unimportant.
8.2 Step 2: Rate the firm and competitors on

each KSF
After weights have been assigned, the marketer must rate
the firm and decide on the most threatening competitors on
each of the KSFs. This may be on a scale ranging from 1
(very poor) to 5 (very good). As shown in Table 4.2, the
marketer can decide which competitors to include in this
exercise. In the hypothetical illustration in Table 4.2, three
current competitors are included and two future
competitors, based on the discussion about benchmarking
above. Once the rating is completed, one needs to multiply
the rating of each KSF by the weight allocated to it in order
to calculate a score for each firm/competitor and each KSF.
By adding all the KSF scores for each competitor into a total,
one can determine their positions of competitive strength
and compare them with each other. From Table 4.2, it is
evident that Current Competitor 2 is the market leader,
followed by Future Competitor 2, which is ahead of us,
Competitor 1, Competitor 3 and Future Competitor 1.
Table 4.2 Weighted competition strength assessment
Note: Rating scale = 1 (very poor) to 5 (very good)
8.3 Step 3: Consider the implications for

competitive strategy
When one considers Table 4.2, it is evident that this kind of
assessment indicates the relative importance of KSFs and
the relative strength of each competitor on the basis of these
factors. The competitive profiles can now be used to identify
possible competitive strategies based on each KSF in
relation to those of the competitors. It sometimes also helps
to establish the competitive position of a firm in a target
market on the basis of its own strengths and weaknesses, as
follows:33
Dominant: The dominant firm, to some extent at least,

controls the behaviour of other competitors and has a
wide choice of strategic options. In the South African
motor vehicle industry Toyota may be an example in
terms of pricing of motor vehicles in South Africa.
Similar examples include South African Breweries, CocaCola and South African Airways.
Strong: This firm can take independent action without

endangering its long-term position, and can maintain its
long-term position regardless of competitors actions. In
the South African motor vehicle industry, Volkswagen is
an example. In the airline industry, British Airways is an
example of a strong firm that can make independent
decisions without compromising its long-term
prospects.
Favourable: This firm has an exploitable strength and a
more-than-average opportunity to improve its position.
In the South African motor vehicle industry, Nissan is an
example. In the airline industry, Kulula.com is a good
example of a firm that can improve its position in the
near future.
Tenable: This firm performs at a sufficiently satisfactory
level to warrant continuing in business, but is kept back
by the dominant firm and has a less-than-average
opportunity to improve its position. In the South African
motor vehicle industry, General Motors may be an
example of a firm that can improve its position in the
near future. Cell-C is an example in the
telecommunications industry.
Weak: This firms performance is unsatisfactory, but
there is scope for improvement. The firm must change or
else exit the industry. In the South African motor vehicle
industry, Volvo may be an example. In the airline
industry, Nationwide Airlines and 1Time were unable to
improve its competitive situation and had to close down.
Mango is a relatively weak competitor in the South
African airline industry.
Non-viable: This firm has unsatisfactory performance
and there is no opportunity for improvement. 1Time

faced this situation in the South African airline industry.
The advertising agency The Grey Group recently closed
its doors after five years of decline.
9. Anticipating competitors actions
LO11
The information obtained during the steps of a competitor

analysis, outlined above, should be helpful in estimating
future trends although possible strategy shifts by
competitors may occur. A major objective of competitor
analysis is to predict competitors responses to market and
competitive changes. This is done by first considering the
likely reaction patterns of competitors because these will
influence direct rivalry among competitors.
9.1 Likely reaction patterns of competitors

How a competitor in an industry or market reacts to a
competitive threat will be determined by, among others, its
business philosophy, its organisational culture and the
values it subscribes to. According to Kotler,34 most
competitors reactions to competition, based on their
reaction profile, fall into one of four categories:
The laid-back competitor is one that does not react

quickly or strongly to a rivals move. On past occasions,
Gillette (manufacturer of toiletries, such as shaving
equipment) and Heinz (manufacturer of tinned food
products, among others) reacted slowly to competitive

attacks. There are various reasons for a slow response:
laid-back competitors may feel their customers are
sufficiently loyal and that they need not worry; the
competitor may be milking the business prior to its
closure (see Chapter 14); they may be slow in noticing
the move; or they may lack the financial resources to
react. Rivals must try to assess the reasons for the laidback behaviour of its competitors. Despite its size and
dominance SA Breweries are cognisant of competitor
activity and the Managing Director Norman Adami says
its does not want to fall into the bigness trap.35
The selective competitor is one that reacts only to certain
types of attacks. Selective competitors may, for instance,
respond only to price cuts, but not to promotions.
Knowing what a key competitor reacts to gives its rivals a
clue as to the most feasible lines of attack. When Pick n
Pay launched its Mini-Market chain, Whitey Basson,
CEO of Shoprite said that [the Shoprite] group will not
be going into direct competition with Spar and Pick n
Pay, but Shoprite will continue to compete with them on
price.36
The tiger competitor is one that reacts swiftly and
strongly to any competitive threat. In the United States,
Procter & Gamble (P & G) does not let a new detergent
come onto the market easily. Lever Brothers found this
out during its first foray into the so-called ultra
detergent market. Ultras are more concentrated
detergents marketed in smaller bottles. Retailers like the
smaller bottles because they take up less shelf space. But
when Lever Brothers introduced its ultra-versions of
Wisk and Surf, it couldnt get shelf space for long. P & G
vastly outspent Lever on advertising to support its own
brands to counteract Lever Brothers entry into this
market. Unilever has enjoyed market dominance in the
South African detergent market with brands such as
Omo. Surf and Skip. Now Proctor and Gamble is
challenging Unilever by introducing Ariel detergent,
supported by a R1,6 billion Rand budget. Justin Aspey,
Vice-President of Unilever for brand building says
Unilever will increase its adverting spending in
response.37
The stochastic competitor is one that does not exhibit a
predictable reaction pattern. There is no way of
predicting the competitors action on the basis of its
economic situation, history or anything else. Many
small businesses are stochastic competitors, competing
on various fronts when they can afford it. An example of
a stochastic competitor is Facebook that did not respond
to competitors such as WeChat and Twitter but was
prepared to pay a staggering $19 billion American dollars
for a competitor that has only 55 employees WhatsApp.
The idea apparently, was only to get the mobile
competition out of the way.38
Based on competitors capability to respond, the following

equation can be of value:39
M-Pesa mobile money to be
relaunched
Vodacom will tempt fate with the relaunch of its MPesa mobile money service, this time promising an
improved product armed with more features. This is a
bid to revive the service, which has not seen a similar
uptake locally compared with other African countries.
On offer this time is a partnership with Visa and Bidvest
Bank to launch a debit card for withdrawals and
deposits at approximately 27 000 ATMs. The
telecommunications giant has also bolstered its
distribution network, with 8 000 agents at both informal
outlets and at major retail partners, to enable users to
pay for goods, buy airtime and top up their M-Pesa
wallets. The revamped M-Pesa enables a mobile wallet
on a cellphone and users can then transfer money from
a banks Internet banking account to an M-Pesa wallet.
Part of the revamp was to make registration for the MPesa simple. Initially, customers would have to present
their identity document at limited outlets, but now
customers could self-register using a cellphone. This
marks an exciting development story for M-Pesas
journey. According to Herman Singh, managing
executive of mobile commerce at Vodacom, they had to
launch a product that appeals to everyone which they
believe is going to be a super product. M-Pesa was first
launched in Kenya in 2007 and the service is now used
by more than 18 million people across 13 countries for

banking and money-transfer services using mobile
phones.
SOURCE: Adapted from Maklaka, R. 2014. M-Pesa mobile money to be relaunched. The Citizen, 4
August 2014, p. 22
Competitors may continue to pursue future strategies in the

direction that they have pursued in the past, particularly if
no major external influences necessitate changing their
strategies. Nevertheless, to assume that an existing strategy
will continue is not wise. Competitors current actions may
signal probable future threats. The issue of how a
competitor is likely to respond in the future has three
components:40
How is the competitor likely to respond to general

changes taking place in the external environment and
particularly to changes in the market?
How is the competitor likely to respond to competitive
moves that competitors might make?
How likely is it that the competitor will initiate an
aggressive move, and what form might this take?
Building a brand is particularly difficult when the market is

dominated by two super-brands, sharing more than 90 per
cent of the market. Thats what Sony had to face when it
launched its PlayStation against Nintendo and Sega in 1995.
So it was forced to approach the market differently. The
secret was segmentation and targeting. PlayStation decided
to upgrade to an older age group of teenagers and young
adults by making PlayStation socially acceptable to them.

Since 1995, Sony has sold millions of consoles, becoming the
dominant computer game, and the PlayStation now
accounts for 30 per cent of Sony Corps profits.41 In South
Africas telecommunications market Vodacom and MTN
have a combined market share of 85 per cent and Cell-C
only 13 per cent. Cell-Cs strategy in the future will be to
focus of the demand for data capacity rather than on voice
demand.42
VoIP
An interesting development in the telecommunications
market is the rapid growth in the use of Internet calling.
The technology is called voice over Internet protocol
(VoIP). Improved technology solutions have led to a
robust VoIP market in recent years, and this growth is
continuing despite the economic downturn because
VoIP offers a cheaper alternative. Although security
and reliability concerns still need to be resolved,
consumers and businesses alike are turning to VoIP in
an effort to save costs. Japan, China and the United
States continue to be some of the worlds hottest
markets for VoIP telephony. Over the last couple years,
Europe has also become a prime innovator in VoIP
services, whether stand-alone, bundled as a triple play
offer, or through fixed-mobile convergence packages.
With its relatively well-developed and diverse
infrastructure, South Africa is taking a regional lead

role in the convergence of telecommunications and
information technologies with the media and
entertainment sector, promising reductions in
telecommunication costs and better availability of
information and services. The legalisation of VoIP
telephony in 2005 marked the beginning of a
fundamental change in the countrys telecoms
landscape. Billions of dollars are being invested in IPbased next-generation networks (NGN) capable of
delivering converged services more efficiently. Telecom
carriers and ISPs are moving into delivering audio and
video content over their networks, while, in turn, the
traditional electronic media carriers are discovering the
potential of their infrastructure for telecommunications
service delivery. Digital media and social media have
reached a level of development to foster an associated
advertising and marketing industry. Online advertising
in South Africa continues to grow at one the fastest
rates among countries in the English-speaking world,
and the country has as many Twitter users as Spain as
well as the largest LinkedIn user base in Africa.
SOURCE: South Africa - Convergence - VoIP, NGN & Digital Media. 2010. Paul Budde
Communication Pty Ltd (Budde Comm). Available: http://www.budde.com.au (accessed 16 July
2010)
10. Direct rivalry among competitors
LO12
In some markets the direct rivals co-exist comfortably and

appear content with their respective market shares. Other
markets are constantly on a war footing as the competitors

look for a temporary edge with price cuts, promotional
deals, advertising blitzes and aggressive spending on new
product development.
Others in the market have to match these moves to
protect their position, and a wave of price cutting sometimes
escalates to the point where everyone suffers damage to
their profits. In its eagerness to fill seats to cover fixed costs,
the airline industry worldwide has a long history of behaving
in this way, despite experience that tells airline operators
that cut-price market expansion is short-lived and erodes
profits while leaving market shares unchanged.
EXAMPLE >> A classic example of direct rivalry is the global battle

between Unilever and Procter & Gamble in the haircare market. When Procter &
Gamble launched the shampoo and hair-conditioner brand, Pantene, to compete
with Unilevers Organics, Unilever had spent more than R11,8 million on
advertising for Organics hair products, while Procter & Gamble spent more than
R1 million in just two months to advertise Pantene. Although retailers are tightlipped about the happenings, industry insiders say the two firms even compete
over shelf-space in shops like Clicks and Pick n Pay. Consumers have also gained
from loyalty offers, such as buy-one-get-one-free and coupon discounts. Industry
expert, Elvin Nadas, says consumers are benefiting from the shampoo war
because the rivals are forced to use innovations and bring their international
expertise to South Africa: Although there are other players in the industry, the
competition between the two is interesting because it involves leading
international firms with a lot of money to back their aggressive strategies.43
>>Strategy
Rumours are rife that FNB is preparing to launch a

mobile virtual network operator (MVNO) in South
Africa in partnership with mobile operator Cell C. The
move seems likely, given Cell Cs desire to offer MVNO
service and FNBs numerous existing plays in the
mobile space. MVNOs where third parties use an
existing mobile operators infrastructure to sell their
own mobile products and services have proven both
popular and successful in Asia, Europe and the US, but
to date have achieved little attraction in the South
Africa market. The countrys largest mobile operators
(MTN and Vodacom) have been reluctant to offer
MVNO facilities after South Africas first MVNO, Virgin
Mobile, achieved limited success in 2006. However,
Cell C, which has faced an uphill battle winning market
share from South Africas two biggest networks, had
indicated its willingness to provide MVNO services and
has previously said it was always looking to create
partnerships with high profile brands. Cell C currently
provides the infrastructure for Virgin Mobile and will
be doing likewise for Mr Prices planned mobile play,
Mr Price Mobile, announced in August 2014. That will
bring South Africas MVNO tally to two, but theres no
reason to think that Cell C isnt actively pursuing other
suitors. Virgin Mobile in turn powers Red Bull Mobile,
the energy-branded mobile service that is offered
under a brand licensee agreement. Cell C is the only
operator thats demonstrated an appetite for such
MVNO arrangements.44
The prevailing situation in the case of direct rivalry depends

on what is known as the industrys competitive
equilibrium. The following factors may have an impact on
the competitive equilibrium in a market and determine
whether the direct rivals are in a state of war, peace or
perhaps observing an uneasy truce.45
If competitors are nearly identical and make their living

in the same way, then their competitive equilibrium is
unstable. Perpetual conflict characterises industries
where competitive differentiation is hard to establish
and maintain over the long term.
Examples are newsprint and retailing. The competitive
equilibrium will be upset if any firm lowers its price to
reduce the overcapacity that may prevail. Price wars
frequently break out in these industries. In the United
States, despite there being only two competitors in the
otherwise attractive market for industrial lasers
Spectra-Physics and Coherent Radiation neither is
profitable. Deep-seated antagonism between the
managers of these implacable rivals often leads them to
use their resources to attack and retaliate against each
other, with price cutting being a favourite weapon. In
South Africa, the airline industry is an example of where
price wars often occur when overcapacity becomes a
problem, especially as Kulula.com has grown over time,
and new entrants, such as Mango compete aggressively
with the more established competitors.
If a single major factor is the critical factor, the
competitive equilibrium is unstable. This is the case in
industries where cost-differentiation opportunities exist
through economies of scale, advanced technology or

experience. A firm that achieves a cost breakthrough
such as Dell, which markets its computers only via the
Internet can cut its price and win market share at the
expense of other firms, which can defend their market
shares only at great cost. Price wars frequently break out
in these industries as a result of cost-reduction
breakthroughs.
If multiple factors may be critical factors, then it is
possible for each competitor to have some advantage
and be differentially attractive to some customers. The
more factors that may provide an advantage, the more
competitors can co-exist. Competitors all have their
competitive segment defined by market preferences for
what they offer. Multiple factors occur in industries in
which firms can be differentiated by factors such as
quality, service, convenience, and so on. If customers
place different values on these factors, many can co-exist
through specialisation and differentiation. What
otherwise could be intense rivalry is muted when there
are large perceived differences among competing
products because customers then develop strong
preferences and loyalties that make them more resistant
to competing offerings. The long-run equilibrium of such
a market is further enhanced when the differences are
difficult to imitate. On the other hand, if there are no
perceived differences among competing products, the
focus soon turns to price, terms, and sales conditions,
and, as a result, rivalry intensifies.
The fewer the critical competitive variables, the fewer the
competitors. If only one factor is critical to consumers,
then no more than two or three competitors are likely to

co-exist. The airline industry is an example once again:
safe, reliable transport at affordable prices is what is
important to airline travellers and, as a result, there are
not many competitors in this market in South Africa.
The measurement of competitive equilibrium. A ratio of
2:1 in market share between any two competitors seems
to be the equilibrium point at which it is neither practical
nor advantageous for either competitor to increase or
decrease market share. At this level, the costs of extra
promotion or distribution would outweigh the gains in
market share. In other words, when competition is
concentrated among a few firms and one competitor
clearly dominates, the followers co-exist under the
leaders umbrella, and seldom challenge the price
structure for fear of retaliation. This is especially likely
when differences in accumulated experience mean the
leader has much lower costs than the other firms.
If customer-switching costs are high, equilibrium is
more likely. These costs tend to tie buyers to one
supplier, who is then protected from raids by others.
These costs are high when the product is durable or
specialised (for example, IT systems), when the
customer has invested a lot of time and energy in
learning how to use the product, or has made specialpurpose investments that are useless elsewhere. For
instance, a commitment to a computer operating system
makes it very difficult for a customer to switch from a PC
to an Apple computer, or vice versa, without retraining
and general disruption. Another example is the many
South African firms that have switched to SAP as their
enterprise resource planning (ERP) software.
11. Deciding which competitors to attack

and which to avoid
LO13
No firm can compete with all other firms in an industry. And

it is impossible to avoid all competition. Often firms may
decide to compete with some competitors in certain market
segments, but not in others. General Motors, for instance,
has decided that it will compete with Toyota in the bakkie
segment of the motor vehicle market, but not in other
markets. Also, Wesbank chose not to follow its competitors
in taking advantage of what seemed to be an opportunity in
the financing of motor vehicles market, which ultimately
turned out to be the correct decision. See Reader 26, Drive a
new car for R699 a month? Too good to be true?, below.
Most firms will concentrate their efforts on weak
competitors, because this requires fewer resources per share
point gained. The problem is that defeating a weak
competitor will not necessarily enhance the firms own
position much, not in terms of increased sales or market
share and not in terms of enhanced capabilities.
Benchmarking and competing with strong competitors
(within reason), however, may strengthen the firms own
capabilities and skills over time, which will prepare it much
better for the future.
Most firms compete with competitors who resemble
them the most. General Motors competes with Volkswagen
and not with Mercedes-Benz. At the same time, a firm
should avoid trying to destroy its closest competitor. Porter
cites two examples of counterproductive victories: in the

late 1970s, Bausch & Lomb moved aggressively against other
soft-contact-lens manufacturers with great success.
However, this led each weak competitor to sell out to larger
firms, such as Revlon, Johnson & Johnson and ScheringPlough, with the result that Bausch & Lomb then faced
much larger competitors.46 In another similar case, a
speciality rubber manufacturer attacked another speciality
rubber manufacturer and gained share. This led the
speciality divisions of large tyre firms to move quickly into
speciality rubber markets, using them as a dumping ground
for excess capacity.
Another potential strategy for managing the competitive
landscape is to form coalitions and partnerships with
competitors. The argument in favour of this strategy is
obvious: if firms are not competing with each other then
they cannot lose market share to each other. However, this
practice can sometimes be construed as an anti-competitive
practice and, as such, firms can face legal sanctions.
However, strategic collaboration with partners in the value
chain (as opposed to competitors) is usually in the interests
of the consumers and can be converted into a competitive
advantage for businesses. For example, Dell Computers has
strategic partnerships with many of its suppliers, which
allow it to compete with its competitors on both price and
quality.
READER 26 >> Drive a new car for R699 a month? Too

good to be true?
When something seems to be too good to be true, then is probably is, but to
thousands of South Africans, the Drive a new car for R699 a month deal
seemed like the perfect solution to their want a new car but cant afford it
dilemma. Essentially the deal allowed buyers to get a new car, with a 100
percent loan from a bank, making the buyer responsible for the full repayment
amount every month. However, this was offset with the promise that if the
buyer acted as a mobile advertisement, by putting certain stickers on the car
(see picture below) they would be able earn money from the dealer (Drive Car
Sales) which they would be able to set off against the instalment due to the
bank.
Although most banks participated in the scheme, FirstRands WesBank
was the only South African bank that refused to have anything to do with it.
WesBank CEO Chris de Kock, said that the numbers just did not make sense
and the business model was just not sustainable. As De Kock predicted, the
scheme collapsed.
To make matters worse, De Kock said, the agreement customers signed
with Just Cars, was the most one-sided agreement youre ever going to find.
The contract contained all sorts of trivial conditions that, if not meticulously
adhered to, disqualified customers from claiming the financial subsidies the
scheme promised. Without the subsidies, there was no way that most of the
buyers could make their monthly repayments to the banks.
It was clear that his model was based on finding ways to get rid of 80 per
cent of his customers through these sorts of technicalities, says De Kock,
Their model relied on 80 per cent of their customers not claiming, or being
able to claim, any of this money.
SOURCES: Adapted from Knowler, W. 2014. R699 car deal owners in despair. iol motoring. 23 June
2014. Available from http://www.iol.co.za/motoring/industry-news/r699-car-deal-owners-in-despair1.1707476#.U-iQWMuKCP8 (Accessed on 11 August 2014); Barron, C. 2014. R699 cars: We just did
the basics and saw it was never going to work. Sunday Times Business Times (electronic edition), 10
August 2014. Available from http://www.timeslive.co.za/businesstimes/2014/08/10/r699-cars-wejust-did-the-basics-and-saw-it-was-never-going-to-work (Accessed on 11 August 2014)
The moral of the story is that every industry contains

good and bad competitors. A firm should not condemn its
good competitors and should instead attack its bad
competitors. Good competitors play by the industrys rules;
they make realistic assumptions about the industrys growth
potential; they set prices in reasonable relation to costs; they
favour a healthy industry; they limit themselves to a portion
or segment of the industry; they motivate others to lower
costs or improve differentiation; and they accept the general
level of their share and profits. Bad competitors try to buy
share rather than earn it, they take large risks, they invest in
overcapacity and they upset industrial equilibrium. The
Asian information technology firm, Huawei, operating in
South Africa is an example of a bad competitor. It is said
that the firm is not afraid to infringe the odd patent
[right].47 As a result of its questionable strategies, Huawei is
highly competitive, with lower R & D costs and cheaper
equipment.48 Corporate scandals, such as Masterbond, the
Health and Racquet Club, and, more recently, Fidentia, are
examples of bad competitors.
LOOKING BACK
Todays firms face their toughest competition ever.
Understanding customers is an important first step in
developing strong customer relationships, but it is not
enough. To gain a competitive advantage, firms must use
this understanding to design market offers that offer more
value than the offers of its competitors. Ariels distinctive
brand identity and rapid acceptance has forced Unilever to
reconsider its marketing strategy. Unilever has responded by

saying that it will increase its spending on advertising but
that may not be enough.
SUMMARY
1
Analysing actual and potential competitors. A firm can

place competitors on a continuum ranging from direct
competition (level 1) to indirect competition (level 4). At
level 1, competitors offer more or less the same products
and services, whereas level 4 competition is more
generic in nature.
Differentiating between the strategic group and
customer-based approaches to identify competition.
Sometimes also referred to as the market perspective to
competition, this perspective regards all firms or
organisations that satisfy the same customer needs as
competitors. The strategic-group approach to identify
competition is sometimes also referred to as the industry
concept of competition. Competitive activity must be
seen in the context of an industry. The viewpoint is that
all firms that exist in the same industry are de facto
competitors.
The customer-based approach analyses the choices
that consumers make when buying a product or brand. A
second alternative is to analyse the usages of the
products that consumers buy.
The strategic group approach considers competition
from a supplier rather than from a consumer
perspective.
The industry structures. Four competitive models can

5 be distinguished: monopoly, monopolistic competition,
oligopoly and pure competition.
6 Identifying competitors. Firms should consider direct
and indirect competitors through a competitor analysis.
A competitor analysis starts with current and potential
competitors. It may utilise a customer-based or a
strategic-group approach.
7 A key competitor is any firm targeting the same market
segment as the firm conducting the analysis. The
objective of a key competitor analysis is to be able to
predict key competitors potential actions, especially
those taken in response to the actions of the local
business.
8 Understanding current competitors. Understanding
competitors and their activities can provide several
benefits. Factors that should be taken into account
include competitors size, growth, profitability, image,
objectives, current and past strategies, organisational
culture, cost structure, exit barriers and strengths and
weaknesses.
9 Understanding potential competitors. It is important to
consider the involvement of potential market entrants in
market expansion, product expansion and integration,
as well as entry barriers.
10 Strengths and weaknesses compared to key success
factors. These can be analysed using a three-step
approach, during which the firm and its key competitors
are compared with each other on the basis of key success
factors in the industry.
11 Reaction patterns. How a firm will respond to
competition will be determined by its business

philosophy, cultures and values. Most competitors can
be divided into one of four categories: the laid-back
competitor, the selective competitor, the tiger
competitor and the stochastic competitor.
12 Direct rivalry. In some markets rivals co-exist
comfortably, but in others they are constantly at war.
Competitive equilibrium can be disturbed by a number
of factors.
13 Selecting competitors to attack and to avoid. Most
firms will compete with the weakest rivals because this
requires fewer resources. The problem is that defeating
weak competitors will not lead to many gains.

1
4
5
Using Porters five forces model, suggest why there is

intense rivalry between the leading supermarket brands
in South Africa.
A new low-cost, no-frills airline has just announced that
it will enter the South African airline industry. Conduct a
competitor analysis for the new airline.
Assume that Volkswagen has just announced that it will
drop all its vehicle prices by 25 per cent from next
month. How do you think Toyota will respond? Provide
reasons.
How do you think an online bank could compete in the
South African banking industry?
Choose a B2C industry sector such as airlines, book
retailers, book publishers, CDs or clothing. Work
individually or in groups to identify the type of

information that should be available from websites
which will be useful in terms of competitor
benchmarking. Once your criteria have been developed,
you should then benchmark firms and summarise which
you feel is making best use of the Internet.
Why is Google standing out from its rivals?
STRATEGY READER >> Success not only breeds

success it also attracts competition
Grocery retailer Woolworths has been a particularly successful retailer,
generating sales growth and profitability well above those of its direct
competitors. But success sometimes attracts competition. The growing size of
the LSM 810 segment has attracted competition from Fruit and Veg City
Groups Food Lovers Market. Since its establishment in 2006 ninety Food
Lovers Market stores have been opened and will open another 15 in the next
18 months. Sales have reached R6 billion in 2013 compared to R1,6 billion in
2006. But there is more. Also targeting the top end of the market is Oxford
Freshmarket (currently only in Durban), a resurgent Pick n Pay with its Pick n
Pay Finest range and Checkers who already has more than 3 m customers in
LSM 710.
SOURCE: Based on Thomas, S. 2013. For the love of food. Financial Mail, 1 6 November 2013, pp.
48-49
QUESTIONS
1
How should Woolworths respond to increasing competition at the top-end

of the grocery market?
KEY CONCEPTS
Attractive market (or market segment): this market promises returns on
investment well above the cost of capital for the firms serving that market.
Bargaining power: the ability to positively influence others in a selling situation.
Entry barriers: the investment of resources required to compete effectively in a
given market.
Exit barriers: the factors that hinder a firm from disinvesting in a market in
which it has been competing.
Industry: a group of firms that offer a product or class of products that are close
substitutes for each other.
Monopolistic competition: a situation in which a relatively large number of
suppliers offer similar, but not identical, products.
Monopoly: a market situation in which one firm controls the output and price of
a product for which there are no close substitutes.
Oligopoly: a market characterised by a relatively small number of firms
dominating the market for goods or a service.
Price sensitivity: a measure of how important lower prices are to a buyer.
Pricing flexibility: the amount of freedom that marketers have to set their own
prices in a market independently of competitors.
Pure competition: a market characterised by a large number of sellers marketing
a fairly standardised product to a group of buyers who are well informed about
the market.
Stochastic competitor: a competitor that does not exhibit a predictable reaction
pattern when faced with a new competitive threat.
Strategic group: a group of firms following the same strategy in a given target
market.
REFERENCES
1
2
3
Wilson, R.M.S. & Gilligan, C. 2005. Strategic marketing management:

Planning, implementation and control. London: Elsevier ButterworthHeinemann, p. 231.
Kotler, P. Marketing management (10th millennium edition). Prentice Hall,
p. 221.
Understanding your competition. 2008. Available from
http://pinoybusiness.org/2008/04/23/understanding-your-competition/
(Accessed on April 2008).
This section is based on Aaker, D.A. 2001. Strategic market management (6th
5
6
7
8
9
10
11
12
13
14
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18
19
20
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edition). Wiley, pp. 6166.

Kotler, P. & Keller, K.L. 2006. Marketing management (12th edition). Prentice
Hall, p. 346.
Kotler & Keller op cit, 346.
Chen, M. 1996. Competitor analysis and interfirm rivalry: Toward a
theoretical integration. The Academy of Management Review 21(1), p. 102.
Ibid.
Cravens, D.W. & Piercy, N.F. 2006. Strategic marketing (8th edition). New
York: McGraw-Hill, p. 83.
Mochiko, T. 2014. Vodacom buyout important for Neotel. Business Day Live,
27 May 2014. Available from
http://www.bdlive.co.za/business/technology/2014/05/27/vodacombuyout-important-for-neotel (Accessed June 2014).
Phasiswe, K. 2005. Transnet on way to becoming a lean freight operator.
Business Day electronic edition, 27 December 2005; Phasiswe, K. 2007. Cash
flow gives Transnet confidence to fund expansion from reserves. Business
Day electronic edition, 27 June 2007; Transnet Integrated Report, 2013.
Riley. G. 2012. Perfect Competition - Economics of Competitive Markets, 23
September, 2012. Available from http://tutor2u.net/economics/revisionnotes/a2-micro-perfect-competition.html (Accessed on June 2014).
Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, pp. 218219.
Investment bankers in scramble for business. Business Day electronic
edition, 9 September 2003.
Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, pp. 218219.
Daneshkhu, S. 2013. Competition hots up for coffee capsule market smooth
operators. Available from http://www.ft.com/cms/s/0/d8c237a4-489c-11e38237-00144feabdc0.html#axzz39KNhsT84 (Accessed June 2014).
Webb, S. 2014. Coffee wars: Tesco launches espresso shot pods to rival
Nespresso luxury coffee capsules endorsed by George Clooney. Available
from http://www.dailymail.co.uk/ (Accessed in June 2014)
Cravens, D.W. & Piercy, N.F. 2006. Strategic marketing (8th edition). New
York: McGraw-Hill, p. 85.
Courtney, H., Horn, J.T. and Kar, J. 2009. Getting into your competitors head.
Available from http://www. mckinsey.com/ (Accessed June 2014).
Mohammed, R.A., Fisher, R.J., Jaworski, B.J. & Paddison, G.J. 2003. Internet
marketing: Building advantage in the networked economy (2nd edition).
Boston: McGraw-Hill, p. 512.
PWC. Shaping the bank of the future South African banking survey 2013.
Available from www.pwc.co.za/banking(Accessed June 2014).
22 Media release published on the McGregor BFA, Moneymax website. 5 July

2001. Available from www. moneymax.co.za.
23 Kotler, P. & Armstrong, G. 2008. Principles of marketing management (12th
edition). Upper Saddle River: Prentice Hall, p. 518.
24 Thomas, S. 2013. For the love of food. Financial Mail, 1 6 November, p. 48.
25 Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, p. 224.
26 Battle for the bottom line. Financial Mail, 8 December 2000, p. 36.
27 Graham, S. 2002. Cell C plans to hit the business button. Business Times, 14
July 2002, p. 3.
28 This section is based on Aaker, D.A. 2001. Strategic market management (6th
edition). Wiley, pp. 5761.
29 Kotler, P. & Armstrong, G. 2008. Principles of marketing management (12th
edition). Upper Saddle River: Prentice Hall, p. 519.
30 Chaffey, D., Ellis-Chadwick, F., Mayer, R. & Johnston, K. 2006. Internet
marketing: Strategy, implementation and practice (3rd edition). Harlow:
31 Jobber, D. 1998. Principles and practice of marketing. London: McGraw-Hill,
pp. 497499.
32 Alsem, K.J. 2007. Strategic marketing: An applied approach. New York:
McGraw-Hill, pp. 131132.
33 Kotler, P. 2002. Marketing management (10th millennium edition). Prentice
Hall, p. 225.
34 Kotler op cit, p. 226.
35 Adami, N. 2100. Challenge brewing. Financial Mail, 29 April, p. 14.
36 Claasen, L. 2002. Pick n Pay steps up competition. Business Day, 26 May 2002.
37 Mokgata, Z. 2013. War of the soaps. Financial Mail, 1924 July, p. 58.
38 Shapshak, T. 2014. Buy and rule. Financial Mail, 28 February March, p. 36.
39 Chaffey, D., Ellis-Chadwick, F., Mayer, R. & Johnston, K. 2006. Internet
marketing: Strategy, implementation and practice (3rd edition). Harlow:
40 Gilligan, C. & Wilson, R.M.S. 2003. Strategic marketing management. Oxford:
Butterworth-Heinemann, p.183.
41 Koenderman, T. 2001. Disrupting the opposition pays off. Financial Mail, 1
June 2001, p. 69.
42 Neethling, T. 2012. Cell C boss plans to gain market share from rivals.
Business Day, 29 March, p. 16.
43 Msombi, S. 1999. Global hair-care war reaches SA. Business Times, 3 October
1999, p. 1.
44 Wilson, C. 2014. FNB, Cell C joining hands. Citizen, 4 August 2014, p. 22.
45 Bruce Henderson, as summarised by Kotler, P. 2002. Marketing management
(10th millennium edition). Prentice Hall, p. 228.

46 Selecting Competitors to Attack and Avoid. Available from
http://lib.znate.ru/docs/index-106622.html?page=100 (Accessed 24
November 2014).
47 Planting, S. 2003. Up and at them. Financial Mail, 21 March 2003, p. 32.
48 Ibid.
CHAPTER
05
Information for marketing

decision-making and marketing
research
LEARNING OUTCOMES
Describe the relevance of information for managerial decisionmaking.

2 Explain the nature and purpose of a marketing decision support
system.
3 Distinguish between database marketing and micro-marketing.
4 Describe the importance of database marketing.
5 Distinguish between the descriptive, diagnostic and predictive
roles of research.
6 Define marketing research and describe the relationship between
marketing research and a marketing decision support system.
7 Explain the importance of marketing research in marketing
management decision-making.
8 Describe the steps involved in conducting a marketing research
project.
9 Demonstrate your ability to plan a marketing research project by
preparing a research proposal.
10 Distinguish among the various types of techniques available for
11
12
13
15
16
17
collecting primary data in terms of their nature and advantages

and disadvantages.
Prepare a set of guidelines for questionnaire development.
Critically evaluate the means of measuring consumer perceptions
and attitudes.
Distinguish between probability and non-probability samples. 14
Explain when marketing research should and should not be
conducted.
Describe a set of criteria for evaluating research.
Demonstrate your grasp of the theory discussed in this chapter by
Provide a marketing management solution related to any of the
above outcomes.

Listen and obey
Consumer-facing companies must take heed of their
customers opinions and act on them. Logically this is
obvious, yet many SA companies fail to do so, says Aki
Kalliatakis, CEO of consumer relationship consultancy
The Leadership LaunchPad. Kalliatakis says the
message many companies send their customers is: You
know nothing and are not worth listening to. This
conclusion is borne out by surveys conducted by his
firm over almost 25 years. It is amazing to see how
many companies do not challenge things that make it
physically, intellectually and emotionally difficult to do
business with them, he says. Customers of some

companies have virtually given up expecting a positive
response to their needs. Banks are among the worst
offenders, he says, pointing to the contrasting success
Capitec has achieved by listening to consumers and
addressing their needs. A smart brand listens,
reinterprets what it hears and presents customers with
a solution that meets their needs, says Charl Nel,
Capitecs communications head. Applying this
approach has helped Capitec grow customer numbers
from 1,5m to 3,5m over the past two years. Capitecs
success serves as a warning to companies that ignore
their customers, says Kalliatakis. The bottom line is that
consumers are becoming more demanding and
businesses that respond to their needs are likely to
excel. But, he warns: Increasingly customers who do
not get the service they expect are likely to go
elsewhere.
SOURCE: Adapted from Thomas, S. 2012. Listen and obey. Financial Mail,
6 July 2012, p. 56
QUESTIONS
1
2
What is the result if a firm has an attitude of: You know nothing and
are not worth listening to towards its customers?
What is the reason for Capitec Banks phenomenal success?
1. Introduction
In Chapter 3 we pointed out that to be able to implement the
marketing concept, marketers need to understand the needs

and wants of their target market. But how do marketers
become aware of the needs and wants of consumers? The
answer is by collecting and interpreting consumer-related
information. This information can be collected by a variety
of means. Many of them have already been discussed (see
the discussion in the section Methods of environmental
scanning in Chapter 2) and others will be discussed in this
chapter. The most important of these data-collection
techniques is marketing research, which is a technique used
to collect marketing information to enhance the quality of
managerial decision-making.
2. The need for managerial information
LO1
Marketing research can be defined as the systematic and

objective process of collecting, recording and analysing data
to guide managerial decision-making.1 From a marketing
perspective, information is particularly important because
firms that do not know and understand consumer needs and
wants cannot implement the marketing concept. Ignorance
of consumer needs will also stifle efforts to develop new
need-satisfying products, and leave the opportunity for
competitors to steal a march on the firm. Many firms have
made very costly and embarrassing mistakes because they
did not have sufficient information at their disposal. Alert,
well-informed firms, on the other hand, are able to
anticipate consumer-need changes and detect and
anticipate what competitors both existing and potential
are doing. This way, they ensure that they are not caught off
guard. Information is also critical when firms get involved in
a new venture such as launching a new product, entering a
new market segment or using a new channel of distribution.
Managerial decision-making is almost invariably about
the future and the future is by definition uncertain. The
availability of information reduces (but does not eliminate)
risk and enhances the quality of decision-making. It leads to
more accurate planning and better anticipation of consumer
needs and competitive activity, which allows the firm to
utilise new opportunities quickly, and to effectively
overcome threats.
EXAMPLE >> To anticipate new developments in consumer markets

there are a variety of free tools that track the popularity of subjects on certain
social media platforms and in so doing help businesses anticipate future trends.
For example, a look at WhatTheTrend.com shows that Big Screen Kindle, at the
time of writing, is a topic being discussed on Twitter. The site explains that this
subject is prominent because the new Kindles large screen is rumoured to be
more suitable for newspaper content, which is one step closer to a paperless
culture. So for a company like the Times Media Group, which owns several
newspapers and electronic media in South Africa, this is important information
which might impact on its business in the future.2
But information and marketing research is not a cure for all
ills, and certainly does not guarantee success. Three
mistakes commonly made by researchers are:
Wrong assumptions that are made about the type of

information required
The wrong research technique is used
The data are misinterpreted.
3. Marketing decision support systems
LO2
Accurate, relevant and timely information that is easily

accessible is the lifeblood of marketing decision-making.
Good information can help maximise a firms sales and
assist with the efficient use of scarce resources. Marketing
decision support systems have become central in these
endeavours. Theres a growing emphasis on the use of
analytics software to turn both internal and external data,
into insights that can guide managerial decision-making
(see Reader 27 Big Brother watches Discovery members). A
number of trends are shaping these developments. The first
trend is the near-total digitisation of business processes
and just about everything else. Company systems are now
repositories of vast and growing amounts of data, plus client
and product information. At Hewlett Packard for instance
they can access vast amounts of external data about
everything from commodity prices to weather forecasts to
geopolitical information.3 To prepare and adjust marketing
strategies and plans, managers thus need a system for
collecting everyday information about developments in the
marketing environment that is, for collecting marketing
intelligence. The system most commonly used these days for
collecting and storing marketing intelligence is called a
marketing decision support system (DSS).
>> Strategy
The need for information that is accurate, relevant and
timely is demonstrated by the view of a manager of the
clothing retailer, Edgars. He says: The ability to
interpret what was happening in the South African
environment and respond to it in a fluid, constantly
evolving kind of way is crucial to the success Edgars has
enjoyed. As we evolved through our credit business,
our merchandise business and our marketing strategy,
we realised that fast and accurate information would
give us the edge. And so we are using technology far
more aggressively. Throughout the Edgars Group, the
results of the previous days trading are on the
computer terminals of its key executives the following
morning. They can see the results by region, by store,
by department and even by item of merchandise.4
A marketing decision support system is an interactive, flexible
computerised information system that enables managers to
obtain and manipulate information as they are making
decisions. A DSS bypasses the information-processing
specialist and gives managers access to useful data (such as
sales figures, advertising expenditure and research results)
from their own computers.
An effective DSS has the following characteristics:
Interactivity. For a DSS system to be effective, managers

must be able to give simple instructions and see
immediate results. The process ought to be under their
direct control, and the assistance of a computer

programmer should not be required. In other words, a
DSS system should be user-friendly and managers
should not have to wait long for the DSS system to
provide the required reports.
Flexibility. A DSS should be able to sort, regroup, total,
average and manipulate the data in various ways. It will
shift gears as the user changes topics, matching
information to the problem at hand. For example, the
CEO must be able to see highly aggregated figures (such
as sales figures), and the marketing analyst must be able
to view very detailed breakdowns of the same data (such
as sales by region, by product or by salesperson).
It is discovery-orientated. Managers must be able to
probe for trends, isolate problems and ask what if
questions. An example would be: what will happen to
sales if we reduce the size of our sales force?
Accessibility. A DSS must be easy to learn and use by
managers who are not skilled computer users. Novice
users should be able to choose a standard or default
method of using the system. They can bypass optional
features so that they can work with the basic system right
away while gradually learning to use its advanced
features.
>>Strategy
The US firm Quaker Oats DSS, for example, contains
some 2 billion facts about products, national trends
and competitors. Management credits their DSS with
helping the firm achieve a number-one market share in

several product categories, including Quaker Oats
cereals and the sports drink Gatorade. More than 400
marketing professionals at Quaker Oats use the DSS
daily. They use it for three major tasks: reporting,
tracking and running the standard reports; marketing
planning, which automates the brand planning and
budgeting process by adding what if analysis and
marketing capabilities; and eliciting peoples
immediate answers to spontaneous marketing
questions.
READER 27 >> Big Brother watches Discovery members

Members of Discovery should know Big Brother is indeed watching them. CEO
Adrian Gore spent some time during his presentation on the full-year results to
June talking about the power of the data the company collects on its
members shopping habits, which it is using through its partnerships with
Woolworths and Pick n Pay to study the effects of different diets. We track
every basket of food our customers buy, we know the demographic, we know
their cholesterol reading, their BMI (body mass index) and we can correlate
these diets to these readings, Mr Gore said. Mr Gore said Discovery had no
answers as yet but the data were incredibly rich. The answers are important
to Discovery as it bases its business model on changing behaviour with the
aim of reducing claims, whether they are related to health, life cover or car
accidents. Discovery has 17 million life years worth of behavioural, clinical
and actuarial data on the correlations between incentives and behaviour
change, as well as between behaviour change and risk. According to Mr Gore,
the data show that safer drivers also manage their health better, smokers are
worse drivers, and people who manage their health also manage their credit
better.
SOURCE: Marrs, D. 2014. Big Brother watches Discovery members. Business Day, 5 November 2014,
p. 10
A hypothetical example showing how a DSS can be used is

provided by Renee Smith, marketing director and manager
of new products for Central Corporation. To evaluate sales
of a recently introduced product, Renee can call up sales by
the week, then by the month, breaking the information up in
more detail such as by, say, customer segments or different
geographic regions. As she works at her desktop computer,
her inquiries can go in several directions, depending on the
decision at hand. If her train of thought raises questions
about monthly sales last quarter compared with the sales
forecasts, she can use her DSS to analyse problems
immediately. Renee might see that her new products sales
were significantly below forecast. Were her forecasts too
optimistic? She compares other products sales with her
forecasts and finds that the targets were very accurate. Was
something wrong with the product? Is her sales department
getting insufficient sales leads, or is it not putting sales leads
to good use?
Considering how to examine that question, she checks
the ratios of leads converted to sales, product by product.
The results disturb her: only 5 per cent of the new products
leads generated orders compared with the firms 12 per cent
all-product average. Why? Renee guesses that the sales force
is not supporting the new product vigorously enough.
Qualitative information from the DSS could perhaps provide
more evidence to support that suspicion. But already having
enough quantitative knowledge to satisfy her curiosity, the

marketing director acts on her intuition and experience and
decides to have a chat with her sales manager.
4. Database marketing and micromarketing
LO3
Perhaps the fastest-growing use of a DSS is for database

marketing purposes, which is the creation of a large
computerised file of customers and potential customers
profiles (i.e. demographics such as age, gender, marital
status, address) and purchase patterns. (What was bought?
Where? When? How many?) The DSS is usually the key tool
for successful micro-marketing, which relies on very specific
information about a market and the individuals who make
up a market. More specifically, database marketing can:
Identify the most profitable and least profitable

customers
Identify the most profitable market segments or
individuals and target efforts with greater efficiency and
effectiveness
Target marketing efforts at those goods, services and
market segments that require the most support
Increase revenue by repackaging and repricing products
for specific market segments
Evaluate opportunities for offering new products and
services
Identify the products and services that are selling well
and are most profitable.
EXAMPLE >> The size of many databases is astounding. In the United

States, Ford Motor Companys database has over 50 million names; Kraft General
Foods, 25 million; and Kimberly-Clark (maker of Huggies nappies), 10 million new
parents names. General Motors now has a database of 12 million GM credit card
holders, giving the firm access to a great deal of data on their buying habits. GM
also surveys these customers to get information on driving habits and needs. The
Clicks Club Card programme has a database of 5 million names and addresses,
of which 2,1 million are active. Clicks mails out 6 million promotional packs a
year in addition to the Club Card magazine.
WEBSITE
Consider how the Quaker companies use
e-mail to build their databases:
www.quakermeal.com www.gatorade.com
Mining big data is new commercial trend
Big data is increasingly becoming one of the most
closely watched technology trends and many
companies are already acquiring the required
resources to process large amounts of data and content
created internally and externally. Big data is a phrase
that refers to the software tools, processes and
procedures that allow companies to create and manage
very large data sets that conventional database systems
cannot handle. Companies use big-data technologies
for insights into new and emerging types of data and
content and related trends, to make their businesses

more agile.
For example, a company may use big-data-related
software to analyse big data in order to monitor
customer perceptions and sentiments about its brand
on social media websites. The increasing volume and
detail of information, the rise of multimedia, social
media, and the rise in Internet use and access is
fuelling exponential growth in data and making the
rapid growth of data more challenging to manage,
according to analysts. According to IBM, every day 2,5quintillion bytes of data are created. This data comes
from everywhere, such as sensors used to gather
climate information, postings to social media sites,
digital pictures and videos, purchase transaction
records, cellphones and satellite navigation systems, to
name a few, says IBM. Companies are spending billions
of rands on software related to data management and
analytics.
SOURCE: Adapted from Mochiko, T. 2012. Mining big data is new
commercial trend. Business Day, 19 June 2012, p. 12
5. The importance of database marketing LO4

Direct marketing and database marketing are not
synonymous, although direct marketers have long led the
way in using databases for marketing purposes. With better
targeting of prospects for products and promotions and a
greater ability to customise marketing messages and

programmes, and so on, database marketing clearly
contributes to greater marketing efficiency. When utilised
properly, it yields double-digit response rates, compared
with 2 to 4 per cent for junk mail.5
In the 1950s, mass marketers and advertisers began using
media such as television and radio to get the same message
to a large number of people simultaneously. Database
marketing, on the other hand, can get a customised,
individual message to everyone simultaneously through
direct mail. This is why database marketing is sometimes
called micro-marketing. Database marketing can create a
computerised form of the old-fashioned relationship that
people used to have with the corner grocer, butcher or
baker.
A database is sort of a collective memory, says Richard
G. Barlow, president of Frequency Marketing, Inc., a
consulting firm. It deals with you in the same personalised
way as a mom-and-pop grocery store, where they knew
customers by name and stocked what they wanted.6 As
Richard Came, then marketing director of Dimension Data,
referring to new technology says: Business can move from
mass marketing to mass customisation and can assume the
role of the small proprietor, once again doing business with
individuals though hundreds of thousands of them one
at a time.7 (See Reader 28 Science of behavior key to bank
loyalty schemes.)
READER 28 >> Science of behaviour key to bank loyalty

schemes
The major banks are increasingly adopting a scientific approach to their
loyalty programmes to make them more rewarding, for both banks and
consumers. It is all about big data, customer behavioural science and finding
ways to stand out from the clutter of the 100 or so loyalty programmes
available in South Africa.
Ten to 15 years ago, companies had to have a call centre, five to 10 years
ago it was a website. Now its a loyalty programme, he says. Recent research
by Value Nett-work found South Africa had almost 100 loyalty programmes,
with more than 50 million registered members. The major banks tout their
loyalty programmes as essential tools to acquire and retain customers. The
banks use the programmes as a means to influence customer behaviour. All
the banks, for example, use rewards to entice customers out of branches and
into transacting online. They also offer carrots to customers who transact more
with their bank. The head of transaction banking and rewards at Absa retail
and business banking, James Rheeder, says a rewards programme is not going
to make someone change banks. It is about increasing debit and credit card
usage and customer loyalty. You want customers to be transaction loyal, which
means they deposit their salary in your bank. The head of loyalty and rewards
at Standard Bank, Faye Elizabeth Foster, says its rewards programme, UCount,
has to make a difference to its bottom line. The efforts to ensure loyalty
programmes are effective and ultimately drive profitability has seen growing
emphasis on behavioural science and using big data in a smarter way. Ms
Foster says banks usually have good data on customers, while rewards
programmes provide more detailed information, such as what people want to
buy with their disposable income or where they go on holiday. You can use
data smartly to offer customers a much richer, personalised offering, which
will become a big differentiator of loyalty programmes in future, she says. This
could mean targeting customers in malls with specific offers via their
smartphones or social media.
SOURCE: Jones, G. 2014. Science of behaviour key to bank loyalty schemes. Business Day, 18 August
2014, p. 10
Database marketing provides tremendous opportunities for

products that can be sold by cross-selling related products.
For example, Canon Computer Systems maintains a
database of its 1,3 million customers. The firm obtained a
50 per cent response rate in a direct-mail solicitation asking
printer owners if they wanted information on a new colour
scanner, and buyers of scanners received four free ink
cartridges for their printers.
EXAMPLE >> A technique of growing popularity for building a

database is the creation of customer clubs. Kraft (in the United States), for
example, has been inviting children to join the Cheese & Macaroni Club. For three
proofs of purchase, a small joining fee and a completed membership form with
the childs and, of course, the mothers address, Kraft will send a painters
cap, bracelet, shoelaces, a book of stickers and other goodies. By requiring
customers who respond to offers of free shirts, sleeping bags, or other
merchandise to fill out detailed questionnaires, Philip Morris has built a database
of about 26 million smokers. The Clicks retail chain has a data base of 5 million
and they know that 77 per cent of its sales are to its Club Card users drastically
cutting the need for, and expenditure on, advertising. Woolworths can track
64 per cent of its sales using the data base generated by its WRewards loyalty
programme.
WEBSITE
Digital Fire is an email marketing and
digital media specialist that specialises in
full service opt-in email marketing, email
data rental, email database management
and digital media consultancy. Visit their
website and see how they can assist firms
in the above areas.

http://www.digitalfire.co.za/
Database marketing is unfortunately a source of concern for

many consumers (see Chapter 2) because of the potential
for invasion of privacy. A recent study found that 89 per cent
of South Africans are very concerned about information
privacy.8 Privacy and the use of consumer information is
regulated in South Africa by the Electronic Communications
and Transactions Act (No 25 of 2002). This act limits the
extent to which consumers personal information can be
utilised for marketing purposes.
6. The role of marketing research

Marketing research is the process of planning, collecting and
analysing data of relevance to marketing decisions. The
results of this analysis are then communicated to
management. Marketing research plays a key role in the
marketing system. It provides decision-makers with data on
the effectiveness of the current marketing mix, and insights
for required changes. Furthermore, marketing research is a
main data source for management information systems and
DSS.
To be useful, marketing research information must be
readily available, correct and reliable, and relevant. An
example of unreliable information is that provided by
Statistics South Africa (SSA). A number of years ago, SSA
reported that the number of overseas visitors to South Africa
had grown by 5 per cent. After this figure was announced, it
was revised to 16 per cent. The following question can now

be asked: can the tourism industry rely on SSA information
to plan its marketing strategies? (see Reader 29 What lies
behind the statistics?).
READER 29 >> What lies behind the statistics?

I am not surprised to read Victor Tharages letter (August 2429). Government
employees in the tourism field love to quote official statistics as these
numbers make them look good. The reality is that the tourism industry is in
bad shape - especially in the rural areas. Hiding behind meaningless statistics
is not going to change the fact that most tourism companies are experiencing
extremely low occupancies and many have had to retrench. It is the poorest of
the poor who are feeling the brunt of these retrenchments. The fact is that our
tourism arrival statistics are flawed. One Lesotho shopper who travels to SA
100 times a year can be counted as 100 tourists. One American who is
travelling to Botswana/East Africa and so on, can be counted as two tourists
once on arrival from the US and again when travelling back into SA from Africa
before flying back home. We have no idea if the 43 000 British tourists who
visited SA in March 2012 are actually from the UK as we do not accurately
measure the country of residence of our arrivals. These are just a few of many
issues that distort our tourism arrival numbers and render our arrival statistics
ineffective. Tourism statistics should be collected on departure (as they do
very successfully in Australia) where key questions are asked and accurate
answers gained via an easily read bar-card that delivers accurate statistics
within weeks. This will allow all stakeholders to quickly learn who is travelling
to SA and why. Once we know these arrival numbers accurately, then SA
Tourism and tourism companies can create effective marketing campaigns
that deliver real value for the country.
SOURCE: Letter to the Financial Mail, 31 August, 2012, p. 8
7. The functions of marketing research
LO5
Marketing research plays three roles in any firm: descriptive,

diagnostic and predictive. Its descriptive role includes
collecting and presenting factual statements. For example,
what is the historic sales trend in the industry? What are
consumers attitudes towards a product and its advertising?
Its diagnostic role includes explaining data and results. For
instance, what was the impact on sales of a change in the
design of a product package? Its predictive function is to
address what if questions. In other words, if we increase
our firms advertising from R5 million per year to R7 million
per year, what impact will it have on our sales and market
share?
8. The relationship between marketing

research and DSS
LO6
Because marketing research is problem-orientated,

managers use it when they need guidance to solve a specific
problem. Marketing research has been used, for example, to
find out what features consumers want in a new computer.
It has also helped product development managers to decide
how much milk to add in a new cream sauce for frozen peas.
The US Army has used marketing research to develop a
profile of the young person most likely to respond to
recruitment advertisements. The SABC uses it to assess
viewers needs and assist with programme scheduling.
Magazines such as Getaway, Cosmopolitan, YOU and Drum

regularly survey their readers to assess customer satisfaction
and readers reading habits, and to adjust their content
accordingly.
By contrast, DSS continually channels information about
environmental changes to the firm. This information is
collected from a variety of sources, both inside (internal)
and outside the firm (external). One such important
information source is marketing research.
9. Management uses of marketing

research
LO7
Marketing research can help managers in several ways. It

improves the quality of decision-making and helps
managers trace problems (see the Sanlam Health strategy
extract below). Most importantly, however, sound
marketing research helps managers to understand the
market better and alerts them to market trends.
>>Strategy
The medical scheme Sanlam Health has recently begun
capitalising on its data analysis capabilities. Sanlam
Health has developed the ability to analyse data in a
way not possible previously. A typical example is its use
in the analysis of asthma patient data. Sophisticated
techniques and models are used to enable medical
schemes to identify which asthma patients would be

likely to end up in hospital within the next 12 months.
This way, proactive and pre-emptive measures and
treatment can be implemented. These types of data
give Sanlam Health the ability to examine the efficacy
of preventive steps, such as flu injections, measured
against members claims patterns. It is able to ascertain
if such treatment is making a difference, and if so, to
what degree. High-risk members are then encouraged
to have the injections. All this gives Sanlam Health the
ability to act more intelligently and efficiently in the
way it manages the health of the schemes members.
Proficient data analysis capability includes the ability to
predict future trends, such as developments in genetic
engineering and DNA manipulation, for example,
which could have a future bearing on areas of
treatment, such as treatment for cancer.9
EXAMPLE >> The SABC regularly analyses what viewers think of their
programmes as well as the content of its own television programmes. A recent
research report released by Media Monitoring Africa (MMA) which was based on
an analysis of SABC television schedules and news bulletins from all the TV
stations and some radio stations found that 21 per cent of broadcasting time was
filled with repeats of recently aired programmes. When it came to analysis of
news bulletins, the researchers found that the SABC was unable to set the news
agenda but rather followed the lead of others such as the print media and that
the news was characterised by event-based reporting with political parties
dominating news sources. Among the most interesting findings in the research on
SABCs news bulletins are:
Women were grossly under-represented as news sources only 20 per cent,
which is below the global figures of 24 per cent
Political parties were the most frequently accessed class of news sources
at 21 per cent while academics and experts were the least (2 per cent)
Most news bulletins contained basic, factual information and did not often
go further to explain the story in depth. However, many news stories did
discuss the cause of an issue and also mentioned relevant legislation
Reporting was also generally ethical. 10
>>Strategy
Faced with declining circulation figures for both
Huisgenoot and YOU magazines a few years ago,
management commissioned research that revealed
that readers most important needs are information on
how to save time and money, articles on a good lifestyle
and financial advice. It also emerged that the motives of
the buyers of the magazines have changed: it is no
longer a woman buying a magazine for herself, because
the family happens to read it too. Most buyers were
working women, it was found, which accounts for the
shift in focus towards women, for instance, in food,
dcor and fashion, and beauty features. Previously,
there had been only teen fashion pages. The
management of the two magazines then decided that
the emphasis would be on practicality and value for
money. For the readers we serve, it is completely
ridiculous to have an R800 scarf on the fashion pages,
they concluded.11
Finally, marketing research helps managers gauge the
perceived value of their goods and services, as well as the
level of customer satisfaction. The motor vehicle

manufacturer Toyota does extensive marketing research to
measure the effectiveness of its marketing activities. More
specifically, Toyotas objectives are to:12
Improve the accountability of marketing tools and

managers
Ensure that their marketing activities serve as an earlywarning device
Measure top-of-mind brand awareness among
consumers
Identify and track key attributes for each model range
Identify shifts in consumer needs
Compare its performance on key attributes with those of
its competitors
Provide speedy feedback on marketing actions or
decision-making
Provide information on competitive activity
Measure ad wear-out
Assist with market segmentation
Predict shifts in market share.
9.1 Improving the quality of decision-making

Managers can improve their decision-making by using
marketing research to explore the desirability of various
marketing alternatives.
EXAMPLE >> Some years ago, General Mills decided to expand into fullservice restaurants. Marketing research indicated that the most popular ethnic
food category in the United States was Italian, and that interest in pasta and
preference for Italian food would continue to increase. The firm conducted many
taste tests to find appropriate spice levels and to create a menu to please target
customers. These marketing research studies led to the creation of The Olive
Garden Italian restaurants, the fastest-growing and most popular full-service
Italian restaurant chain in the United States.
In South Africa, Coca-Cola, together with its advertising agency, SMLB, is
making a concerted effort to understand the countrys different cultural groups
better. We are striving towards the concept of understanding the market, their
fears and desires, from an emotional, rather than an intellectual, base, says
account management director, Nandi Scorer. Coca-Cola has done this by
adapting its marketing research. Traditional research is now supplemented with
more personal observation. By going out into the field and observing consumers
we have gained insights that we could not have got any other way.13
Other examples of research findings that helped South African marketers
make better decisions recently are the following:
More than 35 per cent of vehicle owners will buy a different brand from their
current one when they buy a vehicle again14
42 per cent of adult South Africans do not have access to a bank account15
More than 70 per cent of South African women have banking accounts but
only 27 sought professional financial advice16
9.2 Identifying problems

Another use of marketing research is to find out why a
product has experienced a drop in sales or why a plan did
not work. Was the initial decision incorrect? Did an
unforeseen change in the external environment cause the
plan to fail? How can the same mistake be avoided in the
future?
>>Strategy
When spectator attendances were low during the Pro20
part of the 2009 England cricket tour (fewer than 8 000
spectators attended the second match at Supersport
Park), Cricket South Africa commissioned a research
firm to identify the reasons behind the poor
attendances.17
Reynolds Metals used marketing research to develop
a new line of plastic food wrap in transparent shades of
red, green, yellow and blue. The research results
among women showed that they loved the product. Yet
after the product launch, sales were sluggish. Similarly,
Reynolds Metals called on marketing research. A
telephone survey found that men didnt really see the
point of coloured plastic wraps. Unfortunately, the
purchasing staff of most supermarkets are male. Armed
with this knowledge, Reynolds crafted a simple plan. It
sent samples to the supermarket buyers homes,
hoping that their wives reactions would convince the
buyers that the product would sell. The strategy worked
and sales soared.
Typical problems identified by marketing research have
been:
Oros orange squash established that many mothers were

concerned about the quality and healthiness of the
product
Tylenol found that consumers are reluctant to accept
that a pain killer (Tylenol NightPain) can also be used for

insomnia.
9.3 Understanding the market

To effectively implement the marketing concept (see
Chapter 1) it is important that marketing managers
understand the needs, wants, decision-making and
behavioural patterns of its target markets. Only then will
they be able to develop a marketing mix that can optimally
satisfy their needs.
Managers also use marketing research to understand the
dynamics of the market they are targeting.
The Eastern Province Cricket Board (EPCB) recently
surveyed a sample of cricket supporters and found that
supporters expect more than just a game of cricket. They
attend cricket for an experience of which the cricket itself is
only a part. As a result of the study, the EPCB now offers a
wide range of entertainment, including ball-throwing
competitions and mini-cricket for children during lunch or
supper breaks, and has improved the catering facilities at
the ground.
Publics, a leading South African advertising agency, is
credited with knowing its market particularly well.18 Publics
analyses the market, the brand and its competitors, and
consumers in terms of their habits, attitudes, preferences
and rational and emotional needs. Some of the research
tools the agency uses are the following:
A brand preference monitor, which tracks consumer
usage and preference of brands

Market insight a structured market or brand analysis
procedure
Context analysis a technique to predict trends by
studying the media
Tweens a continuous study of the characteristics of
people aged 12 to 25
Prism a structured procedure to determine a brands
added value
Mindscapes a study of consumer perceptions and how
they affect consumption patterns.
As you can see, marketing research helps managers develop

and optimise the marketing mix by providing insights into
the lifestyles, preferences and purchasing habits of target
consumers (see Reader 30 Brands get up close and
personal).
READER 30 >> Brands get up close and personal

A Chinese woman squats on a low plastic stool, reaches for the shampoo and
begins massaging it into her head, fingers working deep into her scalp in a
kind of ritual. She is not the only Chinese woman to use conditioner like this
as testified by hundreds of hours of videotape, all filmed in Chinese
bathrooms.
Perverse? No: this is the Holy Grail of fast-moving consumer goods
companies seeking to make products that consumers want. To that end, FMCG
groups are earnestly studying human behaviour through focus groups, surveys
and, more frequently in recent years, ways that are distinctly up close and
personal.
Traditional research concentrated on the what. Now we are trying to
establish the why, says Simon Stewart, marketing director at Britvic, the
beverages company. We are not asking what they think about products and
ideas but focusing on what makes them tick.
The same dynamics inform LOrals experimentation in bathroom
photography. In similar experiments conducted in other markets, the French
cosmetics group discovered that Korean women apply more potions and
cosmetics to their faces than anyone else a total of more than 25 creams
and cosmetics at any one time, compared with 2025 in Japan and more than
double the amount used by American or European women. Japanese women
may apply more than 50 coatings of mascara at one time, making European
women five to 10 coatings look mere amateurs.
It all starts with observation, says Patricia Pineau, who oversees LOrals
consumer insights team, talking about the companys evaluation centres,
which involve labs decked out as bathrooms as well as cameras in peoples
homes. Observing is necessary to decode exactly what [women] are trying to
get and what they are attracted to. Sometimes it is the gesture that will reveal
something that they really want to gain, says Ms Pineau.
And what gestures. Japanese women spend a full minute massaging in
lotions, patting their faces and eyelids. In Brazil, women change their nail
polish every day to match their dress and are wanton with the brush,
painting their fingers along with their nails and relying on a cotton bud to mop
up afterwards.
Back in the labs, scientists respond in turn. Thus Lancmes Gnifique
Youth Activating Concentrate has a stickier consistency in Japan than in
Europe or the US, the better to pat in. Lip gloss is lighter in Japan, the better
to allow the constant reapplication beloved of Japanese women.
Sometimes, however, gestures are not enough. Hence Nestls strategy of
embedding researchers in family homes, taking tea with a multigenerational
Indian family or sitting cross-legged on the floor pounding pulses with a group
of scarved women and their jeans-wearing daughters in Syria.
SOURCE: Adapted from Lucas, L. 2010. Brands get close and personal. Business Day, 20 October
2010, p. 10
9.4 Fostering customer value and quality

The environment in which a business operates today is far
more competitive and mercurial than it has ever been.
Consumers are less tolerant of poor quality and service, less
forgiving and less loyal to specific brands. Consumer
expectations are moving to the highest level. A good product
and a fair price are not enough and service must be
excellent as well. High product quality, good service and a
fair price mean value which is the cornerstone of customer
satisfaction. Satisfied customers are more likely to develop
long-term relationships with a firm, which helps to create
long-term profitability. Dissatisfied customers, on the other
hand, move on, as Huisgenoot and YOU magazines have
found. Marketing research is often used to identify the
reasons for customer dissatisfaction.
In a competitive environment, perceived customer
satisfaction is the scorecard that tells a firm how well it is
doing in delivering value. Marketing research is the vehicle
for measuring perceived satisfaction. Today, virtually all
large firms, from Toyota to British Airways, measure
customer satisfaction. An old management adage says that
what gets measured gets done, and customer satisfaction is
no exception.
10. The steps in a marketing research

project
LO8
Virtually all firms that have adopted the marketing concept

engage in marketing research because it offers decisionmakers many benefits. Some firms spend millions of rands
on marketing research; others, particularly smaller firms,
conduct only informal research studies on a limited scale.
However, whether a research project costs R20 000 or
R4 million, the same general process should be followed.
The marketing research process is a scientific approach to
decision-making that maximises the chance of getting
accurate and meaningful results. Figure 5.1 traces the typical
steps in a marketing research process:

Step 2: Do some exploratory research by collecting
secondary data
Step 4: Plan the research design
Step 5: Collect the data
Step 6: Analyse and interpret the data, leading to
conclusions
Step 7: Prepare and present the report, including
recommendations for management on how to solve the
problem identified (see Step 1).
These steps are considered in more detail in the sections

that follow.
10.1 Step 1: Define the marketing problem

The first step in the marketing research process must be to
develop a problem statement on which the decision-maker
(e.g. the marketing director) and the researcher (the
marketing research manager) can both agree. This step is
not as easy as it sounds. But it is important because this
statement directs the rest of the research project or study.
Some situations require only a simple problem statement,
whereas others lend themselves to a detailed statement of
the purpose of the study, or what the study will hope to
achieve. For instance, a firm providing catering services in a
factory canteen may define its problem as declining sales,
whereas a womens fashion retailer such as Foschinis may
decide to identify the most important factors that determine
a satisfactory shopping experience.
Early in the process the researcher ought to commit the
research plan to paper. This is done by means of a research
proposal. A research proposal ensures that both the
marketing manager and the researcher agree on precisely
what ought to be done. The research proposal, therefore,
serves not only as a guideline for implementing the research
project, but also as a tool to ensure that no
misunderstandings arise. The Framework for preparation of
a research proposal can serve as the guide. One must keep
in mind, though, that a research proposal is a planning
document. The researcher sets out what he or she wants to
do during the project in a research proposal. Most of the
considerations and decisions that should be set out in the
research proposal will be discussed during the rest of the
chapter; the framework serves a guideline for decisionmaking.
10.2 Step 2: Exploratory research by collecting

secondary data
Exploratory research is especially important to any
researcher dealing with a particular type of problem for the
first time. It permits the researcher to become immersed in
the problem to learn about the firm, its products, markets,
marketing history, competition, and so forth. In the catering
example mentioned above, the researcher may interview the
CEO, a few regular customers of the canteen, a few
employees who do not eat at the canteen and a few
competitors. The researcher may even visit the canteen
posing as a real customer to experience the service and the
food at first hand a technique known as mystery
shopping.
After collecting this background information and
analysing the new insights gained from this exploratory
phase, the researcher may need to backtrack and revise the
problem statement, if needed.
Secondary data are those data previously collected for
any purpose other than the current problem at hand. People
both inside and outside the firm may previously have
collected secondary data to meet their needs, such as IpsosMarkinors survey of brand perceptions in South Africa.
Another example is TGI South Africas database. It has
conducted 85 000 interviews with South Africans since 1993
with 11 biannual data release that have been used by over 1
000 market researchers, brand managers, product

managers, media planners and strategists. Included in the
survey is information about thousands of brands, together
with information about media consumption, lifestyles and
attitudes all linked by a comprehensive set of
demographics and geodemographics.19 A more recent
innovation in the generation of secondary data is Wolfram
Alpha (www.wolframalpha.com) which is a type of search
engine, but it does not return a list of pages to be searched
(like Google) nor is it a database of information. Wolfram
Alpha interprets queries and, in addition to giving basic
answers, is able to compute relationships amongst different
variables. 20
EXAMPLE >> Another example of secondary information is completed

research reports. For instance, Business consulting firm Accenture initiated a
research study in 2013 to understand consumer preferences about shopping in
different channels and the ability of retailers to offer that seamless experience.
The survey evaluated 15 000 consumers across 20 countries to rank their
shopping experiences across channels. The research suggests that consumers
may be having second thoughts about the benefits of online shopping. Accenture
Research also found significant signs of a swing back to shopping in-store. While
almost half of all respondents (46 percent) said they plan to purchase more
online in the future, 28 percent said they also would be shopping more in-store.
Fewer consumers now cite convenience as the main reason for shopping online.
In fact, an overwhelming majority (91 percent) told them that its easier to
complete a purchase in-store than either online (57 percent) or by mobile
(36 percent). Whats more, when it comes to fulfillment, most told them that
scheduling is more important than speed; and about one-third indicated that
they are buying more in-store and carrying home compared to a year ago. These
findings clearly challenge some commonly held assumptions about what
consumers want. They also indicate that retailers struggling to provide a

seamless, cross-channel customer experience may need to re-think key aspects
of their marketing approach. 21
Table 5.1 describes other major sources of secondary data.
Most research efforts rely at least partly on secondary data,
which can usually be obtained quickly and inexpensively.
The problem, however, is finding appropriate and relevant
secondary data that are reliable.
Figure 5.1 The marketing research process
WEBSITE
Visit
http://www.mymarketresearchmethods.com/
This website is designed for market
research students and professionals. You
will find easy to understand lessons and
tutorials on the topic of market research,
along with a variety of market research
tools and resources.
Secondary data save time and money if they help solve

the researchers problem. Even if the problem is not solved,
secondary data have other advantages. They can help the
researcher formulate or refine the problem statement and
suggest appropriate research methods and identify other
types of data needed for solving the problem.
In addition, secondary data can pinpoint the kinds of
people to approach and their locations, and serve as a basis
of comparison with other data. The disadvantages of
secondary data stem mainly from a mismatch between the
researchers particular problem and the purposes for which
the secondary data were originally collected, which are
usually different.
Framework for preparation of a research proposal
Title of study or project Statement of
general purpose Exploratory research
Secondary information sources
Summarises existing knowledge
Identifies the gaps in our knowledge
(in the case of academic study)
Collecting primary and secondary data
Secondary data: published
information, such as company
records, previous studies
Primary data: formal and informal
interviews with experts, customers,
focus groups, and so on
Problem statement or definition
Identify and describe the dependent
Sampling
> Population to be
studied
> Unit of analysis who
will provide the
information?
> Sampling frame
> Sampling procedure
> Sample size
Data collection
> Fieldwork
> Data-collection
technique (personal
interviews, mail
survey, etc.)
variable(s) and independent

variable(s)
Objectives (both primary and secondary)
Hypotheses and/or propositions
Research design (sometimes a pilot study
is done to test the research design and
questionnaire)
> Design and test the

questionnaire
> Type of data
(nominal, ordinal,
etc.)
Data analysis
> Statistical techniques
to be used
> Interpreting results
Reporting the results
(how and when)
Who is the audience?
Budget
Time schedules
Appendices
Draft questionnaire and
other technical details
Provisional list of sources
Table 5.1 Major sources of secondary data
Source
Internal
information
Description
Internal company information may be helpful in solving a
particular marketing problem. Examples include sales
invoices, other accounting records, data from previous
marketing research studies and historical sales data.
Market
Firms such as AC Nielsen, Synovate, Ipsos-Markinor, and
research
SAARF are major sources of secondary data covering market
firms
share for consumer products, the characteristics of media
audiences and brand perceptions.

Trade
associations
There are many trade associations, such as the SA Chamber

of Business. There are also many regional trade associations,
such as Wesgro in the Western Cape and the Gauteng
Economic Development Agency in Gauteng, which provide
national and local economic data.
University
research
bureaus;
professional
associations;
foundations
A variety of non-profit organisations (such as Unisas Bureau

of Market Research) collect and disseminate data of interest
to marketing researchers.
Commercial
publications
Marketing Mix, Food & Beverage Reporter Online, the

Financial Mail and many other commercial publications
provide useful research data.
Government
data
The government generates some secondary data. Census

data, for instance, are available from Statistics South Africa.
Online
databases
First search and the South African catalogue via SABINET.
CD-ROM
database
packages
South African Studies (SAS), ABI Inform and Business

Periodicals Index are CD-ROM packages available to access
marketing reports and other business-related information.
For example, a major manufacturer of consumer products

wanted to determine the market potential for a fireplace log
made of coal rather than of compressed wood by-products.
The researcher found plenty of secondary data about the

total amount of wood consumed as fuel, the quantities
consumed in different areas and the types of wood used.
Secondary data were also available about consumer
attitudes and purchase patterns of wood by-product
fireplace logs. The wealth of secondary data provided the
researcher with many insights into the artificial log market.
Yet nowhere was there any information that would tell the
firm whether consumers would buy artificial logs made of
coal if they were available.
The quality of secondary data may also pose a problem.
Often secondary data sources do not give detailed
information that would enable a researcher to assess their
quality or relevance. Whenever possible, a researcher needs
to address these important questions: who collected the
data? Why were the data obtained? What methodology was
used? How were classifications (such as heavy users versus
light users) developed and defined? When was the
information collected?
Collecting traditional secondary data is often an arduous
task. Researchers write requests for government and trade
association data, or other reports, and then wait several
weeks for a reply. Frequently, they make trips to the library
only to find that the needed reports are out on loan or
missing. Today, however, online computerised databases
have reduced the drudgery associated with collecting
secondary data. An online database is a collection of public
information accessible by anyone with the proper computer
facilities. With more than 10 000 online databases available,
practically any topic of interest to a marketing researcher is
contained in some database. Examples are EBSCO HOST,

Web of Science and DIALOG.
For an example of how an online database can affect
decision-making, consider the experience of Superior, Inc.
(not its actual name), a large consumer goods firm. One
morning, the CEO woke up to some unpleasant news. A
competitor was rumoured to be marshalling its troops for an
attack on the market for one of Superiors personal-care
products, worth R10 million in annual sales. Later that day,
concerned executives at Superior were already preparing to
take a drastic step: slashing the price to defuse the
competitive challenge.
Before taking that step, however, Superiors executives

decided to do a little research. Their online database told
them that the competitor had been bought several years
earlier by a conglomerate. Next, a check of local business
newspaper databases revealed evidence of an advertising
agency recruiting new staff to back up the rumoured
campaign. Further online searches showed that the parent
company had once tried to sell the unprofitable subsidiary.

A business news database revealed that a senior executive of
the parent company had recently retired, with no successor
named. Other stories noted that two other executives had
left, and hinted at turmoil at board level.
Superiors executives decided that what at first appeared
to be an aggressive threat was actually no more than a
gesture by a paralysed firm unable to take new initiatives. If
there is any gold outside, beamed one Superior executive,
it looks like they just dont have a shovel to pick it up with.
Result: Superiors CEO decided to maintain prices and
thereby preserve the firms profits.
Many marketing researchers make use of the services of
online database vendors. An online database vendor is an
intermediary that acquires databases from database
creators. Such vendors offer electronic mail, news, finance,
sports, weather, airline schedules, software, encyclopaedias,
bibliographies, directories, full-text information and
numeric databases. Consequently, a user can go to a single
online vendor such as Eighty20 and gain access to a variety
of databases.
WEBSITE
Visit the Eighty20 web site to view the
available secondary data offered by this
firm www.eighty20.co.za
10.3 Step 3: Formulate the research objectives

During this stage, it is important for the researcher to
formulate a series of objectives. These objectives, if realised

during the research process, will ensure that the problem
statement is addressed. The objectives will also serve as
criteria against which to assess the relevance of the
questionnaire, or other measuring instrument that will be
used, and to assess the empirical results emanating from the
data-analysis phase.
The following are examples of research objectives:
To calculate the average household expenditure on
toothpaste in South Africa
To assess the attitude of South African motorists towards
electric cars
To compare the perceptions of males and females with
regard to the death penalty.
After completing the exploratory study, the researcher
compiles a list of all the data required to address the
research objectives and then decides on the types of data
required for decision-making. Often the researcher will
begin with secondary data (data that are available
elsewhere, such as in a library, which can be retrieved from
a company database) in order to further refine the problem
statement or the research objectives.
10.4 Step 4: Planning the research design

Good secondary data can help researchers conduct a
thorough exploratory study. Armed with secondary data and
information, the researcher can list the unanswered
questions and rank them. The researcher must then decide

on the exact information required to answer the research
questions. Declining sales in the canteen may prove to be
only a symptom of a larger problem, rather than the
problem itself. The real problem may be poor customer
satisfaction due to poor-quality food, an inadequate menu
selection and long waiting in queues.
The research design specifies which research questions
must be answered, how and when the data will be collected
and how the data will be analysed. Typically, the project
budget is finalised after the research design has been
approved.
Sometimes research questions can be answered by
collecting more secondary data; otherwise, primary data
may be needed. Primary data or information collected for
the first time for a specific problem at hand can be used for
solving the particular problem under investigation. The
main advantage of primary data is that they will answer a
specific research question that secondary data cannot
answer.
For example, suppose the baking firm Sasko has two new
recipes of refrigerated dough for a new biscuit. Which one
will consumers prefer? Secondary data will not help to
answer this question. Instead, targeted consumers must try
each proposed recipe and evaluate the taste, texture and
appearance of each biscuit. Moreover, primary data are
current and researchers know the source. Sometimes
researchers collect the data themselves rather than
assigning projects to outside research firms. Researchers
also specify the methodology of the research. Secrecy can be
maintained because the information is proprietary. By

contrast, most secondary data are available to all interested
parties for relatively small fees.
Collecting primary data is expensive. Costs can range
from a few thousand rands for a limited survey to several
hundred thousand for a national study. For instance, in the
United States a nationwide, 15-minute telephone interview
with 1 000 adult males may cost $50 000 for everything,
including the data analysis and report. Because collection of
primary data is so expensive, firms commonly cut back on
the number of interviews in order to save money. Larger
firms that conduct many research projects use another costsaving technique. They piggyback studies, or collect data
on two different projects using one questionnaire (also
called an omnibus survey). The research firm IpsosMarkinor conducts two omnibus studies, namely Khaya bus
(face-to-face personal interviews) and Telebus (telephonic
interviews).
The disadvantage of this approach is that answering
questions about, say, dog food and gourmet coffee on the
same questionnaire may be confusing to respondents.
Piggybacking also requires a longer interview (sometimes
half an hour or longer), which many respondents find tiring,
and as a result the quality of the answers often declines.
However, the disadvantages of primary data collection
are usually offset by the advantages. It is often the only way
of solving a research problem. And with a variety of
techniques available for research including surveys,
observations (such as immersion) and experiments
primary research can address almost any marketing
question. The first data-collection technique we will

consider is survey research.
10.4.1 Survey research
LO10
Although there are several techniques or methods available

to marketing researchers to collect primary data, we will
only discuss three of them, namely surveys (which include
personal interviews, shopping mall interviews, telephone
surveys, electronic mail surveys, postal mail surveys and
focus groups), observation research and experimental
studies.
The most popular technique for collecting primary data is
survey research, in which a researcher interacts with people
to obtain facts, ask opinions and record perceptions and
attitudes. Table 5.2 summarises the characteristics of the
most popular forms of survey research, and identifies the
primary advantages and disadvantages associated with
each.
Personal interviews
In-home, personal interviews often provide high-quality
information, but they tend to be very expensive because of
the interviewers travel time and costs. Therefore, market
researchers tend to conduct fewer in-home personal
interviews today than in the past. Nevertheless, this form of
survey research has some important advantages. The
respondent is often interviewed at home, in a natural setting
where many consumption decisions are actually made. Also,
the interviewer can show the respondent items (for
example, package designs or a printed advertisement) or
invite the respondent to taste, use or test a product. An

interviewer can also probe when necessary a technique
used to clarify a persons response. For example, an
interviewer might ask, What did you like best about the
salad dressing you just tried? The respondent might reply,
Taste. This answer doesnt provide a lot of information, so
the interviewer could probe by saying, Can you tell me a
little bit more about the taste? The respondent then
elaborates: Its not too sweet, it has the right amount of
pepper and I love that hint of garlic.
>>Strategy
MTN recently used face-to-face interviews to
investigate the efficacy of advertising on the Icon
Media-branded shopping carts among shoppers, with
aspects such as brand recall and the influence on
purchase decisions coming under the spotlight. The
study was conducted at Checkers hyperstores in
Benoni, Boksburg, Edenvale and Constantia. A sample
of approximately 200 consumers was randomly
selected for intensive face-to-face interviews. An
incredible 98 per cent of respondents said that their
children were more manageable in a shop where the
Icon carts were available. Of these parents, 74 per cent
said that the advertising reminded them to purchase a
product. Brand recall also fared well, with 89 per cent of
parents remembering the advertising message of a
certain branded cart. Says Storm Ackerman, general
manager for Icon Media: It is clear from our research
that our platform is a fantastic shopper marketing tool.

The objective is to assist advertisers to make optimal
usage of the advertising space available, drawing on
consumer insights when fine-tuning design, colour
choices and creating competitions, thus ensuring we
deliver only the best for our clients.22
Shopping mall intercept interviews

The shopping mall intercept interview is conducted in the
common areas of shopping malls or large shopping centres.
It is the economy version of the door-to-door interview with
personal contact between interviewer and respondent,
minus the interviewers travel time and costs. One
disadvantage is that it is hard to get a representative sample
of the population inside a shopping mall. Also, mall
intercept interviews must be brief. The researchers often
show concepts for new products to the respondents, or they
test a new advertisement or have them taste a new food
product. Data collected during mall intercept interviews is of
a similar overall quality as that collected from telephone
interviews.
Marketing researchers are increasingly using new
technology in mall interviewing. The first technique is
computer-assisted personal interviewing. If used, the
researcher conducts personal interviews, reads questions to
the respondent off a computer screen and directly keys the
respondents answers into the computer. A second
approach is computer-assisted self-interviewing. A mall
interviewer intercepts and directs willing respondents to
nearby computers. Each respondent reads questions off a
computer screen and directly keys his or her answers into a

computer.23
Table 5.2 Characteristics of various types of survey research
Telephone interviews
Compared with the personal interview, the telephone
interview costs less and may provide the best (i.e. most
representative) sample of any survey procedure. Most
telephone interviewing is conducted from a speciallydesigned phone room called a central-location telephone
(CLT) facility. A phone room has many phone lines,
individual interviewing stations, sometimes monitoring
equipment and headsets. The use of Wide Area Telephone
Service (WATS) lines permits the research firm to interview
people nationwide from a single location.
Many CLT facilities offer computer-assisted interviewing.
The interviewer reads the questions from a computer screen
and enters the respondents responses directly into the
computer as the respondent answers questions. The
researcher can stop the survey at any point and immediately
print out the survey results. This way, a researcher can get a
sense of the project as it unfolds and fine-tune the research
design as necessary. An online interviewing system can also

save time and money because data entry occurs as the
response is recorded rather than as a separate process after
the interview. Hallmark Cards, for instance, found that an
interviewer administered a printed questionnaire for its
greeting cards in 28 minutes. The same questionnaire
administered with computer assistance took only
18 minutes.24
Electronic surveys
Telephone surveys have been the backbone of much
consumer research during the past several decades because
they are a fast, relatively cheap, easy way to collect data.
However, answering machines, negative consumer attitudes
towards phone surveys (due to misuse by some salespeople
making telephone sales calls) and the growing number of
unlisted phones have led marketing researchers to look for
other media for collecting data. The growing number of
South Africans who have access to personal computers and
the Internet has opened up new opportunities for data
collection and marketing research using electronic
techniques.
Researchers typically use batch-type electronic mail to
send e-mail questionnaires to potential respondents who
use e-mail. Respondents key in their answers and send an email reply. The major advantage of e-mail surveys is the
rapid response rate. One recent survey had a 23,6 per cent
response rate after two days. This is shorter than the time
usually required to distribute traditional mail surveys
nationwide. After 14 days, the overall response rate was
48,8 per cent, which is quite high compared with most mail
or telephone surveys.25
Furthermore, because e-mail is a semi-interactive
medium, respondents can enquire about the meaning of
specific questions or pose other questions they may have.
E-mail surveys still face the problem of the limited
number of subscribers online, particularly in South Africa.
Other problems encountered when using e-mail surveys
include a large number of invalid e-mail addresses and the
fact that e-mail questionnaires are easy to ignore and/or
delete.
Internet-based surveys, in which a questionnaire is
placed on a website and the samples respondents (taken
from a database containing names and e-mail addresses)
are e-mailed an invitation to participate in the study (with a
link to the website) are gaining in popularity. Examples are
Qualtrics and SurveyMonkey. This survey method yields the
same advantages and disadvantages as e-mailed surveys,
except for one additional advantage: the data are captured
directly into a database as the respondents answer the
questions. It is not only much quicker than other methods,
but overcomes the problem of errors when the data are
captured.
WEBSITE
Visit the Qualtrics web site to see how this
data collection method can be used
www.qualtrics.com
Mail surveys
Mail surveys have several benefits: relatively low cost;

elimination of interviewers and field supervisors; centralised
control; and actual or promised anonymity for respondents
(which may draw more candid responses). Some
researchers feel that mail questionnaires give the
respondent a chance to reply more thoughtfully, to check
their records, talk to family members, and so forth.
However, mail questionnaires usually produce low response
rates (sometimes as low as 10 per cent). Low response rates
pose a problem because certain elements of the population
tend to respond more than others. Therefore, the resulting
sample may not represent the surveyed population. For
example, the sample may have too many retired people and
too few working people. In this instance, answers to a
question about attitudes towards old-age pensions may
indicate a much more favourable overall view of the system
than is actually the case. Another serious problem with mail
surveys is that it is not possible to probe respondents to
clarify or elaborate on their answers.
Mail panels like those used by market research firms such
as Synovate and Ipsos-Markinor offer an alternative to the
one-shot mail survey. A mail panel consists of a sample of
households who have agreed to participate regularly by mail
for a given period. Panel members often receive gifts in
return for their participation. Essentially, the panel is a
sample used several times over. In contrast to one-time mail
surveys, the response rates from mail panels are high. Rates
of 70 per cent (of those who initially agreed to participate)
are not uncommon.
WEBSITE
Evaluate the research design for the

omnibus survey of the marketing research
firm Ipsos-Markinor at www.ipsosmarkinor.co.za (click on omnibus).
Focus groups
A focus group is a type of personal interviewing. Often
recruited by random telephone screening, seven to ten
people with certain desired characteristics (to make them
representative of the population being studied) form a focus
group. These qualified consumers are usually offered an
incentive to participate in a group discussion. The meeting
place (sometimes resembling a living room, sometimes
featuring a conference table) usually has both audio-taping
and videotaping equipment. It is also likely to have a
viewing room with a one-way mirror so that interested
parties (e.g. clients such as the marketing staff of
manufacturers or retailers) may watch the session. During
the session, a moderator leads the group discussion.
Focus groups are much more than question-and-answer
interviews. The distinction is made between group
dynamics and group interviewing. The interaction
between focus-group members during focus-group
meetings is essential to the success of focus-group research.
This interaction is the reason for conducting group rather
than individual interviews. One of the most important
reasons for using group sessions to collect consumer data is
that a response from one person may become a stimulus for
another, thereby generating an interplay of responses that
may yield more insight than if the same number of people
had contributed independently.
Focus groups are occasionally used to brainstorm new

product ideas or to screen concepts for new products. Ford
Motor Company, for example, asked consumers to drive
several prototype cars. These test drivers were then
brought together in focus groups. During the discussions,
consumers complained that they were scuffing their shoes
because the rear seats lacked foot room. In response, Ford
sloped the floor underneath the front seats, widened the
space between the seat adjustment tracks, and made the
tracks in some models out of smooth plastic instead of
metal.
The Afrikaans daily newspaper, Die Burger, was
redesigned recently on the basis of focus-group research.
Focus groups were conducted in Cape Town, Somerset
West, Stellenbosch, Port Elizabeth, Humansdorp and
George, and, as a result, the publisher of the newspaper has
incorporated the following changes:26
The newspaper will include more and sharper in-depth

analysis of daily news
Greater focus on international news, especially relating
to the African continent
More legible typography and accessible layout
Shorter articles, but without sacrificing depth, meaning
and relevance
Larger crossword puzzles
TV schedules will include the latest entertainment news
Supplements will be full of relevant and interesting
trends and news
The daily fun pages will include the most popular
comic strip, as voted by readers.
10.4.2 Questionnaire design
LO11
All forms of survey research require a questionnaire.

Questionnaires ensure that all respondents will be asked
exactly the same series of questions. Questionnaires include
three basic types of questions (see Table 5.3): open-ended,
closed-ended, and scaled-response questions. An openended question encourages an answer phrased in the
respondents own words. Researchers get a rich array of
information based on the respondents frame of reference.
By contrast, a closed-ended question asks the respondent to
make a selection from a limited list of responses.
Traditionally, marketing researchers separate the twochoice question (called dichotomous questions) from the
many-item type (often called multiple choice questions). A
scaled-response question is a closed-ended question
designed to measure the intensity, or scale, of a
respondents answer.
The data (results) generated by closed-ended and scaledresponse questions are easier to tabulate than open-ended
questions because response choices are fixed. On the other
hand, if the researcher is not careful in designing the closedended question, an important choice might be omitted. For
example, suppose this question was asked during a food
study:
Table 5.3 Types of questions typically found in questionnaires
What, besides meat, do you normally add to a pizza that you

have prepared at home?
Peppadews
Olives
Cheese
Onions
Mushrooms
Peppers
Tomato
Pineapple
Banana
Bacon
The list seems complete, doesnt it? However, consider the
following responses: I always add garlic; I usually add a
green, avocado-tasting hot sauce; I cut up a mixture of
lettuce and spinach; Im a vegetarian; I dont use meat at
all. How would you code these replies? As you can see, the
question needs an other category.
A good question must also be asked clearly and concisely,
and ambiguous language must be avoided. Take, for
example, the question Do you live within ten minutes of
here? The answer depends on the mode of transport

(maybe the person walks), driving speed, perceived time
and other factors. Instead, respondents should see a map
with certain areas highlighted and be asked whether they
live within one of the areas.
Poor questions such as the two above will clearly produce
invalid results. Clarity also implies using reasonable
terminology. A questionnaire is not a vocabulary test. Jargon
should be avoided, and language should be geared to the
target audience. A question such as, What is the level of
efficacy of your preponderant dishwasher powder? would
probably be greeted by a lot of blank stares. It would be
much simpler to say Are you (1) very satisfied, (2)
somewhat satisfied, or (3) not satisfied with your current
brand of dishwasher powder?
Other principles of questionnaire design include the
following:
Avoid leading questions

Do not put the respondent on the defensive
Do not identify the sponsor if it can be avoided
Ask sensitive questions at the end
Do not ask unanswerable questions
Response options must be mutually exclusive.
Stating the surveys purpose at the beginning of the

interview also improves clarity. The respondents should
understand the studys intentions and the interviewers
expectations. Sometimes, of course, to get an unbiased
response, the interviewer must disguise the true purpose of
the study. If an interviewer says, Were conducting an image

study for Absa Bank and then proceeds to ask a series of
questions about the bank, chances are the responses will be
biased. Often respondents will try to provide answers that
they believe are correct or that they think the interviewer
wants to hear.
A good introduction to a questionnaire can go a long way
to ensuring a good response rate. The following also ought
to be considered:
Include brief introductory remarks, and a greeting

State the name of the research firm (not the client or
sponsor)
Make it clear that this is a genuine research study and
not a sales attempt
Introduce the general topic
State the duration of the interview accurately
Provide assurance of confidentiality and, if possible,
anonymity
Make it clear that there are no right or wrong answers.
To ensure clarity, the interviewer should also avoid asking

two questions in one for example, How did you like the
taste and texture of the coffee cake? This is known as a
double-barreled question it should be divided into two,
one question concerning taste and the other texture.
A question should be not only clear, but also unbiased. A
question such as, Have you purchased any quality Black &
Decker tools in the past six months? influences respondents
to think of the topic in a certain way (in this case, to link
quality and Black & Decker tools). Questions can also be
leading: Werent you pleased with the good service you

received at the Holiday Inn? (The respondent is all but
instructed to say yes.) These examples are quite obvious.
Unfortunately, bias is usually more subtle. Even an
interviewers clothing, tone of voice or gestures can lead to
biased responses.
Observation research
In contrast to survey research, observation research does
not rely on direct interaction with people. The three types of
observation research can be described as people watching
people, people watching activity, and machines watching
people.
There are two types of people-watching-people research:
Mystery shoppers. Researchers posing as customers

observe the quality of service offered by retailers.
Mystery shoppers usually evaluate salespeoples
courtesy, airline in-flight service, the efficiency of
hamburger ordering at fast-food outlets, etc. without the
employees knowing that they are not actually dealing
with real customers.
One-way mirror observations. At the Fisher-Price Play
Laboratory, children are invited to spend 12 sessions
playing with toys. Toy designers watch through one-way
mirrors to see how children react to Fisher-Prices and
other makers toys. Fisher-Price, for example, had
difficulty designing a toy lawnmower that children would
play with. A designer, observing behind the mirror,
noticed the childrens fascination with soap bubbles. He
then created a lawnmower that spewed soap bubbles. It

sold more than a million units in the first year.
People-watching-activity observation research is known as
consumer immersion. This is a primary research method
which is usually used to complement other types of primarydata-collection techniques. The technique requires a
researcher (or a member of the marketing team) to
immerse themselves in the world of the consumer and in
so doing capture a 360 degree view of the consumers world
insofar as it relates to a particular product. This way,
marketers are able to observe the behaviour and the lifestyle
of the consumer and explore the factors that are important
to the user. For example, Johnson & Johnson changed the
top of its baby shampoo from a flip-up lid to a pump-action
top. The reason for this was that, following a consumerimmersion day with a young mother, Johnson & Johnson
realised that it was difficult for a mother to open up the
shampoo bottle (with a flip-up) lid while holding the baby at
bath time. With the pump-action top, the mother was able to
hold the baby with one hand and operate the pump of the
shampoo with the other.
Three examples of machines watching people are:
Traffic counters. The most common and most popular
form of machine-based observation research relies on
machines that measure the flow of vehicles over a stretch
of road. Outdoor advertisers rely on traffic counts to
determine the number of exposures per day to a
billboard. Retailers often use the information to decide
on the location of a new shop. Convenience stores, for
example, require a moderately high traffic volume to be

profitable.
Videocart. This machine uses infrared sensors in shop
ceilings to track shopping trolleys. The new system has
spotted a lot of dippers. These shoppers park their
trolleys at the ends of aisles and then walk down, filling
their arms with items from the shelves as they go.
Retailers suspect such shoppers probably buy less
because they are limited by what they can carry in their
arms.27
Peoplemeter. This is a camera-like device used to
measure the size of television audiences. The passive
system, packaged to resemble a VCR and placed on top
of the TV, will be programmed to recognise faces and
record electronically when specific members of a family
watch TV. It will note when viewers leave the room and
even when they avert their eyes from the screen.
Strangers would be listed simply as visitors.
Peoplemeters are very useful because television
advertisers are demanding more proof of viewership and
the TV stations are under pressure to show that
advertising is reaching its intended targets. (Ratings are
used to help set prices for advertising time.) An AC
Nielsen executive has said that a passive system should
yield even higher quality, more accurate data because
the respondents dont have to do anything other than be
themselves. Already, however, the TV stations and
advertisers are criticising the passive peoplemeter. One
executive noted, Who would want or allow one of those
things in their bedroom? Others claim that the system
requires bright light to operate properly. Also, the box
has limited peripheral vision, so it might not sense all the

people in a given room.28
EXAMPLE >> A few years ago, Kimberly-Clark Corp saw sales of

Huggies baby wipes slip just as the company was preparing to launch a line of
Huggies baby lotions and bath products. Focus groups werent yielding any
compelling insights. Then a senior packaging designer suggested a new approach:
a camera mounted on a pair of glasses to be worn by consumers at home, so
researchers could see through their eyes. Letting Kimberley-Clark see what
consumers see, rather than pointing the camera at them, proved more
comfortable for consumers and useful to the company, says Becky Walter,
innovation and design chief. It didnt take long to spot the opportunities. While
women in groups talked about changing babies at a diaper table, the truth was
they changed them on beds, floors, and on top of washing machines in awkward
positions. The researchers could see they were struggling with wipe containers
and lotions requiring two hands. The company redesigned the wipe package with
a push-button one-handed dispenser and designed lotion and shampoo bottles
that can be grabbed and dispensed easily with one hand. 29
All observation techniques offer at least two advantages over
survey research. Firstly, bias from the interviewing process is
eliminated. In other words, it is relatively difficult to lie to a
peoplemeter the people who have to supply information
do not have to remember what they did or what they bought.
And secondly, observation does not rely on the respondents
willingness to provide data. Conversely, observation
techniques also have two important disadvantages. Firstly,
subjective information is limited because motivations,
attitudes and feelings are not measured. Secondly, data
collection costs may run high unless the observed behaviour
patterns occur frequently, briefly or somewhat predictably.
Experiments
An experiment is another method a researcher can use to
collect primary data. An experiment is conducted in a
controlled environment, such as a laboratory-like set-up or
artificially created environment. The researcher alters one
or more variables, such as price, package design, shelf
space, advertising theme and advertising expenditures,
while observing the effects of those alterations on another
variable (usually sales). The best experiments are those in
which all factors are held constant except for the ones being
manipulated. The researcher can then observe that changes
in sales, for example, result from changes in the shelf
location where the product is placed (and are not due to
increased advertising, changed packaging or a change in
price).
Holding all other factors constant in the external
environment is a monumental and costly if not impossible
task. Such factors as competitors actions, weather and
economic conditions are beyond the researchers control.
That is why successful experimental studies in a controlled
environment can be so valuable.
For example, before adding a new sandwich or burger to
its menu, McDonalds might use experiments to test the
effects on sales at two different prices. It could introduce the
new sandwich at one price in one city and at another price
in another city. If the cities are similar and if all other
marketing efforts for the sandwich are the same, then
differences in sales in the two cities could be attributed to
the price difference.
EXAMPLE >> Mars, the chocolate bar, was losing sales to other brands
recently. Traditional surveys showed that the smaller bar was not perceived as
good value. The marketers of Mars chocolate bars wondered whether a bigger bar
sold at the same price would increase sales enough to offset the higher
ingredient costs. The firm then designed an experiment in which the marketing
mix stayed exactly the same in different markets but the size of the chocolate bar
varied. The substantial increase in sales of the bigger bar quickly proved that the
additional costs of a bigger bar would be more than covered by the additional
revenue. Mars increased the bar size and its market share and profits.
10.4.3 Measuring perceptions and attitudes
LO12
The purpose of most consumer research conducted by firms

is to measure consumer perceptions and attitudes. The
researcher attempts to record the answers to the questions
in some sort of format. Two general formats are commonly
used: one is qualitative information and the other is
quantitative. Qualitative data are not in a numerical format,
but in a descriptive form. Qualitative information is very
valuable when the researcher is interested in in-depth,
detailed information. The researcher uses open-ended
questions rather than a structured questionnaire, and
probes continuously to try to unearth underlying feelings,
emotions, opinions and motivations.
A question such as: Why do you prefer All Gold tomato
sauce? is likely to produce a qualitative response such as:
Its the best-tasting tomato sauce on the market. Further
probing may produce interesting insights: Who first
introduced you to All Gold tomato sauce? My mother.
Those were wonderful, carefree days on the family farm.
Further probing may suggest that the choice of a brand of
tomato sauce is not primarily guided by taste, but instead by

a nostalgic longing for an era of peace and happiness.
>>Strategy
The appliances marketer Whirlpool relies heavily on
qualitative research to understand the many
international markets it operates in around the world.
The firm does business in every corner of the world,
including the United States and Canada, and
expanding markets in Asia, Europe and Latin America.
Whirlpool produces products under 12 brand names in
more than 140 countries.
How does Whirlpool intend to prosper in these very
diverse markets? Whirlpool has invested heavily in
cross-cultural market research. By using the expertise
of local staff members, qualitative research in the
form of focus groups, depth interviews and various
forms of projective techniques is undertaken around
the world. In refrigerator research in Europe, Whirlpool
found that British consumers want strong construction,
French consumers want fresh fruit and vegetables and
the Spanish want fresh meat. For ovens, the research
revealed that Italians want childproof features and the
Spanish favour accurate timers. Overall, Germans were
the only group concerned about environmental
features. In Latin America gas ranges are favoured
because of high electricity prices. Whirlpool strives to
understand cultural factors so that they can take
advantage of growing markets. For example, Latin
Americas economy is expected to grow at more than

5 per cent annually in the next decade. Whirlpool is
well aware of the different consumer needs from this
global qualitative research and is well equipped to
compete in a global market.30
Quantitative data, on the other hand, are expressed in a
numerical format. Usually exactly the same question is
asked of all respondents. Converting perceptions and
attitudes into numbers is usually done by means of a scale
that permits the data to be summarised as percentages,
averages, and so on. Several scales can be used to measure
perceptions and attitudes. These can be classified into four
groups, namely nominal scales, ordinal scales, interval
scales and ratio scales. In this introductory text we will
briefly discuss only the first two groups nominal scales and
data and ordinal scales and data.
A nominal scale is no more than a descriptive tag or
label attached to a classification or category. In other words,
a nominal scale classifies or identifies a respondent. A
respondent is, for instance, classified as a male or a female,
or as a Stormers, a Blue Bulls or a Sharks supporter. When a
nominal scale is used for identification of each object (such
as a male or a female) it has only one number assigned to it.
In other words, a respondent can be classified into one
group only and there is a number for each respondent
(exhaustive). All the respondents in the same category are
regarded as equal in respect of that characteristic. In other
words, Sharks supporters cannot be ranked above Blue Bulls
supporters.
An ordinal scale, on the other hand, implies some sort of

rank order relative to others possessing the same
characteristic. In other words, an ordinal scale allows the
researcher to determine whether a respondent has more or
less of a certain characteristic than some other respondent,
but not by how much. An ordinal scale indicates relative
position. One classification is higher, taller, richer, or faster,
and so on, than the next classification. For instance, the
higher-income group is richer than the low-income group
(but we do not know by how much). Two of the more
popular ordinal scales are the Likert-scale and the semantic
differential scale.
The Likert scale

The Likert scale is a rating scale on which respondents can
indicate their agreement or disagreement with a series of
statements, ranging from strongly agree to strongly disagree.
Table 5.4 Example of a Likert scale questionnaire
The respondents answer can then be expressed as a

number. For instance, we can report that the mean
(average) score of our respondents to the statement Coke is
the most enjoyable soft drink was 4,14. Alternatively, we can
report that the frequency distribution of the statement Coke
is the most enjoyable soft drink was:
5 55%
4 20%
3 15%
2 5%
1 5%.
In other words, 55 per cent of those interviewed strongly

agreed that Coke is the most enjoyable soft drink on the
market and only 5 per cent strongly disagreed. Also note that
respondents alternatives are limited: they can answer only
one of five possible answers.
The semantic differential scale

The semantic differential scale is slightly different, but
allows the researcher to do the same statistical
manipulations as those for the Likert scale because it is also
an ordinal scale. For example:
How would you describe the quality of service at the Pick
n Pay outlet you just visited?
Qualitative and quantitative data alike have advantages and

disadvantages. Qualitative data are normally of an in-depth
nature, providing detailed insight into a problem but we
cannot quantify the responses by saying, for instance, that
95 per cent of the customers of a firm are satisfied with its
products. We can only report detailed information about our
respondents attitudes and perceptions in a non-numerical
fashion. Quantitative data, on the other hand, allow us to

make statements such as our customer satisfaction index is
98, or 81 per cent of our customers rate the quality of our
services as excellent.
Which one of the two is the better? The answer is it
depends. It depends on the objectives of the research
project. If the objective is to get information about a new
product that the firm wants to launch, then qualitative data
will be the best. However, if we wish to assess the firms level
of customer satisfaction, then quantitative data will be the
best.
10.4.4 Deciding on the sampling procedure
LO13
Once the researcher has decided on the type of data needed

and the questionnaire has been finalised, the next step in
the research process is to decide on the sampling procedure.
Before a decision on the sampling procedure can be made, a
decision needs to be made on who will provide the
researcher with the required information. In other words,
who or what will be the unit of analysis? Who is to be
surveyed, or who will be questioned? Customers, potential
customers, firms, CEOs, industry experts and channel
members can all be respondents in a survey the unit of
analysis.
A related question is sample size. How many respondents
are going to be surveyed? Generally, larger samples are
preferred because they yield more valid and reliable data.
However, provided a credible sampling procedure is used,
smaller samples can be equally valid and reliable. Once the
researchers have decided how they will collect primary data,
how big the sample will be and how the collected data will
be captured (scored), the next step is to select the sampling
procedure they will use. A firm is seldom in a position to
take a census of all potential users of a new product, or of all
customers, and it is not possible to interview them all.
Therefore, it has to select a sample of the group to be
interviewed. A sample is a subset (usually people,
households or firms) selected from a larger population.
Several questions must be answered before a sampling
plan is chosen. First, the population or universe of interest
must be accurately defined. The population is the group
from which the sample will be drawn. It should include all
the people whose opinions, behaviour, preferences,
attitudes, and so on, are of interest to the market researcher.
For example, in a study whose purpose is to assess the
attitude towards a new canned dog food, the population
may be defined to include all current buyers of canned dog
food; if a petroleum firm wants to introduce a new brand of
petrol, all private vehicle owners may be the study
population.
After the population has been defined, the next question
is whether the sample needs to be representative of the
population. If the answer is yes, a probability sample is
needed. Otherwise, a non-probability sample might be
considered. These types of samples are discussed in the
sections that follow.
When the Sunday Times conducts its annual Top Brands
surveys, it selects a probability sample: a national sample of
3 500 people older than 16, who are representative of the
South African population, are interviewed face-to-face (2
000 urban dwellers and 1 500 rural dwellers).
Probability samples
A probability sample is one in which every element in the
population (all dog owners, in this case) has a known
statistical likelihood of being selected. Its most desirable
feature is that scientific rules can be used to ensure that the
sample represents the population. In other words, a
probability sample allows the researcher to generalise the
results of the sample to the entire population, which is a
major advantage over non-probability samples.
The choice of a probability sample is often influenced by
the availability of a sampling frame: a complete list of the
population from which the sample (consisting of individual
respondents) can be drawn. Depending on how the
population is defined, the following are examples of
sampling frames: a list of customers, a list of employees, a
rate-payers list, a telephone directory or a list of graduates in
South Africa. If a sampling frame is not available,
researchers are often forced to use a non-probability
sample.
One type of probability sample is a random sample. A
random sample must be arranged in such a way that every
element of the population has an equal chance of being
selected as part of the sample. For example, suppose a
university is interested in getting a cross-section of student
opinions on a proposed sports complex to be built using
student fees. If the university can acquire an up-to-date list
of all the enrolled students, it can draw a random sample by
using random numbers from a table (found in most statistics
textbooks) to select students from the list.
Non-probability samples
Any sample in which little or no attempt is made to get a
representative cross-section of the population can be
considered a non-probability sample. The most common
form of a non-probability sample is the convenience
sample, based on using respondents who are convenient or
readily accessible to the researcher for instance,
employees, friends or students. Non-probability samples are
acceptable as long as the researcher understands their nonrepresentative nature. In other words, no generalisations
can be made about the entire population. The findings are
applicable to that sample only. Because of their lower cost,
convenience and speed of data collection, non-probability
samples are used in many marketing research studies.
Common types of probability and non-probability
samples are described in Table 5.5.
Table 5.5 Types and features of probability and non-probability samples
Sample type
Probability samples
Simple
random
sample
Every member of the population has a known and equal

chance of selection.
Stratified
sample
Population is divided into mutually exclusive groups (such as

gender or age), then random samples are drawn from each
group.
Cluster
sample
Population is divided into mutually exclusive groups (such as

geographic areas), then a random sample of clusters is
selected. The researcher then collects data from all the
elements in the selected clusters or from a probability sample
of elements within each selected cluster.
Systematic
sample
A list of the population is obtained (e.g. all people with a

cheque account at XYZ Bank), and a skip interval is obtained.
The skip interval is obtained by dividing the population size
by the sample size. If the sample size is 100 and the bank
has 1 000 customers, then the skip interval is 10. The
beginning number is randomly chosen within the skip interval.
If the beginning number is 8, then the skip pattern would be
8, 18, 28
Sample type
Non-probability samples
Convenience
sample
The researcher selects the easiest population members from

whom to obtain information.
Judgement
sample
The researchers selection criteria are based on personal

judgement that the elements (persons) chosen are likely to
give accurate information.
Quota
sample
The researcher finds a prescribed number of people in several

categories (e.g. owners of large dogs versus owners of small
dogs). Respondents are not selected on probability sampling
criteria.
Snowball
sample
The selection of additional respondents is made on the basis

of referrals from the initial respondents. This is used when a
desired type of respondent is hard to find, e.g. people who
have taken round-the-world cruises in the last three years.

This technique employs the old adage birds of a feather flock
together.
10.5 Step 5: Collecting the data

Marketing research often utilises fieldworkers or
interviewers to collect primary data. A marketing research
manager must ensure that detailed field instructions are
developed for every research project in which fieldworkers
are used. Nothing should be left to chance. There must be
no uncertainties once the fieldwork (interviewing) starts and
no interpretation of procedures should be left to
fieldworkers.
Sometimes the services of outside market research firms
are used to do the fieldwork. Besides conducting interviews,
field-service firms provide focus-group facilities, mall
intercept locations, test-product storage and kitchen
facilities to prepare test-food products. After an interview is
completed, field-service supervisors validate the survey by
recontacting about 15 per cent of the respondents. The
supervisors verify that certain responses were recorded
properly and that the people were actually interviewed.
10.6 Step 6: Analysing the data

After collecting the data, the marketing researcher proceeds
to the next step in the research process: data analysis. The
purpose of this analysis is to interpret and draw conclusions
from the mass of collected data. The marketing researcher

tries to organise and analyse the data by using one or more
techniques common to marketing research: one-way
frequency counts, cross-tabulations and more sophisticated
statistical analysis.
Of these three techniques, one-way frequency counts are
the simplest. One-way frequency tables record the
responses to a question. For example, the answers to the
question what brand of chips do you buy most often?
would provide a one-way frequency distribution. One-way
frequency tables are always done in data analysis, at least as
a first step, because they provide the researcher with a
general picture of the studys results.
A cross-tabulation, or cross-tab, lets the analyst look at
the responses to one question in relation to the responses to
one or more other questions. For example, what is the
association between gender and the brand of chips bought
most frequently? Hypothetical answers to this question are
shown in Table 5.6.
Table 5.6 Brand choice by gender (hypothetical)
Brand
Male
Female
Simba
50%
50%
Willards
51%
49%
Pringles
30%
70%
Analysing the data in Table 5.6 shows that both the Simba
and the Willards brands are equally popular with both males
and females. Women, compared to men, however, strongly
prefer Pringles potato chips.
Researchers can use many other more powerful and
sophisticated statistical techniques, such as correlation
analysis and regression analysis to test whether there are
relationships among variables of interest (such as between
gender and choice of a brand of potato chip in this case).
The use of sophisticated statistical techniques depends on
the researchers objectives and the nature of the data
collected. A description of these techniques is beyond the
scope of this book, but can be found in any good marketing
research textbook.
After the data have been analysed, the researcher has to
interpret the results. In other words, the question that must
be answered is: What do the results say? This interpretation
is made against the background of the stated objectives and
the problem statement, and relies heavily on the data
analysis phase of the research. For example, if women prefer
Pringles potato chips, what are the reasons for the
preference? What can be done to enhance preference
among males?
10.7 Step 7: Preparing and presenting the report

After data analysis and interpretation have been completed,
the researcher must prepare the report and communicate
the conclusions and recommendations to management.
This is a key step in the research process. If the marketing
researcher wants managers to carry out the
recommendations, he or she must convince management

that the results are credible, valid, reliable and justified by
the data collected.
Researchers are usually required to present both written
and verbal reports on the project. These reports should be
tailored to the audience. They should begin with a clear,
concise statement of the research objectives, followed by a
complete, but brief and simple, explanation of the research
design or methodology used. A summary of the major
findings should come next. The conclusion of the report
should also present recommendations to management.
Most people who enter the marketing profession will
become research users rather than research suppliers. So
they must know what is required of a research report. As
with many other items we purchase, quality is not always
readily apparent. Nor does a high price guarantee superior
quality. The basis for measuring the quality of a marketing
research report is the research proposal. Did the report meet
the objectives formulated in the proposal? Was the
methodology outlined in the proposal followed? Are the
conclusions based on logical deductions from the data
analysis? Do the recommendations seem prudent, given the
conclusions?
Another criterion is the quality of the writing. Is the style
crisp and lucid? It has been said that if readers are offered
the slightest opportunity to misunderstand, then they
probably will. The report should also be as concise as
possible.
It may be a good idea, a few months after the submission
of the research report, to conduct a follow-up exercise. The
researcher should investigate why management did or did

not implement the recommendations in the report. Was
sufficient decision-making information included? What
could have been done to make the report more useful to
management? A good rapport between the marketing
manager, or whoever commissioned the research project,
and the market researcher is essential. Often they must work
together on several studies throughout the year.
Many small firms do not have the time or money to
engage in sophisticated, formal marketing research studies.
However, that should not preclude them from doing less
complicated forms of research.
11. When should marketing research be

LO14
conducted?
When managers have several possible solutions to a
problem, they should not instinctively call for marketing
research. In fact, the first decision to make is whether to
conduct marketing research at all. Some firms have been
conducting research in certain markets for many years. Such
firms understand the characteristics of target customers and
their likes and dislikes about existing products. Under these
circumstances, further research could be unnecessary and a
waste of money.
>>Strategy
In the United States Procter & Gamble, for example, has

extensive knowledge of the coffee market. After it
conducted initial taste tests with Folgers Instant Coffee,
Procter & Gamble went into national distribution
without further research. Consolidated Foods Kitchen
of Sara Lee followed the same strategy with its frozen
croissants, as did Quaker Oats with Chewy Granola
Bars. This tactic, however, does not always work.
Procter & Gambles marketers thought they understood
the pain-relief market thoroughly, so they bypassed
market research for Encaprin aspirin in capsules.
Because it lacked a distinct competitive advantage over
existing products, however, the product failed and was
withdrawn from the market.
Coca-Cola launched soft-drink Bibo and Nestea, a
brand of iced tea, in Mozambique in the same type of
pouch packaging without any research conducted
before the time. Only afterwards did Coca-Cola
discover that females, in particular, did not want to buy
their iced tea in the same packaging as their childrens
drinks, and the launch of Nestea was consequently a
flop and Bibo discontinued later. Proper marketing
research may very well have prevented these
unsuccessful product launches. Not long ago DStv
stopped distributing its monthly magazine Dish which
infuriated subscribers without doing any research on
how consumer would respond (see Reader 31 DStv
dishes up a problem for subscribers). Rather
embarrassingly they had to rescind the decision later.
READER 31 >> DStv dishes up a problem for

subscribers
Multichoice says it will canvass subscribers views on its decision to stop
printing its schedule in its DStv Dish magazine. From this month the schedule
is only accessible from the TV operators website or by scrolling through the
menus on DStv. This has infuriated subscribers and newspapers have been
inundated with letters and SMSs from viewers complaining about Multichoices
decision. Many subscribers said they used to highlight programmes in the
magazine as they had no time to surf all the channels and try to juggle
program times. Multichoice responded to viewer complaints by saying a survey
would ascertain whether subscribers wished to receive the printed version. The
survey would ask all subscribers whether they wish to receive a printed version
of the listings even though there will still be inaccuracies in the listings. The
best method of resolving the issue will then be determined.
SOURCE: Regchand, S. 2012. DStv dishes up a problem for subscribers. Business Times, 17 April, p.
13
Managers rarely have such so much trust in their judgement

that they would refuse more information if it were available
and free. But they may have enough confidence that they
would be unwilling to pay too much for the information or
to wait a long time to receive it. The willingness to acquire
additional decision-making information depends on
managers perceptions of its quality, price and timing. Of
course, if perfect information were available that is, the
data conclusively showed which alternative to choose
decision-makers would be willing to pay more for it than for
information that still left uncertainty.
In summary, research should only be undertaken when
the expected value of the information is more than the cost

of obtaining it.
12. The characteristics of good

research
LO15
Several criteria can be used to judge the value and quality of

research projects:31
Scientific method: Effective marketing research

implements scientific principles, including proper
problem formulation; the careful formulation of
objectives and hypotheses; the choice of the correct
data-collection techniques; proper sampling;
appropriate data analysis; and the correct interpretation
of the empirical results, leading to meaningful, factuallybased recommendations.
Creativity and originality: Some of the traditional
methods of research are no longer of much value, and
alternative data-collection techniques need to be
considered.
Multiple methods often yield better results than an overreliance on one method. In a recent survey, British bank
Lloyds TSB measured the commitment of a sample of its
customers using standard market research techniques,
and then supplemented that with imputational
techniques, which helped it discover the links between
the commitment measure and customers behaviour
patterns. This enabled the bank to apply a measure of
commitment to the entire database. The marketing

success, as measured by return on investment, has been
considerable.32
The value of research must always be seen in relation to
the cost of generating the information.
Healthy scepticism: Marketing research is only an aid to
decision-making and marketing managers must not
ignore their own experience and judgement.
Marketing research must always be conducted in an
ethical manner.
13. Why is marketing research criticised?

Like almost all other things in life, marketing research is not
beyond criticism. Some criticise the inability of research to
accurately predict human behaviour. Consumers intentions
to buy, for instance, are not always a good predictor of their
actual buying behaviour, it is argued. Others believe that
research results are often useless and cannot be
implemented because of poor communication between the
researcher and the user of the research (often the marketing
manager). Lastly, research is unfortunately sometimes seen
and utilised as a stand-alone, isolated activity, instead of
being integrated into the entire marketing process.33
In conclusion, we need to revisit the value and
importance of research. Marketers use marketing research
to explore the likelihood of the success of future marketing
strategies. Research also allows marketing managers to
evaluate why particular strategies failed after the event and
minimise the recurrence of the same mistakes in the future.

Research also allows managers to analyse the characteristics
of specific market segments. Moreover, marketing research
allows management to behave proactively rather than
reactively by identifying newly emerging patterns in society
and the economy. The most important reason why
information in general and marketing research in particular
are so important is that they enhance the quality and
accuracy of managerial decision-making by reducing risk.
How to Measure Social Media
Marketing Success
One of the biggest issues in marketing research is how
to measure the effectiveness marketing campaigns and
although social media has been a game changer in
respect of marketing communication, it has not
changed the importance of assessing the return on
investment of marketing spend. However, how
businesses assess the success of social media
marketing campaign are very different to traditional
measures and are mostly available for free. As with
traditional (off-line) marketing campaigns, social
media marketers need to know the potential reached of
their marketing communications. While it is impossible
to gauge how many people actually viewed, for
example, a post on a businesses Facebook page, the
number of fans of the page, connections on LinkedIn
and followers on Twitter, should all give a good

indication of the extent of the reach. However, of
particular interest to marketers is how many people
actually engaged with a particular post, in other words
were inspired to act as a result of a post in social media.
Once again, there is no comprehensive measure, but
businesses can look at such metrics such as clicks,
comments and shares, all of which indicate that a
particular consumer actually read and comprehended
the message.
Ultimately, though, the goal of any marketing
campaign, social media or otherwise, is to get
consumers to interact with the business, online or
offline. In the social media there are also a number of
free tools available in order to track the effectiveness of
the conversion from prospect to actual customer. For
example, Google Analytics which will allow you to build
traceable links for all your social media posts and in
addition track online conversion activities, for example
downloads, registrations.
SOURCE: DeStefano, B. 2014. How to Measure Social Media Marketing
Success.
Available
from
http://www.svmsolutions.com/onlinemarketing/how-to-measure-social-media-marketing-success/ (Accessed
1 August 2014)
<<< LOOKING BACK

The opening section (Marketing in practice) attempts to
illustrate the point that to be able to implement the
marketing concept marketers need to understand the needs
and wants of their target market. But how do marketers

become aware of the needs and wants of consumers? The
answer is by collecting and analysing reliable, valid
information about consumer needs and wants.
Capitec has been a phenomenally successful bank whose
share price increased from R1,80 when listed to around R400
today and a customer base of over 5 million. They have
gained a 14 per cent market share in a very tough market
dominated by the big four banks.
Their success is directly attributable to its ability to satisfy
its customers needs and wants: affordable banking,
simplified processes and procedures, simplified fee
structures and longer business hours.
SUMMARY
1
The relevance of marketing information. Firms that do

not know and understand consumer needs and wants
cannot implement the marketing concept. Ignorance of
consumer needs will also stifle efforts to develop new
need-satisfying products, and leave open opportunities
for competitive attacks. Information is also important
when firms become involved in a new venture, such as
launching a new product, entering a new market
segment or using a new channel of distribution.
The nature and purpose of a marketing-decision
support system. Decision support systems (DSS) make
data instantly available to marketing managers and allow
them to manipulate the data themselves to make
marketing decisions. Four characteristics of decision
support systems make them especially useful to

marketing managers: they are interactive, flexible,
discovery-orientated and accessible. Decision support
systems give managers access to information
immediately and without outside assistance. They allow
users to manipulate data in a variety of ways and to
answer what if questions. And, finally, they are
accessible even to inexperienced computer users.
3 Database marketing and micro-marketing. A
marketing database is part of a decision support system
composed of present and potential customers profiles
and purchasing patterns. Micro-marketing is the
creation of a large database of customers and potential
customers profiles and purchasing patterns used to
target households or individuals. Micro-marketing has
several important functions: it identifies the potential
profitability of specific customers and market segments;
it helps determine effective packaging and pricing
strategies for specific market segments; and it provides
insights into market opportunities for new products and
services.
4 The importance of database marketing. The
advantages of database marketing are that it can:
Identify the most profitable and least profitable
customers
Identify the most profitable market segments or
individuals and target efforts with greater efficiency
and effectiveness
Aim marketing efforts at those goods, services and
market segments that require the most support
Increase revenue by repackaging and re-pricing
products for specific market segments

Evaluate opportunities for offering new products and
services
Identify products and services that are selling well
and are most profitable.
5 Descriptive, diagnostic and predictive research.
Marketing research has three roles: descriptive,
diagnostic and predictive. Its descriptive role includes
collecting and presenting factual statements; its
diagnostic role includes explaining data and results; its
predictive function is to address what if questions.
6 The relationship between marketing research and
DSS. Marketing research is a process of collecting and
analysing data for the purpose of solving specific
marketing problems. Marketing research generates new
information that is then input into the DSS. Therefore,
the DSS stores research information for later use by
those who make managerial decisions.
7 The importance of marketing research in marketing
decision-making. Marketers use marketing research to
explore the profitability of marketing strategies. They can
examine why particular strategies failed and analyse the
characteristics of specific market segments. Moreover,
marketing research allows management to behave
proactively rather than reactively by identifying newly
emerging patterns in society and the economy. The most
important reason for marketing research is to enhance
the quality and accuracy of managerial decision-making
by reducing risk.
8 The steps involved in conducting a marketing
research project. The marketing research process
involves several basic steps. First, the researcher and the

decision-maker must agree on a problem statement
and/or a set of research objectives. Sometimes this step
requires a background investigation, referred to as a
situational analysis, usually drawn partly from secondary
sources. The researcher then creates an overall research
design to specify how primary data will be collected and
analysed. Before collecting data, the researcher decides
whether the group to be interviewed will be a probability
or non-probability sample. Field-service firms are often
hired to carry out data collection. Once data have been
collected, the researcher analyses them using statistical
analysis. The researcher then prepares and presents oral
and written reports, with conclusions and
recommendations to management. As a final step, the
researcher determines whether the recommendations
were implemented and what could have been done to
make the project more successful.
9 Planning a research proposal. The nature of the
research proposal will depend on the project. The
guidelines set out in the Framework for preparation of a
research proposal (p. 153) should be used.
10 Different types of data-collection techniques:
Personal interviews one-on-one interviews,
personal interviews normally conducted in-home
Shopping mall intercept interviews personal
interviews conducted in the common areas of
shopping malls
Telephone interviews a personal interview that is
not face to face
E-mail surveys interviews conducted via the
Internet
Mail surveys questionnaires sent to respondents via
mail
Mail panels a sample of households that have
agreed to participate regularly by mail for a given
period. Essentially, the panel is a sample used several
times over
Focus groups a type of personal interviewing. Often
recruited by random telephone screening, seven to
ten people with certain desired characteristics (to
make them representative of the population being
studied) form a focus group in essence, a group
interview.
The advantages and disadvantages of the different
research techniques are summarised in Table 5.2 (p. 156).
11 Principles of questionnaire development:
Options must be exhaustive
Avoid ambiguous questions
Use commonly accepted terminology and concepts
Avoid leading questions
Do not put the respondent on the defensive
Provide a good introduction
Do not identify the sponsor if this can be avoided
Ask sensitive questions at the end
Do not ask unanswerable questions
Options must be mutually exclusive.
12 The measuring or scaling that can be used to measure
perceptions and attitudes.
Most of the consumer research conducted by firms is
aimed at measuring consumer perceptions and
attitudes. In response to questioning, the researcher
records these views in some sort of format. Two general

formats are commonly used: one is qualitative
information and the other is quantitative in nature.
Qualitative information is not in a numerical, but a
descriptive form. Qualitative information is very valuable
when the researcher is interested in in-depth, detailed
information. The researcher uses open-ended questions
rather than a structured questionnaire, and probes
continuously to try and unearth underlying feelings,
emotions, opinions and motivations.
Perceptions and attitudes can be recorded in four
types of quantitative data: nominal, ordinal, interval and
ratio. The most desirable of these is ratio data.
Unfortunately, most researchers generally have to settle
for ordinal data when measuring perceptions and
attitudes often done by means of a Likert scale.
13 Probability and non-probability samples. A probability
sample is one in which every element in the population
has a known statistical likelihood of being selected. Its
most desirable feature is that scientific rules can be used
to ensure that the sample represents the population. The
choice of a probability sample is often influenced by the
availability of a sampling frame or a complete list of the
population from which the sample (consisting of
individual respondents) can be drawn. If a sampling
frame is not available, researchers are often forced to use
a non-probability sample. Any sample in which little or
no attempt is made to get a representative cross-section
of the population can be considered a non-probability
sample. The most common form of a non-probability
sample is the convenience sample, based on using
respondents who are readily accessible to the researcher.

The major difference between the two samples is that in
the case of a probability sample, the results can be
generalised to the entire population. The results
emanating from a non-probability sample are applicable
only to that sample and cannot be generalised.
14 When marketing research should be conducted. In
general, more marketing research information will
always be better than less. Research should be
undertaken, however, only when the expected value of
the information is greater than the cost of obtaining it.
15 Criteria for evaluating research projects:
Scientific method: effective marketing research
implements scientific principles, including proper
problem formulation, the careful formulation of
objectives and hypotheses, the choice of the correct
data-collection techniques, proper sampling,
appropriate data analysis and correct interpretation
of the empirical results, leading to meaningful,
factually based recommendations
Creativity and originality. Consider new techniques.
Some traditional methods of conducting research
may no longer be appropriate
Multiple methods often yield better results than overreliance on one method
The value of research must always be seen in relation
to the cost of generating the information
Healthy scepticism: marketing research is only an aid
to decision-making, and marketing managers must
not ignore their own experience
Marketing research must always be conducted in an
ethical manner.
16 Social media adds a whole new dimension to marketing
research in that, without any persuasion from market
researchers, consumers express their views about
products, businesses and trends. A number of tools exist
within the social media which allow businesses to track
and monitor consumers perceptions.

1
4
5
The task of marketing is to create exchanges. What role

can marketing research play in the facilitation of the
exchange process?
Marketing research has traditionally been associated
with manufacturers of consumer goods. Today, we are
experiencing an increasing number of firms and
organizations both profit and non-profit that use
marketing research. Why do you think this trend exists?
Provide examples.
Write a reply to the following statement: I own a
restaurant in the centre of town. I see customers every
day whom I know on a first-name basis. I understand
their likes and dislikes. If I put something on the menu
and it doesnt sell, I know that they didnt like it. I also
read the magazine Modern Restaurants, so I know what
the trends are in the industry. This is all of the marketing
research I need to do.
Give an example of (a) the descriptive, (b) the diagnostic,
and (c) the predictive roles of marketing research.
Critique the following methodologies and suggest more
appropriate alternatives:
7
8
A supermarket was interested in assessing its market

image. It dropped a short questionnaire into the
grocery bag of each customer before putting in the
groceries
To assess the extent of its trade area, a shopping mall
stationed interviewers in the parking area every
Monday and Friday evening. Interviewers walked up
to persons after they had parked their cars and asked
them in which residential suburb they lived
To assess the popularity of a new movie, a moviehouse manager invited people to call an 0800
number and vote yes, they would see it again, or
no, they would not. Each caller was charged R10.
You have been asked to determine how to attract more
students majoring in business studies at your university
or university of technology. Write an outline of the steps
you would take, including the sampling procedures, to
accomplish the task.
Under what circumstances would secondary data be
preferable to primary data?
In the absence of problems in a firm, is there any reason
to develop a marketing decision
support system (DSS)?
Discuss when focus groups should and should not be
used.
STRATEGY READER >> Facebook more than just

about friends
There are a number of facets to marketing research, including finding out
about the specific needs of potential customers, searching for hidden niches
and ascertaining the best way to target specific market segments. However,
marketing research is often dismissed by small businesses and entrepreneurs
as an expensive exercise, way beyond the reach of their limited resources.
Nevertheless, small businesses are known for being innovative, flexible and
creative in their approach to marketing, which allows them to compete with
their larger counterparts.
Assume that, as a small-business owner, your target market is young male
university students in South Africa (which is an important market segment for
products such as the male deodorant, Axe) and that you want to communicate
the benefits of your product to this market segment. However, as a typical
small business, you have inadequate resources available for marketing, unlike
big corporations such as Unilever, which owns the Axe brand which are
able to employ the services of professionals to conduct their market research
and advise them on their advertising strategy.
One medium that is often put forward as a cost-effective means for small
businesses to reach consumers is the Internet, and, specifically, social
networking websites, such as Bebo, Big Tent, Facebook, Hi5, LinkedIn and
Twitter. In South Africa, Facebook is one of the most popular social-networking
sites for students, and we would expect that many of our target market (young
male university students) would be members of Facebook. However, as a small
business owner, the research question which you would ask yourself would be:
How effective is Facebook in reaching my target market? Fortunately, if you
are innovative and creative, you can leverage this websites functions to allow
us to do market research into the feasibility of using Facebook to
communicate with young people in South Africa.
SOURCE: www.saunderslog.com (accessed 21 July 2010)
QUESTIONS
Discuss the value of social media as a method of collecting information about
the following research problems:
1
2
3
A sporting goods manufacturer wants to identify university students brand

preferences for tennis racquets, golf clubs and soccer boots.
A supermarket chain wants to identify the most effective physical layout
for its shops.
A manufacturer of male deodorants wants to establish who makes the
buying decision on the shop floor.
KEY CONCEPTS
Audit: form of observation research that features people examining and
verifying the sale of a product.
Business research: the systematic and objective process of collecting, recording
and analysing data for managerial decision-making.
Central-location telephone (CLT) facility: a specially designed phone room
used to conduct telephone interviewing.
Closed-ended question: interview question that asks the respondent to make a
selection from a limited list of options.
Computer-assisted personal interviewing: interviewing method in which the
interviewer reads the questions from a computer screen and enters the
respondents responses directly into the computer.
Computer-assisted self-interviewing: interviewing method in which a mall
interviewer intercepts and directs willing respondents to a nearby computer
where the respondent reads questions off a computer screen and directly keys
his or her answers into a computer.
Convenience sample: a form of non-probability sample using respondents who
are convenient, or readily accessible, to the researcher, for example, employees,
friends or relatives.
Cross-tabulation: a method of analysing data that lets the analyst look at the
responses to one question in relation to the responses to one or more other
questions.
Database marketing: the creation of a large computerised file of customers and
potential customers demographic profiles and purchase patterns.
Decision support system (DSS): an interactive, flexible computerised
information system that enables managers to obtain and manipulate
information as they are making decisions.
E-mail surveys: interviewing technique in which researchers use batch-type
electronic mail to send surveys. Respondents reply via e-mail.
Experiment: a research method used to collect primary data in a laboratory-type

environment.
Field-service firm: firm that specialises in interviewing respondents on a
subcontracted basis.
Focus group: seven to ten people who participate in a group discussion led by a
moderator.
Frame error: error that occurs when a sample drawn from a population differs
from the target population.
Group dynamics: interaction among group members essential to the success of
focus-group research.
Leading question: a question that is formulated in such a way that the
respondent is inadvertently encouraged to respond in a certain manner.
Mall intercept interview: survey research method that involves interviewing
people in the common areas of shopping malls.
Marketing intelligence: everyday information about developments in the
marketing environment that managers use to prepare and adjust marketing
plans.
Marketing research: the process of planning, collecting and analysing data
relevant to a marketing decision.
Measurement error: an error that occurs when there is a difference between the
information desired by the researcher and the information provided by the
measurement process.
Nominal scale: descriptive label attached to a classification or category.
Non-probability sample: any sample in which little or no attempt is made to get
a representative cross-section of the population.
Observation research: research method that relies on three types of
observation: people watching people, people watching activity, and machines
watching people.
Online database: a collection of public information accessible to anyone with
the proper computer facilities.
Online database vendor: an intermediary that acquires databases from
database creators.
Open-ended question: interview question that encourages an answer phrased in
the respondents own words.
Ordinal scale: score that implies some sort of rank order relative to others.
Population: the group under study from which a sample will be drawn (also
called universe).
Primary data: information collected for the first time. Can be used for solving
the particular problem under investigation.
Probability sample: a sample in which every element in the population has a
known statistical likelihood of being selected.
Random error: error that occurs because the selected sample is an imperfect
representation of the overall population.
Random sample: sample drawn in such a way that every element of the
population has an equal chance of being selected as part of the sample.
Research design: the specification for which research questions must be
answered, how and when the data will be collected, and how the data will be
analysed. The research design ought to be captured on paper in the form of a
research proposal.
Sample: a subset of a population.
Sample frame: a complete list of sample elements.
Sampling error: error that occurs when a sample somehow does not represent
the target population.
Scaled-response question: a closed-ended question designed to measure the
intensity of a respondents answer.
Secondary data: data previously collected for any purpose other than the one at
hand.
Situation analysis: extensive background investigation into a particular
marketing problem.
Survey research: the most popular technique for collecting primary data, in
which a researcher interacts with people to obtain facts, opinions and attitudes.
REFERENCES
1
2
3
4
5
6
7
8
Zikmund, W.G. 1997. Business research methods. New York: The Dryden
Press, p. 6.
Tracking Social Media Topics, Trends and Traffic. Available from
http://www.heavycontent.com/track_social_media.html (Accessed on 11
August 2014).
HP enables real-time always on decision-making. Available from
http://www.itwebinformatica.co.za/ (Accessed on 18 June 2014).
Authors personal notes, 21 July 2000.
A potent new tool for selling Database marketing. Business Week, 5
September 1994, pp. 5662.
Sheth, J. & Sisodia, R. 1995. Feeling the heat Part 2. Marketing Management,
winter 1995, pp. 1933.
Bidoli, M. 1998. Customer service rules. Financial Mail, 1 August 1998, p. 65.
Jordaan, Y. 2003. South African consumers information privacy concerns:
An investigation in a commercial environment. Unpublished D.Com
dissertation, University of Pretoria.
Factors in market repositioning. Business Day, 6 April 2001, p. 20.
10 Moodie, G. 2012. SABC research shows state broadcaster not meeting localcontent requirements. Available from
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11 YOU and Huisgenoot get new look. Business Day, 15 May 2001, p. 11.
12 Jarrard, C. 1998. Managing the brand image through research. Paper read at
the 10th South African Institute of Management Scientists Conference,
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29 May 1998, p. 69.
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(Accessed 14 July 2014).
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newsletter, www.bizcommunity.com, 29 April 2008.
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News, 28 August 1995, p. 31.
24 Pyle, D. 1990. How to interview your customers. American Demographics,
December, pp. 4445.
25 E-mail surveys: Potentials and pitfalls. 1995. Marketing Research, summer
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26 Die Burger soon to sport a new look. 2008. Bizcommunity online newsletter,
www.bizcommunity.com, 9 July 2008.
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shopper habits to boost sales. Wall Street Journal, 25 August 1993, pp. B1 and
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edition). New York: Prentice Hall, p. 125.
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The Future: Marketing and Business Vision 2(3), p. 54.
33 Stanton, W.J., Etzel, M.J. & Walker, B.J. 1991. Fundamentals of marketing.
New York: McGraw-Hill.
CHAPTER
06
Segmenting and targeting

markets
LEARNING OUTCOMES
1
2
3
4
5
Describe the nature of market segmentation.

Explain the importance of market segmentation.
Discuss criteria for successful market segmentation.
Describe bases commonly used to segment consumer markets.
Distinguish between a qualifying and a determining dimension in
marketing segmentation terms.
6 Use the conventional steps in market segmentation to segment a
consumer market.
7 Elucidate the advantages and disadvantages associated with
various strategies for selecting target markets.
8 Contrast the various alternative strategies for selecting target
markets.
9 Explain how positioning is related to target marketing and why
firms implement positioning strategies.
11 Provide a marketing management solution related to any of the
above outcomes.

Fast-growing and recession-resistant
over-40s market presents golden
opportunity for South African
business
South African business could be ignoring the moneyed
over-40s market at their peril, says director of the
University of Cape Town Unilever Institute for Strategic
Marketing, Professor John Simpson. With a combined
income of R300 billion, the 1,9 million South Africans
who are older than 40 and classified as being between
living standards measures (LSM) 7 and 10 are an
economic force to be reckoned with.
One of the factors that contribute to this markets
prosperity is that many prime timers are not as
burdened by debt as their younger counterparts,
explains Professor Simpson. Our study reveals many
South Africans over 40 believe that most marketing
messages are aimed at those in their 20s and 30s, and
feel alienated by marketing communication,
overlooked by product developers and dissatisfied with
customer service, explains Simpson. Traditionally,
marketers
have
focused
their
marketing
communication on the under-40 market. The reality is
that the majority of this market has less disposable
income than prime timers. Older consumers who are
financially in their prime feel alienated by advertisers
and marketers obsession with youth. This provides a

tremendous opportunity for savvy businesses and
marketers.
An opinion often voiced by prime time respondents
was that firms do nothing to reward brand loyalty. This
is regrettable, as it leads to the attrition of businesses
most valuable customer base. Clothing, in particular,
was singled out with regard to both sizing and styling:
many participants complained that despite having the
money to spend on clothing, they found it increasingly
difficult to find clothing that fitted them, but was also
fashionable.
SOURCE: Adapted from Fast-growing and recession-resistant over-40s
market presents golden opportunity for SA business. Bizcommunity
electronic newsletter, www.bizcommunity.com, 22 July 2008
QUESTIONS
1
2
Why have so many firms ignored the over-40s market?

Is this market segment worth pursuing?
1. Introduction
Marketers who accept and implement the marketing
concept appreciate that not all consumers are the same.
Consumers have different needs that can be satisfied in
different ways. Some are extremely price-conscious and will
not be loyal to any firm or brand. Others are very brand loyal
and yet others are concerned only about quality and
reliability or convenience. Thanks to research information
(see Chapter 5), marketers are often aware of these different

needs and can design products or services to satisfy a variety
of needs. This acceptance that need satisfaction is
multifaceted spawned the introduction of the concept of
market segmentation. Its proponents argue that market
segmentation yields benefits such as more accurately
defining opportunities to build long-term relationships with
customers, and being able to assess the objectives and
performance of marketing activities more precisely.
It is true that some marketers do not segment their
market or markets. Virgin Active, for instance says: We
create an environment that welcomes everybody from sixmonths-old babies to senior citizens.1 They are referred to
as mass marketers, and will point to the disadvantages of
segmentation and the perils of targeting relatively small
market segments. These include high costs and limited
market coverage (see Table 6.4). Mass marketers engage in
mass production, mass distribution and mass promotion.
Henry Ford became the worlds first mass marketer when he
proclaimed that you can have any colour Ford you want as
long as it is black. Mass marketers argue that it is a good
approach to marketing because it appeals to the largest
market which, through economies of scale, keeps costs
and therefore prices, as low as possible. In this way,
profitability is enhanced.
However, mass marketing is not a universally-accepted
philosophy. The alternative, as we have said, is market
segmentation.
2. The nature of market segmentation
LO1
The term market means different things to different people.

We are all familiar with terms such as supermarket, stock
market, labour market, fish market and flea market. All
these types of markets share several characteristics. First,
they are composed of people (consumer markets) or firms
(business markets). Second, these people or firms have
wants and needs that can be satisfied by particular product
categories. Third, they have the ability to buy the products
they desire. Fourth, they are willing to exchange their
resources usually money or credit for the desired
products.
To summarise, a market consists of (1) people or
organisations with (2) needs or wants and with (3) the ability
and (4) the willingness to buy. A group of people that lacks
any one of these characteristics is not a market.
Within a market, a market segment is a subgroup of
people or organisations in the case of business-to-business
marketing sharing one or more than one characteristic that
causes them to have similar product needs. At one extreme,
we can define every individual person and every individual
organisation in the world as a market segment because each
is unique. At the other extreme, we can define the entire
consumer market as one large market segment and the
business-to-business market as another large segment. In
this case it is assumed that all people have certain similar
characteristics and needs, as do all firms.
From a marketing perspective, it normally makes sense to
describe market segments somewhere between these two
extremes.
The process of dividing a market into meaningful, relatively

similar and identifiable segments or groups is called market
segmentation. The purpose of market segmentation is to
enable the marketer to tailor marketing mixes to meet the
needs of one or more specific segments. The Nedbank

advertisement is an acknowledgement by the bank that not
all its customers have the same needs. To address the
unique needs of different market segments Nedbank divides
its business into four major divisions: Nedbank Retail,
Nedbank Corporate, Nedbank Capital and Nedbank Wealth.
Nedbanks Retail division is again sub-divided into (1)
consumer banking, (2) retail relationship banking, (3) cards
and (4) secured lending.
>> Strategy
After twenty five years the realisation that not all
customers have the same needs offered City Lodge a
wonderful business opportunity. In those days all
hotels were full-service hotels offering spacious
rooms, full breakfasts, porters, banqueting, room
service, in-house bars and restaurants but they were
expensive. City Lodges market research revealed that
the Monday-to-Friday business traveller did not need
all of that and targeted business travellers with a
selected service offering. Hotels patrons now had a
choice, depending on their needs. Breakfast was
offered as an optional extra and to reduce costs (and
thus room rates), staff were reduced to one employee
for every three rooms. To target the more priceconscious business travellers, City Lodge introduced
the two-star Town Lodge room which is about 25 per
cent smaller than a City Lodge room and has a maxishower but no bath. Later the one-star Road Lodge was
introduced which is one tier lower that the Town Lodge

and is also about 25 per cent smaller than a Town
Lodge room. The company also did an up-ward
stretch when introducing the four-star Courtyard
brand for the business traveller who expected a little
more.2
3. The importance of
market segmentation
LO2
Until the 1960s, few firms practised market segmentation.

When they did, it was likely to be a haphazard effort rather
than a formal marketing strategy. Before 1960, for example,
the Coca-Cola Company produced only one beverage and
targeted it at the entire soft-drinks market. Today, CocaCola offers more than a dozen different products to a variety
of market segments for carbonated soft-drinks based on
diverse consumer preferences for drink flavour, calorie and
caffeine content, and size.
EXAMPLE >> For example, Coca-Cola markets traditional carbonated

soft drinks (Coca-Cola, Fanta, Sprite), and a variety of alternative beverages, such
as energy drinks (for example, Powerade), flavoured teas (Nestea), mineral water
(BonAqua), fruit drinks (Fruitopia) and fruit juices (Minute Maid). Similarly,
Unilever markets a diverse range of products, including fabric-cleaning products
(Omo, Surf, Skip), home-care products (Domestos, Handy Andy), dental products
(Mentadent P, Close-Up), hair-care products (Timotei, Vibrance, Salon
Selectives), deodorants (Shield, Impulse, Pears) and skincare products (Dawn,

Ponds), to very different market segments.
Market segmentation plays a key role in the marketing
strategy of almost all successful firms. Market segmentation
is a powerful marketing tool for several reasons. When a firm
segments a market, it can tailor a marketing mix to a welldefined target market. For example, the BMW 3 series car
that targets middle-level managers is a completely different
design to the BMW X5, which is targets higher-income
couples with children. Most importantly, nearly all markets
include groups of people with different product needs and
preferences. Market segmentation helps marketers define
customer needs and wants more precisely. Because market
segments differ in size and profit potential, segmentation
helps decision-makers define marketing objectives more
accurately and allocate scarce resources to brands and
market segments. In turn, performance can be evaluated
better when objectives (such as sales targets per product or
brand) are more precise.
Due to the Internets growth and accessibility and the
changing demographics of Internet users, market
segmentation has become even more important. Internet
usage worldwide is about 34 per cent (an estimated 2,4
billion users) of the total world population (estimated at 7,2
billion). In Africa, there are as many as 167 million Internet
users. There are an estimated 8,5 million Internet users in
South Africa alone.3 Because the Internet eliminates
geographic boundaries, firms can communicate and reach
segments of customers previously difficult to access. As the
base of Internet users continues to grow, change and
become more heterogeneous, there will be an increasing

number of marketing opportunities, specifically in Africa.
EXAMPLE >> The high-fashion US furniture chain, Domain, offers an

interesting example of how market segmentation can boost sales. Domain learnt
that its baby-boomer customers (see Chapter 2) were as concerned about selfimprovement as they were about decorating. To reach this segment, the shop
offered a series of in-store seminars that addressed topics such as womens
issues and interior design. The groups repeat business has increased by 35 per
cent since the programme began. Another target segment was retired World War
II and postwar customers, for whom the shop offered narrower sofas with more
back support, which made getting out of them easier. This segmentation
approach allowed Domain to replace newspaper advertising with direct mail,
bringing spending on advertisements down by 3 per cent, while sales increased
by nearly 40 per cent.4
WEBSITE
Visit the Internet World Stats site at
(http://www.internetworldstats.com) for
the latest statistics
4. The criteria for successful

segmentation
LO3
Marketers segment markets for three important reasons.

Firstly, segmentation enables them to identify groups of
customers with similar needs and analyse the characteristics
and buying behaviour of these groups. Secondly,
segmentation provides marketers with information to help
them design marketing mixes that specifically match the

characteristics and desires of one or more segments.
Thirdly, segmentation is consistent with the marketing
concept: satisfying customer wants and needs while meeting
the firms objectives.
To be useful, a segmentation scheme must produce
segments that meet four basic criteria:
1
Substantiality. A segment must be large enough to

warrant developing and maintaining a special marketing
mix (see Reader 32 Technology ignoring the needs of
left-handers is nothing new). This criterion does not
necessarily mean that a segment must have many
potential customers. Marketers of custom-designed
homes and business buildings, commercial aeroplanes
and large computer systems normally develop marketing
strategies tailored to each potential customers
individual needs. In most cases, however, to make
commercial sense a market segment needs many
potential customers. Almost all South African banks
target segments with mobile banking services. Yet only 6
per cent of all banking transactions are conducted by
means of cell-phones, making this segment risky in
terms of substantiality. Undoubtedly, the banks believe
that this segment will grow in the future. KykNet is a
DSTV channel targeting upper-income Afrikaansspeakers. It has access to about 800 000 people out of
South Africas population of about 52 million yet is
substantial enough to be a highly profitable TV channel.
2 Identifiability and measurability. Segments must be
identifiable and their size measurable. Data about the
population within geographic boundaries, the number of

people in various age categories and other social and
demographic characteristics are often easy to obtain,
and provide fairly concrete measures of segment size.
Universities, for instance, have fairly accurate figures of
how many pupils matriculate every year, and because
they know the size of the market, they can target their
market segment(s) accurately.
Accessibility. The firm must be able to reach members
of targeted segments with customised marketing mixes.
Some market segments are difficult to reach for
example, senior citizens (especially those with reading or
hearing disabilities), those who dont speak English and
the illiterate. A firm trying to target the San in the
Kalahari Desert may have an accessibility problem!
Responsiveness. Markets can be segmented using any
criteria that seem logical. However, unless one market
segment responds to a marketing mix differently from
other segments, that segment need not be treated
separately. In other words, a market segment must be
homogeneous within (more or less similar and with
similar needs) but heterogeneous between (significantly
different from other market segments). For instance, if
all customers are equally price-conscious about a
product, there is no need to offer high-, medium- and
low-priced versions to different segments.
Despite the popular belief that cats love milk, adult cats are
often lactose-intolerant. These cats are unable to digest fullcream cows milk and can suffer severe abdominal pain and
diarrhoea if milk is fed to them. For this reason, Martin &
Martin, South Africas leading brand in pet healthcare, has

produced the first lactose-reduced milk for cats. The
manufacturer is of the opinion that the owners of lactoseintolerant cats would respond to their marketing of a
lactose-reduced milk for cats, that the market segment is
accessible and that the market segment is large enough to be
profitable.5
READER 32 >> Technology ignoring the needs of lefthanders is nothing new

When the iPhone 4 hit shops in 2010, some customers could not use the new
Apple device either to call or the surf the Internet. The reason was that holding
the device in the left hand could in some cases cover the phones antennae,
thereby cutting off reception. Apparently, the designers, technicians and
testers at Apple did not think about the needs of left-handers, or just ignored
them. And that is nothing new, according to Agnes Maria Forsthofer, a member
of an association for left-handed people in Germany. There are essentially no
devices fitted for left-handers. Even standard devices like a mouse or
keyboard have some pitfalls for left-handed users. The number pad, for
example, is difficult to use with your left hand. There are only a few keyboards
where the number pad is on the left side, said Barbara Sattler, who heads an
information centre for left-handers in Germany. But such solutions are only
practical in places where the left-hander works alone. Sharing a computer that
has such special devices with right-handers is difficult. Ms Sattler suggests
left-handers should rather get a separate number pad with a USB connection,
like those available for laptops. Most of the time the mouse is located on the
right side of the keyboard.
SOURCE: Adapted from Hanraths, T. 2012. Technology ignoring the needs of
left-handers is nothing new. Business Day, 13 August
5. Bases for segmenting consumer

markets
LO4
Marketers use segmentation bases, or variables namely,

characteristics of individuals, groups or organisations to
divide a total market into segments. The choice of
segmentation bases is crucial because an inappropriate
segmentation strategy may lead to lost sales and missed
profit opportunities. The key is to identify bases that will
produce substantial, measurable and accessible segments
that exhibit different response patterns to different
marketing mixes.
Markets can be segmented using a single variable, such
as age group, or several variables, such as age group, gender
and level of education simultaneously. Although it is less
precise, single-variable segmentation has the advantage of
being simpler and easier to use than multiple-variable
segmentation. The disadvantages of multiple-variable
segmentation are that it is often harder to use than singlevariable segmentation; usable secondary data are less likely
to be available; and as the number of segmentation variables
increases, the size of individual segments decreases.
Nevertheless, the current trend is towards using more,
rather than fewer, variables to segment most markets.
Multiple-variable segmentation (e.g. age, gender and level
of education all used simultaneously) is clearly more precise
than single-variable segmentation (just age, for instance).
Consumer-goods marketers commonly use one or more of
the following characteristics to segment markets: behaviour,
geography, demographics, psychographics and benefits

sought. The following sections provide a more detailed
description of some of these segmentation variables.
5.1 Behavioural segmentation

If behavioural segmentation is used, potential buyers are
divided into segments on the basis of their knowledge of,
attitude towards, use of, or response to a product.6 In other
words, factors such as usage rate, occasions, and brand
familiarity exert an influence on buyer behaviour to such an
extent that different marketing approaches are justified for
each of them. For example, women buy 90 per cent of all
greetings cards.7 Therefore, women are an attractive target
market for the marketers of greetings cards, such as Cardies.
5.1.1 Usage-rate segmentation

Usage-rate segmentation divides a market by the amount of
product bought or consumed. Categories vary with the
product, but are likely to include some combination of the
following: former users, potential users, first-time users,
light or irregular users, medium users and heavy users.
Segmenting by usage rate enables marketers to focus their
efforts on heavy users or to develop multiple marketing
mixes aimed at different segments. Because heavy users
often account for a sizeable portion of all product sales,
some marketers focus on the heavy-user segment.
Most airlines will focus heavily on passengers who fly
more frequently (see the British Airways advertisement)
because they are not only a lucrative segment, but also have
different needs from those who fly once a year. The 80/20
principle probably holds for the airline industry that 20 per
cent of all customers generate 80 per cent of the demand for
air travel. Although the percentages are not exact, the
general idea often holds true. For instance, the diamond
firm De Beers has found that in the United States 60 per cent
of its diamonds are bought by 25 per cent of the population.
An airline that uses usage-rate segmentation will need to
know more about the needs of its more frequent passengers
and then use specific strategies to satisfy those needs.
Frequent business passengers may need access to business
machines such as telephones, scanners, computers and email at airports. They may also need facilities to meet
customers or business associates in private. If that is the
case, airlines can establish business centres in airports to
satisfy those needs.
The most sophisticated segmentation schemes are often
used by e-retailers, who have detailed customer-profiling
information and purchase-history data, which they use in
order to increase customer lifetime value by encouraging
increased use of online services over time. As visitors use
online services they can potentially pass through the
following seven stages:8
First-time visitor
Return visitor
Newly registered visitor
Registered visitor
Purchased once or n times
Purchased (inactive)
Purchased (active); e-responsive.
Once firms have defined or categorised their customers

according to these stages, they can then deliver personalised
messages, either by personalised on-site messaging or by
using e-mails that are triggered automatically by different
rules. First-time visitors can be identified by whether they
have a cookie placed on their PC. Once visitors have
registered, they can be tracked as they move through the
remaining stages. Two particularly important groups are
customers that have purchased once or more than once. For
many e-retailers, encouraging customers to move from the
first purchase to the second and then on to the third
purchase is a key challenge. Specific promotions can be
used to encourage further purchases. Similarly, once
customers become inactive (i.e. they have not purchased for
a defined period such as three months), further follow-ups
are required.
5.1.2 Occasions
The demand for certain products is influenced by the
occasions they are bought for. Orange juice for breakfast is
one example. Hot cross buns and Easter eggs are further
examples. Sparkling wine is another: occasions such as
birthdays, graduations or Valentines Day are often
celebrated with sparkling wine.
In the late 1990s, the biscuit manufacturer McVites began
examining its fundamental approach to the biscuit category.
McVites was already supplying a large part of the traditional
biscuit category, but it believed that there was little growth
potential in this category. An examination of its consumer

profile revealed that its consumers were mainly older
people. McVites studied when consumers eat biscuits and
realised that biscuits are eaten during certain occasions:
lunchtime, teatime, Christmas time or they are bought as
gifts. McVites then adapted its entire marketing strategy to
appeal to the needs of consumers during the specific times
they consume biscuits.9
During different occasions, buyers may be a lot less pricesensitive, allowing marketers to charge a price premium.
Seasonal rates are a well-accepted practice in the tourism
industry: airlines and hotels charge higher rates during the
holiday season. It may also be possible to change the
packaging and labelling of products to reflect the occasion,
such as during Easter, Christmas and Valentines Day, and,
in so doing, appeal to the needs of the occasional buyer.
5.1.3 Brand familiarity

Some consumers are well informed about the different
brands in a product class and others are extremely brandloyal. Those who are loyal and unlikely to switch brands
easily have different marketing strategies targeted at them
from those who are ill informed, ignorant or neutral.
If the loyalists are identified as a target market, marketers
often adapt their promotion strategy to more reminder-type
advertising instead of providing new, convincing
information. The advantages associated with a long-term
relationship may be the focus of an advertising campaign.
Also, it may be possible to charge a price premium because
most consumers are familiar with the available choices and
have remained loyal over time. In a Nielsen Global Survey of

New Product Purchase Sentiment, which surveyed more
than 29 000 respondents with Internet access from 58
countries, it was confirmed that brand loyalty goes a long
way. More than half (60 per cent) of consumers around the
world with Internet access prefer to buy new products from
a familiar brand than switch to a new brand.10
5.2 Geographic segmentation

Geographic Segmentation Refers To Segmenting markets by
national region (see the UBank example), world region,
market size, market density or climate. Market density refers
to the number of people within a unit of land, such as a
province. Climate is commonly used for geographic
segmentation because of its dramatic impact on residents
needs and purchasing behaviour. Ice-cream, snowblowers,
water, snow skis, air conditioning and heating systems are
products whose appeal varies according to the prevailing
climate.
Consumer-goods firms take a regional approach to
marketing for four reasons. Firstly, many firms need to find
new ways to generate sales because of sluggish or intensely
competitive markets. Western Cape wineries would target
the Gauteng area for this reason. Secondly, computerised
checkouts with scanners enable retailers to assess accurately
which brands sell best in their region. Thirdly, many
packaged goods manufacturers are introducing new
regional brands intended to appeal to local preferences. A
fourth reason for a more regional approach to market
segmentation is that it allows consumer-goods firms to react

more quickly to competition. Unilever concentrates on rural
areas for some of its product categories. Employees
marketing Omo in these regions go on roadshows
(travelling in a van from one place to the next) to teach
people how to use washing powder. They give away soap
and bowls so that women can graduate from using laundry
soap at the river or communal tap to using cold-water Omo
in a bowl.11
>> Strategy
An excellent example of geographic segmentation is
uBank (previously Teba Bank), the first bank
exclusively servicing the rural and mining areas of
South Africa. The bank provides micro-financial
services to about 4 million low-income earners living in
and around mining towns and in rural areas, who have
not had access to formal banking services. Only about
20 per cent of rural people have savings accounts,
whereas research shows that more than 40 per cent
would like to have access to banking facilities. The bank
appeals to the need for affordable financial services
which give clients a safe place to keep their savings and
for mine workers to safely transfer money to family
members living in rural areas.12
EXAMPLE >> In South Africa, regional beers are increasingly

marketed. Mitchells beer is found near Knysna and Cape Town, Birkenhead beer
near Hermanus, Coelacanth beer near Port Alfred, Emerald Vale beer near East
London and Nottingham Road beers in the KwaZulu-Natal Midlands. In New
Zealand, many regions have their own beer. In the south (Otago), for instance,
Speights beer is very popular, and Canterbury draught is sold in and around
Christchurch.
5.3 Demographic segmentation

Marketers often segment markets on the basis of
demographic information because it is widely available and
often related to consumers buying and consumption
behaviour. Some common bases of demographic
segmentation are age, gender, income, ethnic background
and family life cycle.
5.3.1 Age segmentation

Children aged 4 to 12 influence a great deal of family
consumption of products, such as toys, beverages and
movies. The youth market of today is computer literate from
an early age and they know how to use hand-held devices
such as cellphones and tablets. People between 35 and 44
are likely to have school-age children living with them and
spend more than all other age groups on food at home,
housing and clothing. Those between 45 and 54 spend more
than any other group on eating out, transportation,
entertainment, education, personal insurance and pensions.
The over-50 group controls most of the financial assets in
most countries and is, therefore, a very lucrative market
segment to target.
Mature consumers are being targeted by many firms as a
powerful and lucrative segment of the investment market.

Some 22 per cent of South Africans are over 50 years of age
and the number of mature households is on the increase. In
the United States, over-50 households make up 50 per cent
of the total discretionary income.
Indications are that the more moneyed 50-plus
households in South Africa are also substantial. Nedbank is
actively targeting the affluent over-70 market with their
Prime Club Account (When youve earned the right to pay
less and earn more says the slogan). According to its
research, banks need to offer more than just attractive
financial benefits to maintain the loyalty of their mature
customers. These clients insist on personal attention and
value-added services which address their social and health
needs. Prime Club clients earn higher preferential rates on
their investments and savings accounts and free access to
Nedbanks self-service banking channels.
Other examples of products targeted at older market
segments are Readers Digest, Rennies and Vitaforce, for
instance, has different dietary supplements for older people
and children (Jungle-Vites).
5.3.2 Generational segmentation

One of the most common ways to segment an audience is
via generational segmentation. The generational
segmentation categorisation method is not new; market
researchers have been examining the characteristics of
different generations for decades. So what are the
generations and how are they categorised?
The Silent Generation (born before 1946), were

influenced by two world wars and the depression. Called
Silent because of a perceived lack of interest in raising
issues or speaking publicly for change, they were also
cautious, conventional and somewhat fatalistic. Because
of the depression and World War II, they are also smaller
in number than the Baby Boomers after them.
Baby Boomers (born between 1946 and 1964), grew up
in times of great social change and, to some extent,
freedom. As a result, they are characterised as
experimental, individualistic and social-cause oriented,
which is why they are often attracted to associations,
charities and not-for-profit firms. They work hard to
make their dreams come true. They also tend to be
receptive to anything that makes them look younger.
Generation X (born between 1965 and 1980), was the
first generation of latch-key kids where both parents
were likely to be working full-time. They were also
exposed to rising divorce rates and corporate downsizing, which saw some parents lose their jobs.
Generation Xers value their independence, are less loyal
to employers, and favour a good work-life balance. They
are more entrepreneurial than the previous generations
and on average also better educated.
Generation Y (often referred to as Millennials born
between 1981 and 2000), is the technology generation
the first to grow up with the Internet and the age of
instant communication. They rely far less on the
traditional methods of information dissemination they
have the Internet at their fingertips and are more likely to
question the norms that have existed in business. They
are also more aspirational and, unlike Generation X

before them, are attracted to successful brands. 13
Generation Z (todays tweens and teenagers), is brandconscious, tech-savvy, mature before their years and
equipped with generous incomes that are almost entirely
discretionary. Generation Z is an increasingly attractive
segment for marketers of all kinds of products, ranging
from fashion and beauty to digital devices. They are:
> Comfortable with and even dependent on
technology, having grown up in a digital world where
technology was ever-present
> Constantly multitasking with a variety of online
products and sophisticated electronic devices, and
appreciates simple, interactive designs
> More socially responsible, due to greater access to a
large online information pool they are more acutely
aware of modern day challenges such as terrorism
and climate change
> Always connected, communicating through various
social networking channels, often across countries
and cultures which significantly influences their
decision process.14
Companies targeting Generation Z need to adopt

technology-based marketing and sales channels such as text
messages (SMS), mobile Internet and social networking
portals. It is also important to catch them young (especially
relevant for technology companies). For this reason
marketers must also enhance their virtual world presence
with online product information and purchase facility and
develop high value-for-money products that are
multifunctional with simple and interactive designs. It also

appears that firms must provide green products and
services or take a proactive stance toward the environment.
5.3.3 Gender segmentation

Marketers of products such as clothing, cosmetics, personalcare items, magazines, jewellery and footwear commonly
segment markets by gender. When one considers that
women in South Africa oversee 80 percent of all spending it
becomes apparent why this can be a very important target
market. Hotels, for instance, realise that 40 per cent of
todays business travellers are females, and have adapted
their marketing accordingly.
>> Strategy
The Protea Hotel group is utilising an opportunity in
the accommodation market through gender
segmentation. It has decided to reserve an entire wing
of the President Hotel in Cape Town for females
travelling on their own. These guests are met and taken
to their rooms by a female manager and only female
staff service the rooms. Mineral water, flowers, bath
salts in the rooms, and other extras are used to appeal
to the needs of female travellers.15
EXAMPLE >> Unilever markets its Brut fragrance to men and Pears to
women. 1st For Women offers females 35 per cent lower short-term insurance
premiums because women are better drivers. Almost 44 per cent of new-car
sales are to women, and General Motors targets this market segment with its
Corsa range. Axe deodorant is a product targeted specifically at men. Magazines
such as Cosmopolitan and Femina are targeted at the female market.
However, brands that have traditionally been marketed to
men such as cigarettes and alcohol are increasing their
efforts to attract women. Womens products, such as
cosmetics, household products and furniture, are also being
marketed to men.16 Calvin Kleins CK One, for instance, is a
fragrance described as unisex. The beer brewer Heineken
is targeting the elusive female African drinker with a
sweeter, low-alcohol beer made from malt and lemon that it
hopes will persuade them to try its other lagers.
READER 33 >> Personal-care industry is getting under

mens skin
Global sales of male toiletries other than razors, blades and shaving cream
will rise 5% to $17,5bn this year, surpassing the shaving segment for the first
time, according to Euromonitor. Unilever, with its Axe and Dove brands, has
26% of the market, more than Proctor & Gamble, Nivea maker Beiersdorf and
LOral combined. The male segments expansion is fuelled by innovation,
marketing, and a growing realisation that men want to do more than just
shower, shave and shampoo. The key objective among all the manufacturers
is turning a regime that you have to do into a ritual you want to do, says
Geometry Global European planning director Phil White. They are trying to
establish that ritual. That has not been easy as 90% of men spend a half-hour
or less getting ready in the morning, according to researcher Mintel. Ben
Voyer, a social psychologist and marketing professor at ESCP Europe business
school, says this is due to the perception that men get more attractive as they
age, and because men do not worry as much about their looks. Women use
cosmetics to signal beauty and youth, which are the attributes men look for,
says Prof Voyer. Men, on the other hand, have traditionally signalled status
and wealth, the attributes women look for.
Manufacturers have found clever ways to convince guys to worry about
their looks, explaining that their skin is different thicker, tougher, more oily
and requires specialised products. As a LOral ad once warned: You think
youre ageing well? She thinks youre letting yourself go. Half of American men
now use skincare products as part of their daily routine, Mintel has found.
SOURCE: Adapted from Boyle, M. 2013. Personal-care industry is getting under mens skin. Business
Day, 26 September, p. 16
WEBSITE
Visit the website www.tallgirlshop.com to
see how the retailer Tall Girl targets tall
women.
5.3.4 Income segmentation

Income is a popular demographic variable for segmenting
markets because it influences consumers wants and
determines their buying power. Many markets are
segmented by income, including the markets for housing,
clothing, automobiles, food and banking.
Nedbank unashamedly targets the higher-income market
(high net worth individuals) and a basic requirement to
become a Nedbank Private Wealth client is a personal
income exceeding R1.5 million per annum and an investable
assets greater than R5 million (excluding primary
residence), or a stockbroking account in excess of R250
000.17 Old Mutuals Retail Affluent division specifically
targets wealthy clients. Considering that there are $28 000
millionaires in South Africa, it is not surprising that the

major banks now all have private banks for the well-heeled.
Clients who earn R800 000 per year or have investable assets
of R3m typically qualify for this special service.19 The Bureau
for Market Research estimates that the private banking
segment will grow to approximately 500 000 clients by 2016.
Nu World, a firm marketing small electrical appliances, uses
an income-segmentation targeting strategy. Its JVC brand is
targeted at higher-income consumers, Telefunken is aimed
at the middle-income group, and Nu Tec is an entry-level
brand.18 Pep Stores targets the lower-income market,
whereas clothing boutiques target higher-income groups.
Levers Ponds facial cream is targeted at the middle-income
market and Elizabeth Arden at the higher income market.
South African Airways makes use of income
segmentation and identifies four segments each with
particular benefits, as follows:
Premium (the most expensive): free lounge access;

priority check-in; extra Voyager miles; refundable fares
Select: select seat at time of reservation; lounge access at
a fee; full Voyager miles; refundable fares
Classic (value-for-money economy-class travel): select
seat at check-in time; lounge access at a fee; full Voyager
miles; cancellation and change fees apply
Saver (the lowest economy-class fares): great for
travellers who want the best deal and are comfortable
with restrictions.
5.3.5 Ethnic segmentation

Ethnic segmentation is based on the premise that consumers

who belong to different ethnic groups behave and consume
differently. In the United States, researchers have found
some differences in consumption patterns between African
Americans and other groups. American blacks and whites
often have different preferences in taste. Although African
Americans drink less coffee than average, this segment of
the market is much more likely than other Americans to lace
their coffee with large amounts of sugar, cream or non-dairy
creamer. Recognising this trend, Coffee-Mate began
marketing its product to blacks. It advertised in national
magazines like Ebony and Essence, broadcast its message on
local black radio stations and used outdoor advertising in
black neighbourhoods.
The difference between American blacks and whites also
shows up in packaging choices. African Americans have a
strong preference for larger sizes of non-alcoholic
beverages, for example. After the Coca-Cola Company
discovered this phenomenon in the early 1970s, it began
featuring and promoting 16-ounce bottles instead of the
standard 12-ounce size when advertising to the black
community.20
EXAMPLE >>
In South Africa ethnicity is often used as a

segmentation variable. Carson is one of the most successful firms in South Africa
with its hair-care range of products for black South Africans. South African
Breweries specifically targets blacks with its Black Label brand and particularly
the large quart bottle. The direct marketer Homechoice targets the black urban
female market. The cosmetics manufacturer LOral has a range of products
aimed at making African men and women feel beautiful.21
>> Strategy
Ethnic segmentation is often used in the publishing
industry. When Mandla Matla launched Illanga Langa
Sonto, the first Sunday newspaper for Zulu-speakers,
he made use of ethnic segmentation. Sometimes ethnic
segmentation is combined with gender segmentation.
Media24 targets black women who aspire to better
most aspects of their lives and targets the LSM 46
range with its Move! magazine.22 Two newly launched
magazines, iZZiT and Sutra will target the coloured and
Indian markets in South Africa respectively.23 The jeans
company Levi Strauss is targeting the black middle
class. Their shopping behaviours are different and
branded companies will have to communicate
differently through their marketing campaigns says
Levis manager Nuholt Huisamen.24
While segmenting on the basis of ethnicity may be
potentially controversial in South Africa, the burgeoning
black middle class in South Africa (as discussed in Chapter
3) is a feasible market segment for businesses as it is (1)
substantial (in 2013, for the first time, it exceeded the white
middle class both in terms of number and spend), which
suggests that it is (2) identifiable and measureable. In
addition, this affluent marketing segment is (3) accessible to
businesses through most of the contemporary marketing
communication tools and because of its unique culture and
values, it will (4) respond differently to the elements of the
marketing mix than other South African market segments.
Although the black middle class in South Africa is

relatively homogenous, there are a number of sub-groups in
this market segment. Specifically there seems to be a
difference between those who were born into middle class
families and those who were not born into middle class
families.25 The University of Cape Town Unilever Institute of
Strategic Marketing broadly defines the black middle class
as comprising black individuals, 18 years old (or older) and
living in a household with a monthly income of between R16
000 and R50 000 per month. However for marketing
segmentation purposes, the group of individuals falling just
outside this threshold, known as Aspirants are included in
the definition of black middle class along with three other
sub-groups known as Makfikizolos, The Second Wave and
Forerunners. These four different sub-groups, making up
this market segment, are considered below.26
Aspirants
There are 1,9 million consumers in this sub-segment,
defined as individuals who live in households with an
income of between R10 000 and R16 000. Typically, this subsegment is confronted with a substantial debt burden and a
scarcity of jobs, but their potential spending power suggests
that business should not ignore them. If brands can build up
a relationship with these consumers before their disposable
income increases as they enter the middle class, then this
loyalty should endure, giving businesses a substantial
advantage.
Mafikizolos
As the name Mafikizolos suggests (it means arrived
yesterday) this sub-segment have only recently become

middle class. Consequently the huge odds that they had
overcome and sacrifices they had to make to achieve the
status of middle class are fresh in their memories. However,
they are not entirely comfortable with confronting the
challenges and everyday routines of middle class life and
consequently are on a steep learning curve. Nevertheless, as
they become familiar with middle class life, their confidence
grows but they still have considerable (and perhaps
marginally unrealistic) dreams about the quality of life that
their new societal status will bring.
The Second Wave
These consumers are generally younger than the other subsegments and grew up in a middle class environment.
Unlike other sub-segments, they had access to good
education from a young age and consequently are better
educated and their aspirations are realistic, unlike other
members of the black middle class. Similarly, because they
grew up in a nuclear family rather than an extended family,
typical of the African culture, they feel under less pressure,
than other in this market segment, to take responsibility for
the well-being of relatives beyond their immediate family.
The middle class is where they are most comfortable,
having grown up in that environment, and consequently do
not consider it a realistic scenario that they will end up living
as their parents did, in challenging financial circumstances.
This is in contrast to the Forerunners, discussed below, who
find it difficult to forget the hardships associated with
modest income.
Forerunners
The Forerunners are the first wave of previously
disadvantaged black consumers to move to the middle class.
Although they take pride in their achievements, they have
very real fear of slipping backward out of the relative
comfort and security of middle class living. While this
segment believes that anything is possible, unlike the
Mafikizolos, their dreams and aspirations are realistic,
possibly tempered by the recent recession which has made
them realise the value of a prudent lifestyle.
As discussed in Chapter 2, LSMs the South African
Advertising Research Foundation (SAARF) introduced a
non-racial measurement to describe the South African
consumer market called the Living Standards Measure
(LSM). The LSM methodology is based on the premise that
the consumption behaviour is largely determined by their
social class as measured by ownership of durable goods and
consumption of services. In 2004 black middle class notably
absent from top LSMs, with only 10 per cent in LSM 9 and
only 5 per cent in LSM 10. However the purchasing of
household assets by the black middle class has resulted in a
mass migration of blacks to the upper LSMs (LSMs 810).
In other words, the purchasing of durable goods by the black
middle class has resulted in them being reclassified into
higher LSM groups.27
5.3.6 Family life-cycle segmentation

The demographic factors of gender, age and income often
do not sufficiently explain why consumer buying behaviour
varies. Frequently, differences in consumption patterns
among people of the same age and gender result from their
being in different stages of the family life cycle. The family
life cycle is a series of stages determined by a combination of
age, marital status and the presence or absence of children,
and is a valuable basis for segmenting markets.
Figure 6.1 illustrates both traditional and contemporary
family life-cycle patterns and shows how families needs,
incomes, resources and expenditures differ at each stage.
The horizontal flow shows the traditional family life cycle.
The lower part of the figure describes some of the
characteristics and purchase patterns of families in each
stage of the traditional life cycle. Figure 6.1 also
acknowledges that many first marriages end in divorce.
When young married couples move into the young divorced
stage, their consumption patterns often revert back to those
of the young single stage of the cycle. Many divorced
persons remarry by middle age and re-enter the traditional
life cycle, as indicated by the recycled flow shown in Figure
6.1.
An interesting approach to family life-cycle segmentation
is adopted by the financial services firm Investec. They have
a cradle-to-grave strategy that implies that they offer
financial services that they believe will appeal to their clients
regardless of the stage of the life-cycle they find themselves
in. Investec argues that without the cradle-to-grave strategy
it is hard to acquire the clients when they become higher
earners later in life.
5.4 Psychographic segmentation

Age, gender, income, ethnicity, family life-cycle stage and

other demographic variables are usually helpful in
developing segmentation strategies, but often dont paint
the entire picture. Because of the limitations of
demographics as segmentation variables, psychographics
has been suggested as an additional means of segmenting
consumer markets. Demographics, some say, provides the
skeleton, but psychographics add meat to the bones.
Psychographic segmentation is market segmentation on the
basis of the following variables:
Personality. Personality reflects a persons traits,

attitudes and habits. Porsche Cars North America
understood the demographics of the Porsche owner well:
a 40-something male university graduate earning over
$200 000 per year. However, research revealed that there
were five personality types within this general
demographic category that more effectively segmented
Porsche buyers. These are the top guns, elitists, proud
patrons, bons vivants, and the fantasists. Porsche
refined its marketing as a result of the study, and, after a
previous seven-year slump, the firms US sales rose by 48
per cent.28
Motive. Marketers of baby products and life insurance
appeal to consumers emotional motives, namely, to
care for their loved ones. Using appeals to economy,
reliability and dependability, car makers like Toyota and
Volkswagen target customers with rational motives, such
as safety and economic petrol consumption. Car makers
like Mercedes-Benz and Jaguar appeal to status-related
motives.
Lifestyle. Lifestyle segmentation divides people into

groups according to the way they spend their time, the
importance of the things around them, their beliefs and
socioeconomic characteristics, such as income and
education. For example, NPD Market Research
identified the following five eating lifestyles: meat-andpotato eaters; families with kids whose diets feature
cooldrinks and sweetened cereal; dieters; natural-food
eaters; and sophisticates: high-income urban families
whose diets feature alcohol, Swiss cheese and rye breads.
Many cigarette marketers, including Camel and Peter
Stuyvesant, use a lifestyle-segmentation approach.
Figure 6.1 The family life cycle
Geodemographics. Geodemographic segmentation

clusters potential customers into neighbourhood
lifestyle categories. It combines geographic,
demographic and lifestyle segmentations.
Geodemographic segmentation helps marketers practise
micro-marketing, which is the development of
marketing strategies tailored to prospective buyers who
live in small geographic regions, such as
neighbourhoods, or who have very specific lifestyle and

demographic characteristics. Based on the idea that
people in the same neighbourhood tend to buy similar
things, retailers in densely populated areas, such as
Hillbrow, Hatfield and Greenpoint, where most people
live in high-rise flats, are less likely to sell products like
braaiwood and bicycles than in other suburban areas.
Retailers in suburbs where there is a lot of space may
find that products like tumble dryers do not sell as well
as in areas where space for drying clothes is more
limited.
Psychographic segmentation can also group consumers
according to some combination of three categories of
variables: activities, interests and opinions. Typical
dimensions used for this purpose are listed in Table 6.1.29
Table 6.1 Dimensions used in psychographic segmentation
Activities
Work
Hobbies
Social events
Holidays
Entertainment
Club membership
Shopping
Sport
Interests
Family
Home
Job
Community
Recreation
Fashion
Media
Achievements
Opinions
Themselves
Social issues
Politics
Business
Economics
Education
Future
Culture
A South African firm that uses psychographic and lifestyle

segmentation particularly well to guide its entire marketing

strategy is South African Breweries. It has identified seven
personality segments (see also Figure 6.2):
The belongers: The bulk of the beer market consumers

who want to conform to the patterns of their peer group.
They can be found in the Castle Corners of South Africas
main sports fields.
The reclusives: The opposite of the belongers. They are
generally older and poorer consumers with limited
resources at their disposal, who either do not or cannot
participate in mainstream activities.
The intellectuals: More sophisticated consumers who
perceive themselves as rational and discriminating in
their selection of brands. Strong intrinsic differentiation
is important to this group of consumers as a means of
purchase justification. They seldom buy on impulse and
are often role models for others.
The macho braves: Consumers who want to reinforce
their manly and macho lifestyles through a brand that
reflects these values.
The feminists: Generally more up-market females who
are independent and confident and who choose brands
and products that set them apart from their male
counterparts as a statement of their emancipation. They
are often entrepreneurs, and are role models for others.
The cool egocentrics: Highly badged, status-conscious
consumers who are prepared to pay a substantial
premium for a label that makes this distinction clear to
all.
The home makers: Primarily concerned with family
issues. Social responsibility and moderation are key

factors to be considered when dealing with this group.
Beers that are aimed at some of these segments are as
follows:
Castle Lager targets the belongers

> Positioned as a mainstream brand: It all comes
together with a Castle
> Objective is to dominate the mainstream market
> Target market: white and black males, 2535 years,
LSM 38
Carling Black Label targets the macho braves
> Positioned as refreshment and reward for hard work
> A stronger beer that rewards strength of character
and is a badge of manhood
> Target market: black males, 2545 years, LSM 46
Redds targets the feminists and cool egocentrics
> Positioned as when you have to be cool and crisp
refreshment
> Apple-flavoured fruit ale
> Target market: females, 1825 years, LSM 810.
Figure 6.2 South African Breweries personality segments
The use of psychographics allows the marketer to move

beyond the simple demographic description of a market to a
description that offers more insight into the needs and

behaviour of a target market. Psychographic variables can
be used individually to segment markets or can be
combined with other variables to provide more detailed
descriptions of market segments.
5.5 Benefit segmentation

Benefit segmentation is the process of grouping customers
into market segments according to the benefits they expect
of a product. Most types of market segmentation are based
on the assumption that this variable and customers needs
are related. Benefit segmentation is different from other
segmentation criteria because it groups potential customers
on the basis of their needs or wants rather than on some
other characteristic, such as age or gender. The snack-food
market, for example, can be divided into six benefit
segments, as shown in Table 6.2, namely the nutritional
snackers, the weight watchers, the guilty snackers, the party
snackers, the indiscriminate snackers and the economical
snackers. Table 6.2 is an illustration of how different
segmentation criteria, such as lifestyle segmentation and
benefit segmentation, can be used to segment a specific
market, in this example, the market for snack food.
Customer profiles can be developed by examining
demographic information associated with people seeking
certain benefits. This information can be used to match
marketing strategies with selected target markets. For
different segments the marketing mix (the 4 Ps) can be
adapted to appeal to the needs of that segment. For
instance, for the economical snacker market segment, the

price of snacks is important, so marketers have to price the
product carefully. In our promotion and advertising, we
have to make sure we convey a message of good value for
money. For the nutritional snacker, marketers have to use
the product component of the marketing mix to appeal to
this market segment. Snacks with nutritional ingredients
that are tasty, naturally healthy and without artificial
ingredients would appeal to the nutritional snacker. The
promotion and advertising message should emphasise the
goodness of the ingredients even if these benefits come with
a price premium.
Table 6.2 A multi-variable benefit segmentation of the snack-food market
EXAMPLE >> Cold Water Omo is targeted at people who pursue a very
specific benefit to be able to wash their clothes in cold water. Nashua also has
a very clear idea of the benefits a specific market segment seeks when it says:
Saving you time. Saving you money. Nokia is a firm that uses its product strategy
brilliantly to appeal to different need segments. It appeals to those who want no
more than functionality (the practical segment) with the Nokia 105 and Nokia
106. Those who see a cellphone as a fashion accessory or to whom music is
important can buy the Nokia Asha, and businesspeople are targeted with the
Nokia Lumia. When Samsung advertises its Ch@t222Plus app it says: Socialize.
Entertain. Connect.
6. Qualifying and determining bases for

segmentation
LO5
Some marketers distinguish between a qualifying and a

determining basis, or dimension, when considering
segmentation.30 A qualifying dimension is a consideration
that, as the word suggests, qualifies a consumer for a specific
target market. Age, for instance, is a qualifying dimension
for the marketers of motor vehicles. If a consumer has not
reached the minimum age to qualify for a drivers licence, he
or she does not qualify to be in the target market for the
Volkswagen Polo, for instance. Following the Muslim faith is
a qualifying dimension in WesBanks targeting efforts (see
Reader 34 Car finance tailored for Muslims). Many older
people are not familiar with modern technology and, in fact,
actively avoid products with a high-technology component.
So age can be a qualifying dimension for high-tech products,
such as computer modems. Having a smartphone is a
qualifying dimension for using many of the apps on the
market today, including QR codes.
A determining dimension, on the other hand, is one that
will eventually determine a consumers buying decision. A
determining dimension, therefore, swings the final
decision and will be related to the sellers competitive
advantage. For many buyers of computer software,

compatibility will be a determining dimension. In other
words, if a customer has to buy a newer version of a software
package later, will it be compatible with the existing
programmes, documents or files?
The basis for segmenting markets will naturally change
when offline firms begin looking at customers on the
Internet. In cases where variables such as geography were of
primary importance in the past, the Internet service
provider (ISP) domain might now be considered.
Alternatively, new variables such as Internet access speed or
computing power may become important. Traditional firms
that are new to the Internet will find that online
segmentation can yield one of the following four different
scenarios (depicted in Table 6.3).31 These four scenarios are
based on two different dimensions. The first dimension
focuses on whether the market size changes and the second
dimension focuses on whether the actual criteria to segment
markets change when firms move to the Internet.
Table 6.3 Segmentation scenarios for firms moving online

The promised land of marketing a market segment
of one?
As discussed in this chapter, the rationale behind
segmenting the market is to identify commonalities
among groups of consumers which influence their
response to marketing messages. However, although
we may share some characteristics with other
consumers, we are all unique individuals, so the most
effective market segment technique would be to target
each individual as a discrete market segment. Although
this may have seemed an impossible dream a few years
ago, the Internet with its technology allows us to
customise the messages for individual tastes and
preferences. For example, when Kalahari.coms
customers log onto the website of Kalahari.com, they
are usually greeted with a personalised web page which
gives them recommendations on goods and services in
which they have shown interest on past visits to the
site. Although an important benefit of the Internet is its
ability to customise a businesss marketing
communications to individual tastes, customers are
now able to co-create their own products.
The customisation of products to individual
preferences is the real promise of the Internet.
Although large organisations, such as Nike, have
facilities which allow consumers to design their own
shoes and clothing, smaller businesses focusing on
niche markets are also following this trend. For
example, Footjoy, a firm based in the United States
allows golfers anywhere in the world to design their
own golf shoes and have them delivered to them at
their homes. In many respects, this represents a shift in

power from the firm, which would traditionally design
the products and offer the consumer a number of
options, to a world in which the product is co-created.
This concept is not new it has existed for many years
in the business-to-business (B2B) world. For example,
when Nandos creates a new marketing campaign,
there is a partnership between the firm and the
advertising agency whereby the advertisements are cocreated.
SOURCES: Mootee, I. 2007. Web 2.0 and the new marketing. Available
http://blog.futurelab.net/2007/07 (accessed 28 March 2010);
www.kalahari.com (accessed 28 March 2010); www.footjoy.com (accessed
27 March 2010)
No change. Firms may find that online segmentation

does not reveal any significantly new segments and that
the relative compositions and sizes of the online
customer segments may generally be the same as the
offline segments. A good example would be a firmspecific business-to-business (B2B) site, where there
may be a few opportunities to significantly increase the
size of the market and the segmentation variables
remain approximately the same. In a business-toconsumer (B2C) context, this situation may occur if all or
most of a firms offline customers are regular Internet
users and exhibit many of the same needs and buying
behaviours when using the Internet. Moving online for a
firm, then, becomes simple in the sense that the online
and offline marketing strategies remain largely the same.
A typical example is Exclusive Books with its online

website, www.exclus1ves.co.za.
Market expansion. Firms may find that the
characteristics of the online segment are the same as the
characteristics of the offline segment, but that the
segment size changes. For example, a segment may
become larger due to the increased reach of the Internet.
This may happen if a firms offering appeals to many
consumers that were previously out of the physical reach
of the firm. Carrol Boyes is a good example of such a
firm. It started in 1989 and grew rapidly after launching
its website (http://www.carrolboyes.co.za). Before the
launch of its website, Carrol Boyess market was limited
to people buying from its retail shops in South African
shopping centres. After it established an online
presence, it attracted global customers.
Alternatively, segment characteristics might stay the same

while the segment size shrinks. This can only happen if a
small percentage of a firms normal target segment uses the
Internet.
Market reclassification. Online segmentation initiatives

could reveal that customer segments are different on the
Internet from the non-online markets either slightly or
significantly. This difference may be due to the Internets
ability to augment a firms offering (such as better
service delivery or customisability) and hence create
online customers that are more demanding or
discriminating. Typical examples of this include Pick n
Pay online shopping (http://www.pnp.co.za/shop/PnP)
and the Woolworths online grocery service

(http://www.woolworths.co.za). These services allow
customers to buy from these retailers online. This
convenience is not only a luxury for working people with
busy schedules, but also provides the two retailers with a
competitive advantage over their competitors.
Reclassified expansion. Naturally, it is more likely that
firms will experience a combination of the previous two
scenarios, so that segments may change both in terms of
size and characteristics. This complicated scenario
makes Internet marketing strategy all the more
important because targeting and positioning play a
crucial role in online success. A good example is Dells
website (http://www.dell.co.za), which allows
customers, instead of buying its computers at retailers
such as Incredible Connection, to buy online, with the
opportunity to customise a computer on the basis of a set
of questions and requirements. Allowing customers to
take more control of the process of choosing and
customising a computer creates a competitive advantage
for Dell over other computer manufacturers.
7. Steps in segmenting a market
LO6
The purpose of market segmentation, in both consumer and

business markets, is to identify marketing opportunities.
Figure 6.3 traces the steps in segmenting a market.
Figure 6.3 Steps in segmenting a market
Select a product category or market for study. Define

the overall market or product category to be studied
one in which the firm already competes, a new, but
related, market or product category, or a totally new one.
For instance, Coca-Cola carefully studied the bottled
beverage market before deciding to target sportspeople
with its own energy drink, Powerade. The same applies
to the mineral water market before it introduced
BonAqua.
List the potential needs in this market or product
category. This is a brainstorming session to identify as
many needs as possible. The idea is to identify the
reasons why consumers buy the product and can include
needs such as money-saving, lower calorie intake, safety
and user-friendliness. The list must be as exhaustive as
possible, emphasising customer needs, benefits and
satisfaction.
Choose a basis or bases for segmenting the market.
This step requires managerial insight, creativity and
market knowledge. There are no scientific procedures for
selecting segmentation variables (see the section Bases
for segmenting consumer markets, discussed earlier).
These segmentation variables may be behavioural
variables, geographic variables, demographic variables
or psychographic variables. However, a successful
segmentation scheme must produce segments that meet

the four basic criteria discussed earlier in this chapter:
substantial, identifiable, accessible and responsive.
4 Select segmentation descriptors. After choosing one or
more bases, the marketer must select the segmentation
descriptors. Descriptors identify the specific
segmentation variables to use. For example, if a firm
selects demographics as a basis of segmentation, it may
use age, occupation and income as demographic
descriptors. This step ought to lead to segments that are
homogeneous within, but heterogeneous among other
different segments.
5 Profile and analyse homogeneous segments. The
profile of individual segments resulting from Step 4
should include the segments size, expected growth,
purchase frequency, current brand usage, brand loyalty
and long-term sales and profit potential. This
information can then be used to rank potential market
segments by profit opportunity, risk, consistency with
the firms mission and objectives and other factors of
importance to the firm. Once profiled, the substantial,
identifiable, accessible and responsive criteria must
again be considered. For instance, the profile must
indicate whether the segment is different from other
potential segments and will respond to a unique
marketing mix compiled to appeal to that segments
specific needs. The profile must also indicate whether
the market segment is large enough to pursue profitably.
6 Identify the determining dimensions. A determining
dimension is the dimension that will eventually
determine a consumers decision to buy or not to buy. A
determining dimension is related to the sellers

competitive advantage. A determining dimension must
be identified for each potential segment. Fuel
consumption and affordability may be the determining
dimensions in the economy or bottom end of the
passenger vehicle market. The marketer must decide:
can we deliver that? Can we compete with other firms
that may target the same market segment? Do we have a
competitive advantage in this segment? If a firm cannot
deliver on the determining dimension(s), then that
segment should not be targeted. If Absa, for example,
cannot deliver on wealth creation then it should not
enter the private banking market. This step is the final
reality check before a market segment is targeted.
Name and select target markets. The last step in the
segmentation process is to name individual segments.
Selecting target markets may not be regarded as part of
the segmentation process, but a natural outcome (see
the section Strategies for selecting target markets). This
is a major decision that influences, and often directly
determines, the nature of a firms marketing mix. This
topic is examined in greater detail later in this chapter.
READER 34 >> Car finance tailored for Muslims

There are about 350 000 Muslim families in SA. Both Wesbank (assetfinancing) and Sanlam (Sanlam Private Investors) target this market segment.
WesBank has created an Islamic vehicle-financing product that will meet all
the requirements of the Sharia, or Islamic law. In terms of the law, Muslims
are not permitted to enter into agreements that involve interest charges, nor
are they able to take out insurance cover. They have to pay cash for goods.
The new scheme involves a plan in which the current price of a vehicle and
future interest rates and insurance will be factored into a monthly repayment.
In effect, it is a rental plan in which the customer owns the vehicle at the end
of the repayment period.
Chris de Kock, general manager of WesBank marketing, says the product
meets the demands of Islamic law as well as those of the South African
judicial system. It will create a demand from the Muslim community and
others who want to move away from interest-based banking. It is expected that
the new product will earn at least R20 million a month in new business.
Sanlam expects to generate R1,8bn of new investment from this market
segment.
SOURCE: Robertson, D. 2005. Car finance tailored for Muslims. Sunday Times business section, 9 May
2005, p. 4: Thomas, S. 2010. Sanlam and Islam, Financial Mail, 13 November, p. 78
After market segmentation the next stage is to design,

implement and maintain appropriate marketing mixes. The
marketing mix (or 4 Ps) has been described as product,
distribution, promotion and pricing strategies intended to
bring about mutually satisfying exchange relationships with
target markets. Chapters 8 to 13 explore these topics in
detail.
8. Strategies for selecting target

markets
LO7
So far, this chapter has focused on the market-segmentation

process, which is only the first step in deciding which
segment to approach in order to market a product. The next
task is to choose one or more target markets. A target market

is a group of people for whom the firm designs, implements
and maintains a marketing mix intended to meet the needs
of that group, resulting in mutually satisfying exchanges.
The three general strategies for selecting target markets are
undifferentiated targeting, concentrated targeting and
multi-segment targeting. Table 6.4 describes the advantages
and disadvantages of each targeting strategy.
WEBSITE
Visit the Spur website at www.spur.co.za.
Describe the different market segments
targeted by Spur restaurants. How would
you describe Spurs targeting strategy?
8.1 Undifferentiated targeting

A firm using an undifferentiated targeting strategy essentially
adopts a mass-market philosophy, viewing the market as
one big market with no individual segments. The firm then
uses one marketing mix for the entire market. In other
words, a firm that adopts an undifferentiated targeting
strategy assumes that all individual customers have similar
needs that can be met with a single marketing mix. An
example of undifferentiated marketing is the tap water used
daily in South African homes and businesses. The various
local city councils do not grade water into high, medium or
low grades for use within homes and businesses. If they did,
and they varied the price charged for the water depending
on its quality, this would be an example of differentiated
marketing. Thus a single marketing mix, which serves the
needs of the entire market, is required.

Table 6.4 Advantages and disadvantages of target marketing strategies
Targeting
strategy
Undifferentiated
targeting
Concentrated
targeting
Advantages
Potential savings on
production and
marketing costs
Concentration of
resources
Can better meet
the needs of a
narrowly defined
segment
Allows some firms
to better compete
with larger firms
Stronger
positioning
Greater financial
success
Economies of scale
in production and
marketing
Multi-segment
targeting
Disadvantages
Unimaginative product
offerings
Firm more susceptible
to competition
Segments too small,
or changing
Large competitors may
more effectively
market to niche
segment
High costs
Cannibalisation
The first firm to enter an industry (such as Xerox, IBM

and Coca-Cola) often uses an undifferentiated targeting

strategy initially. With no competition, the firm may not
need to tailor marketing mixes to the preferences of
individual market segments. Most online pre-owned carbuying firms (e.g. http://www.autotrader.co.za or
http://www.mccarthycallacar.co.za, to name only two) are
currently practising a mass-market, or undifferentiated,
strategy, because they offer consumers a similar wide choice
of second-hand cars and fairly similar services.
At one time, Coca-Cola used this strategy with a single
product and a single size of its familiar contour bottle.
Marketers of commodity products, such as flour and sugar,
are also likely to use an undifferentiated targeting strategy.
One advantage of undifferentiated marketing is the potential
for saving a lot of money on production and marketing costs.
Because only one item is produced, the firm should be able
to realise economies of scale benefits due to mass
production. Also, marketing costs may be lower when there
is only one product to promote and a single channel of
distribution. Too often, however, an undifferentiated
strategy emerges by default rather than by design, reflecting
a failure to consider the advantages of a segmented
approach. The result is often sterile, unimaginative product
offerings that have little appeal to anyone.
>> Strategy
Another problem associated with undifferentiated
targeting is that it makes the firm more susceptible to
competitive inroads. The Holiday Inn group lost a large
share of the hotel market to competitors, such as City

Lodge, which successfully targeted the more priceconscious value-for-money market, before it changed
to a multi-segment targeting strategy. Using an
undifferentiated strategy, a firm, therefore, faces the
continuous risk of innovative segmenters chipping
away at the various segments of the combined target
market by offering more attractive marketing mixes to
more homogeneous sub-markets. IBM saw this happen
very quickly when it launched personal computers.
Apple took the segment that wanted an easy-to-use
computer. Toshiba took travellers who wanted laptop
convenience. Compaq appealed to those who wanted
the fastest machines. Dell attracted customers who
wanted reliability at a low price. A South African firm
that is facing a similar situation is Pick n Pay, which is
facing pressure from niche retailers such as Mr Price
and Queens Park (clothing), Clicks (cosmetics) and
Spar (food) continuously chipping away at Pick n Pays
market.32
You might think a firm that produces an unexciting product
like toilet tissue would adopt an undifferentiated strategy.
However, this market has industrial segments and
consumer segments. Industrial buyers want an economical,
single-ply product sold in boxes of a hundred rolls. The
consumer market demands a more versatile product in
smaller quantities. Within the consumer market, the
product is further differentiated as coloured or white,
designer print or no print, cushioned or non-cushioned and
economy-priced or luxury-priced.
Selati, a producer of sugar, has differentiated its sugar
products into four sub-brands: light brown crystal sugar,
pure white crystal sugar, pure white icing sugar and pure
white castor sugar to appeal to the different needs of its
market.
8.2 Concentrated targeting

With a concentrated targeting strategy, a firm selects a
market niche (one segment of a market) for targeting its
marketing efforts. The financial firm SASFIN uses a
concentrating strategy by targeting its financial services
exclusively to the SME sector. uBank does the same by
targeting industrial workers.33 Because the firm is
appealing to a single segment, it can concentrate on
understanding the needs, motives and satisfactions of that
segments members, and on developing and maintaining a
highly specialised marketing mix. Some firms find that
concentrating resources and doing a better job of meeting
the needs of a narrowly defined market segment is more
profitable than spreading resources over several different
segments.
>> Strategy
For example, Mercedes-Benz competes only in one
niche of the motor-vehicle market. Pep Stores targets
only the bottom end of the clothing market. In a similar
fashion, Pam Golding targets the top end of the

residential property market. Small firms often adopt a
concentrated targeting strategy (also called niche
marketing) to compete effectively with much larger
firms. For example, specialised retailers, such as
Sportsmans Warehouse (sports equipment), Dulces
(ice cream) and Hi-Fi Corporation (electronic goods),
are a growing group of niche retailers. These relatively
small, independent operators count on personal
service and product selection, rather than on price, to
differentiate themselves from large discounters such as
Makro and Game.
Some firms, on the other hand, use a concentrated strategy
to establish a strong position in a desirable market segment.
Porsche, for instance, targets a very upmarket vehiclemarket segment class appeal, not mass appeal. There are
risks, however, associated with a concentrated targeting
strategy. Motor-vehicle manufacturers such as Toyota and
Volkswagen are well positioned for both good economic
conditions (more demand for luxury models, such as the
Lexus and the Audi respectively) and poor economic
conditions (demand shifting to entry-level cars such as the
Yaris and the Polo). Niche manufacturers, however, such as
Fiat and Mercedes-Benz (only upmarket, luxury vehicles),
are more exposed to the impact of environmental changes,
such as the risk of declining disposable income, a severe
recession or increasing petrol prices. Concentrated targeting
thus violates the old adage, Dont put all your eggs in one
basket. If the chosen segment is too small or if it shrinks
because of environmental changes, the firm may suffer

negative consequences.
A concentrated strategy can also be disastrous for a firm
that is not successful in its narrowly-defined target market.
Do you remember how many video shops sprang up in
South Africa in the mid-1980s? Many of them are not around
anymore. In the United States, when Head and Shoulders
shampoo was introduced, several small firms were already
selling anti-dandruff shampoos. Head and Shoulders was
introduced with a large advertising campaign, and the new
brand captured more than half the market immediately.
Within a year, several of the smaller firms that had been
concentrating on this market segment went out of business.
The key to successful concentrated targeting, or niche
marketing, is specialisation. The firm has to specialise along
market, customer, product or marketing-mix lines. The
following are several specialist roles open to a niche
marketer.34
End-use specialist. These firms specialise in serving one

type of end-use customer. For example, Reuters provides
financial market information and news to professionals,
and many private banks in South Africa specialise in
providing sophisticated investment advice to wellheeled clients.
Vertical-level specialist. The firm specialises at some
level of the production/ distribution cycle. For example,
the Dutch-based Anglo-Italian firm, EVC, is Europes
leading manufacturer of polyvinylchloride (PVC), and
Country Homes niche is as a middleman between
owners of country cottages and people who want to hire
them for holidays.

Customer-size specialist. The firm concentrates on
selling to small, medium or large firms. Fuji gained its
initial success in the photocopying market by
specialising in the needs of small firms neglected by
Xerox. Similarly, many regional advertising agencies
specialise in serving medium-sized clients that cannot
afford the high fees of national advertising agencies.
Specific-customer specialist. The firm limits its selling
to one or a few large customers. There are many firms
like this in the motor industry, such as Unipart, for
example, which devotes most of its time to BMW/Rover.
Atlantis Diesel Engines near Cape Town had the state as
its almost exclusive customer at one stage.
Geographic specialist. The firm sells only in a certain
locality, region or area of the world. uBank provides its
financial services almost exclusively in rural and mining
communities and Choppies does the same with
groceries.
Product or feature specialist. The firm specialises in
producing a certain product, product line or product
feature. Rolls-Royce, for instance, is the only supplier of
tilt-thrust jet engines to airlines.
Quality-price specialist. The firm operates at the low or
high end of the market. For example, Hewlett Packard
specialises in the high-quality, high-price end of the
hand-calculator market, whereas Tring International
sells very cheap CDs.
Service specialist. The firm offers one or more services
not available from any other firm. An example is the
American Space Programme NASAs ability to recover
and repair satellites.

Niche marketing carries a very significant risk, in that the
market niche may dry up or be attacked. Porsche was hit by
both of these threats when the demand for luxury cars
declined in the early 1990s and Honda, Toyota and Mazda
all attacked the sports car market.
8.3 Multi-segment targeting

A firm that chooses to serve two or more well-defined
market segments and develops a distinct marketing mix for
each uses a multi-segment targeting strategy. Toyota has a
model that appeals to almost every conceivable market
segment, ranging from the bottom of the range Yaris to the
Lexus for the luxury market. South African Breweries
markets a range of nine different locally bottled beers each
one with a different taste and flavour, alcohol content and
packaging. Each one is developed for a different target
market.
Some firms use different promotional appeals, rather
than completely different marketing mixes, as the basis for a
multi-segment strategy. For example, different target
markets are likely to be attracted to Colgates various
shampoos: for normal hair, for dandruff, for oily hair, for dry
hair, etc. Yet the basic marketing strategy (e.g. the shape of
the bottle, the distribution strategy, the price strategy)
remains the same. Although the basic product may be
similar, the names and product attributes are designed to
meet different wants.
>> Strategy
Tsogo Sun (previously known as Southern Sun) uses
the multi-segment strategy very effectively. It competes
in different market segments with its Intercontinental
Hotels and Resorts and Holiday Inn Crowne Plaza
hotels (both in the luxury segment); the Holiday Inn
and the Holiday Inn Garden Courts (middle-income
markets); the Holiday Inn Express (convenience and
value for money); Southern Sun Resorts (hospitality
and tourists in search of scenic beauty); and its
Formula 1 and Formula Inn hotels compete in the
economy-market segment.
Multi-segment targeting offers many potential benefits to
firms, including higher sales volume, higher profits, larger
market share and economies of scale in manufacturing and
marketing. Yet multi-segment targeting also involves higher
costs. Before deciding to use this strategy, firms should
compare the benefits and costs of multi-segment targeting
with those of undifferentiated and concentrated targeting.
Increases in the following costs need to be taken into
account:
Product design costs. A multi-segment targeting

strategy sometimes results in different products for
different market segments. It may involve nothing more
than a package or labelling change, or it may require a
complete redesign of the product itself. An example of a
slight modification is packaging Coca-Cola in various
sizes and types of containers, such as 340 ml cans, 1,5litre bottles and 2-litre plastic bottles. By contrast,
Compaq Computer incurred major costs in developing
both desktop and laptop computers and will incur even
more if they enter the tablet market. Creating different
products with unique features sought by different
segments of the market can be very expensive.
Production costs. Total production costs mount as a
firm develops and markets different products for
different market segments. Each manufacturing run may
require a retooling of production equipment, during
which time expensive production lines are idle. The
result is higher costs for the manufacturer, and
marketers have to charge their customers higher prices
to compensate which may be hard to do in a very
competitive market.
Communication costs. If a firm produces a different
product for each market segment it must develop
separate marketing communication strategies for each
segment. Significant expenditures of human and
financial resources are required, as each communication
campaign will require unique advertising (TV, radio,
print); its own promotional material (pamphlets,
coupons); and even the use of different media (more
personal selling, for instance), in some cases. South
African Breweries, for instance, has a separate marketing
communication strategy for each of its brands and even
uses a separate advertising agency for each brand.
Inventory costs. The more market segments a firm tries
to serve, the higher the inventory costs are likely to be.
With inventory costs averaging between 20 and 30 per
cent of inventory sales value, a multi-segment targeting

strategy can be very expensive. Firms like Toyota and
Volkswagen must spend millions of rands on keeping an
adequate inventory for all their models, some of which
may not even be on the market any more.
Marketing research costs. An effective market
segmentation strategy relies on accurate, detailed
market information about consumer demographics;
consumer reaction to various product designs or
advertising appeals; and consumer interests, attitudes
and opinions, and so on. Collecting this information can
be a time-consuming and expensive process.
Management costs. A multi-segment targeting strategy
requires extra management time. As the number of
segments increases, so does the number of decisions
that need to be made. Management must co-ordinate
the marketing mix for each targeted market segment.
Cannibalisation. Cannibalisation occurs when the sales
of a firms new product reduce the sales of one of its
existing products. For example, when South African
Breweries launched Miller Draft it hoped that the new
product would expand its sales and grow the beer. If
however, Miller drinkers simply switched from the ranks
of current drinkers of other SAB brands to Miller,
cannibalisation has occurred. M-Net has found that
introducing DStv has not really grown its market.
Instead, its new DStv subscribers are by and large its
existing analogue subscribers.
9. Contrasting target marketing

strategies
LO8
Table 6.5 illustrates that in the target market approach, what

the firm decides upon influences all aspects of the firms
marketing strategies, and the marketing mix (the 4 Ps) in
particular. The product strategy for each target market will
be different. In the case of an undifferentiated strategy, the
product mix will be wider (trying to satisfy many different
needs), whereas at the other extreme, namely concentrated
targeting, the product mix will be limited to relatively few
products or brands.
Table 6.5 Contrasting target marketing approaches
The distribution strategies of a firm will also be strongly

influenced by the targeting strategy used. Undifferentiated
targeting involves intensive distribution (see Chapter 10),
which means that almost as many intermediaries (retailers
and wholesalers) as are prepared to stock the product are
allowed to do so. The distribution is as wide as possible,
necessitating many intermediaries in a wide geographic

area. Undifferentiated targeting also means that firms bring
their products within easy reach of the target market and, by
implication, reduce travelling time, for instance.
Concentrated targeting, on the other hand, implies
exclusive distribution. The intermediaries are, therefore,
limited and potential buyers have to make an effort to reach
retail outlets. The product, in such a case, will often be one
that carries a price premium. The media that will be used for
marketing communication purposes will not be a massmedia approach, but one that offers maximum exposure to
the target market. In the case of cameras, for instance, the
medium will be camera magazines, such as Camera and
Image (Ci), or sponsorship of a photographic club, rather
than advertisements in mainstream media, such as YOU
and Huisgenoot.
Table 6.5 summarises the advantages of segmentation,
namely:
The ability to define and, therefore, satisfy consumer

needs more accurately
Better utilisation of scarce resources
More opportunities to build long-term relationships with
customers
More accurate or detailed objectives
Enhanced performance assessment?
Proponents of segmentation will, therefore, argue that these

benefits all contribute to enhanced profitability. The
disadvantage of segmenting is that it can result in limited
market coverage, leading to missed opportunities and
limited growth potential.

Once a firm has segmented its market and decided on the
market segment(s) it will target, the next step is to decide
how it wants to be positioned in each targeted market.
10.Positioning
LO8
Positioning follows a firms decision about its target market.

The term positioning refers to developing a specific
marketing mix to influence potential customers overall
perception of a brand, product line or firm in general. In
other words, a position is the place that a product, brand or
group of products occupies in consumers minds in relation
to competing offerings. Positioning assumes that consumers
compare products on the basis of important features.
Marketing efforts that emphasise irrelevant features are,
therefore, likely to misfire.
Crystal Pepsi and a clear version of Coca-Colas Tab
failed in the United States because consumers perceived the
clear positioning as more of a marketing gimmick than a
genuine consumer benefit.35
Effective positioning entails assessing the positions
occupied by competing products, identifying the important
dimensions underlying these positions and choosing a
position in the market where the firms marketing efforts will
have the greatest impact.
Positioning is a crucial concept in marketing. We believe
it is such a critical concept that the whole of Chapter 7 is
devoted to the concept of positioning and its use as a
competitive strategy.
<<< LOOKING BACK

Many firms seem to think that targeting younger market
segments is appropriate because they are the market of the
future. Such firms argue that if they can build brand loyalty
amongst this market segment today they will be a loyal,
lucrative segment in the future. Successful market
segmentation depends on four basic criteria. First, a market
segment must be substantial: it must have enough potential
customers to be viable. Second, a market segment must be
identifiable and measurable. Third, members of a market
segment must be accessible to marketing efforts. Fourth, a
market segment must respond to particular marketing
efforts in a way that distinguishes it from other segments.
The over-40s market meets all four criteria and the fact they
are often debt-free implies that they have more disposable
income than many younger market segments, which makes
this segment attractive for many products and brands.
SUMMARY
1
The characteristics of markets and market segments.

A market is composed of individuals (or organisations)
with the ability and willingness to make purchases to
satisfy their needs or wants. A market segment is a group
of individuals with similar product needs as a result of
one or more common characteristics.
The importance of market segmentation. Before the
1960s, few businesses targeted specific market segments.

Today, segmentation is a crucial marketing strategy for
nearly all successful firms. Market segmentation enables
marketers to tailor marketing mixes to meet the needs of
particular population segments. Segmentation helps
marketers identify consumer needs and preferences,
areas of declining demand and new marketing
opportunities.
3 Criteria for successful market segmentation.
Successful market segmentation depends on four basic
criteria. First, a market segment must be substantial (i.e.
it must have enough potential customers to be viable).
Second, a market segment must be identifiable and
measurable. Third, members of a market segment must
be accessible to marketing efforts. Fourth, a market
segment must respond to particular marketing efforts in
a way that distinguishes it from other segments.
4 Bases (variables) commonly used to segment
consumer markets. There are five commonly used
bases for segmenting consumer markets. Geographic
segmentation is based on region, size, density and
climate characteristics. Demographic segmentation
consists of age, gender, income level, ethnicity and
family life-cycle characteristics. Psychographic
segmentation includes personality, motives and lifestyle
characteristics. The benefit sought is a segmentation
basis that identifies customers according to the benefits
they seek in a product. Finally, usage segmentation
divides a market by the amount of product purchased or
consumed.
5 Qualifying and determining dimensions. A qualifying
dimension is a consideration that, as the word suggests,

qualifies a consumer for a specific target market. A
determining dimension, on the other hand, is a
dimension that will eventually determine a consumers
buying decision.
6 The steps involved in segmenting markets. Seven steps
are involved when segmenting markets: (1) select a
market or product category for study; (2) list the
potential needs of the market; (3) choose a basis or bases
for segmenting the market; (4) select segmentation
descriptors; (5) profile and analyse homogeneous
market segments; (6) identify the determining
dimensions; (7) name selected target markets. These
steps are followed by designing, implementing and
maintaining appropriate marketing mixes.
7 The pitfalls of alternative strategies for selecting target
markets:
> Unimaginative targeting of product offerings
> Firm more susceptible to competition.
> Segments too small or changing
> Large competitors may more effectively market to
niche segment.
> High costs
> Cannibalisation risk.
8 Alternative strategies for selecting target markets.
Marketers select target markets using three different
strategies: undifferentiated targeting, concentrated
targeting and multi-segment targeting. An
undifferentiated targeting strategy assumes that all

members of a market have similar needs that can be met
with a single marketing mix. A concentrated targeting
strategy focuses all marketing efforts on a single market
segment. Multi-segment targeting is a strategy that uses
two or more marketing mixes to target two or more
market segments.
How and why firms implement positioning strategies
and how product differentiation plays a role.
Positioning is used to influence consumers perceptions
of a particular brand, product line or firm in relation to
those of competitors. The term position refers to the
place that the offering occupies in consumers minds. To
establish a unique position, firms use product
differentiation, which involves emphasising the real or
perceived differences between competing offerings.
Products may be differentiated on the basis of attribute,
price and quality, use or application, product user,
product class or competitor. Positioning follows the
selection of a target market.

1
2
Describe market segmentation in terms of the historical

evolution of marketing.
Choose magazine advertisements for five different
products. For each advertisement, write a description of
the demographic and psychographic characteristics of
the targeted market.
Ask all your classmates to complete the VALS
questionnaire at www.sri-bi.com/VALS/presurvey.shtml
and then to submit their reports to you. Describe the
psychographic segments present in your class, including
a description of the size of each segment.
A Belgian entrepreneur, Henri Thijssen, has developed a
robotic lawnmower.36 Develop a targeting and
positioning strategy for his product.
Describe the nature of multi-segment targeting. Describe
a firm not mentioned in this chapter that uses a multisegment targeting strategy.
Identify reasons why Nedbank has abandoned its multisegment strategy.
STRATEGY READER >> How far does the promised land

of social media marketing extend?
Mark Beard is a Knysna-based entrepreneur who, along with other businesses,
has a small, but thriving, car dealership known as Autolink Knysna
(http://www.autolinkknysna.co.za/). After some time working in the corporate
sector (and in so doing acquiring the skills to run a successful business), Mark
purchased Autolink Knysna from the founder of the business in 1997. Marks
passion for cars and his ability to understand his customers needs saw him
turn the venture into a successful and Mark hoped sustainable business.
However, the credit crunch in 2008 and the subsequent recession had a
severely negative impact on the motor industry as a whole. Mark realised that
if Autolink Knysna was to survive, he would have to reconsider the way he
marketed his business.
At the ski boat club in Knysna one Friday night, Mark overhead some
colleagues talking about the use of the social media for marketing small
businesses. This phenomenon was growing at the end of 2009, Facebook
had more than 350 million accounts; and in South Africa alone 2,6 million
people had signed up with Facebook. What concerned Mark though was
whether Facebook, although it might be a viable option for large corporations
in urban America, was a feasible marketing option for a business selling
second-hand cars in a small town near the tip of Africa. Consequently, one
breezy Knysna afternoon in March 2010, Mark started researching the
possibility of using Facebook as a way to improve the marketing of his
products.
During his investigation, Mark came across an article entitled One Caf
chains Facebook experiment, published in Harvard Business Review in March
2010, which argued that Facebooks fan pages are an effective marketing
tool. The study based this conclusion on an experiment in which the
customers of Dessert Gallery (DG), a popular US-based caf chain, were
encouraged to join the fan page of DG. The research found that fans of DG
(compared with the non-fan DG customers) made 36 per cent more visits to
DGs cafs each month; spent 45 per cent more of their eating-out dollars at
DG; spent 33 per cent more at DG; and had a 14 per cent higher emotional
attachment to the DG brand.
Although the results seemed promising, Mark was sceptical. First of all, he
pointed out (remembering his first-year statistics course) that the results
revealed correlations rather than a causal relationship (between the
customers joining the fan page of DG and increased marketing effectiveness).
Nevertheless, if the Facebook fan page was successful, it would allow Mark to
segment his market and allow a more focused marketing strategy. What was
also attractive about this option was the fact that, other than the time spent
setting up the Facebook fan page, there were no costs associated with this
marketing strategy.
Always on the lookout for a good deal, Mark set up the Facebook fan page
and started his viral marketing campaign by sending invitations to eight
friends on Facebook. A month later, Mark looked at the group page and
noticed that the number of members of the group had grown to 64. This was
exciting, thought Mark, but would it ultimately translate into increased sales
for Autolink Knysna?

SOURCE: Dholakia, U.M. & Durham, E. 2010. One Caf chains Facebook experiment. Harvard
Business Review, March 2010, p. 26
QUESTIONS
1
2
Do you think that Marks strategy will result in increased returns for
Autolink Knysna?
What advice would you give Mark about the use of social media as a
marketing medium?
KEY CONCEPTS
Behavioural segmentation: segmenting a market on the basis of consumers
knowledge of, attitude towards, use of or response to, a product.
Benefit segmentation: the process of grouping customers into market segments
according to the benefits they seek from a product.
Cannibalisation: a situation that occurs when sales of a new product cut into
sales of a firms existing products.
Concentrated targeting strategy: a strategy used to select one segment of a
market for targeting marketing efforts.
Demographic segmentation: segmenting markets by age, gender, income,
ethnic background and family life cycle.
Family life cycle: a series of stages determined by a combination of age, marital
status and the presence or absence of children.
Geodemographic segmentation: segmenting potential customers into
neighbourhood lifestyle categories.
Geographic segmentation: segmenting markets by region of the country or
world, market size, market density or climate.
Lifestyle segmentation: segmenting a market on the basis of how consumers
spend their time, their beliefs and their socio-economic characteristics.
Market: people or firms with needs or wants and the ability and willingness to
buy.
Market segment: a subgroup of people or firms sharing one or more
characteristics that cause them to have similar product needs.
Market segmentation: the process of dividing a market into meaningful,
relatively similar, and identifiable segments or groups.
Micro-marketing: developing a marketing strategy tailored to prospective

buyers who live in small geographic regions, such as neighbourhoods, or who
have very specific lifestyle and demographic characteristics.
Multi-segment targeting strategy: a strategy that chooses two or more welldefined market segments and develops a distinct marketing mix for each.
Niche: one segment of a market.
Position: the place that a product, brand or group of products occupies in
consumers minds in relation to competing product offerings.
Positioning: developing a specific marketing mix to influence potential
customers overall perception of a brand, product or firm in general.
Psychographic segmentation: market segmentation on the basis of personality,
motives, lifestyles and geodemographics.
Segmentation bases (variables): characteristics of individuals, groups or firms.
Target market: a group of people/businesses for which a firm designs,
implements and maintains a marketing mix intended to meet the needs of that
group, resulting in mutually satisfying exchanges.
Undifferentiated targeting strategy: marketing approach that views the market
as one big market with no individual segments and thus requires a single
marketing mix.
Usage-rate segmentation: dividing a market by the amount of product bought or
consumed.
80/20 principle: a principle that holds that 20 per cent of all customers generate
80 per cent of the demand.
REFERENCES
1
2
3
4
5
6
7
8
Fontyn, Y. 2010. The perfect fit for all. Financial Mail, 24 September, p. 77.
City Lodge Corporate Report, Supplement to the Financial Mail, July 2012.
http://www.internetworldstats.com (accessed 22 July 2010).
Rice, F. 1995. Making generational marketing come of age. Fortune, 26 June
1995, pp. 110114.
Lactose-intolerant cats. Food & Beverage Reporter Online, MayJune 2000, p.
44.
Kotler, P. 2000. Marketing management (tenth Millennium edition). London:
x $ = ? Brandweek, 31 January 1994, pp. 1824.
Chaffey, D., Ellis-Chadwick, F., Johnston, K. & Mayer, R. 2006. Internet
marketing: Strategy, implementation and practice (third edition). Harlow:
The McVites case study. Food & Beverage Reporter Online, January/February
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
2001, p. 51.
Nielsen. 2013. Brand familiarity reigns king around the world consumer.
Available from http://www.nielsen.com/us/en/insights/news/2013/brandfamiliarity-reigns-king-around-the-world.html (Accessed 17 July 2014).
Unilever SA corporate report. 1998. Supplement to Financial Mail, 23
October 1998, p. 36.
Jacobson, C. 2000. Teba Bank opens to look after SAs rural poor. Sunday
Times, 8 October 2000; Theba Bank website, www.tebabank.co.za/index.asp
(accessed 19 July 2010).
Mainland, B. 2012. Why you should segment your target market by
generation. Available from http://www.dynamicbusiness.com.au/ (Accessed
on 17 July 2014).
Grail Research. 2011. Consumers of Tomorrow: Insights and Observations
About Generation Z. Available from
http://www.grailresearch.com/pdf/ContenPodsPdf/Consumersof_Tomorrow_Insig
(Accessed 17 July 2014).
Womans wing. Femina, October 1998, p. 148.
New Ford Mustang designed to attract more female buyers. Marketing News,
3 January 1994, p. 27; Warner, F. 1994. Midas increases bid to attract women.
Brandweek, 14 March 1994, p. 5; Weisz, P. 1994. There is a whole new target
market out there: Its men. Brandweek, 21 February 1994, p. 21.
Nedbank: Become a client. 2014. Available from:
https://www.nedbankprivatewealth.com/south-africa/become-a-client
(Accessed on 10 December 2014).
Mateme, M. 2001. Going against the herd. Financial Mail, 23 February 2001,
p. 79.
Its raining millionaires. Finweek, 11 October 2007, p. 46; MoneyWeb website
(accessed 14 March 2014).
Morris, E. 1993. The difference in black and white. American Demographics,
January 1993, pp. 4446.
Mwsan, N. 2009. LOral sets its sights on the African woman, Business Day
electronic edition, 30 April 2009.
Bizcommunity online newsletter, www.bizcommunity.com, 8 February 2005.
New segment lifestyle magazines launched. Bizcommunity online newsletter
www.bizcommunity.com (accessed 9 October 2008).
Huisman, j. 2014. Levi Strauss sets sights on black middle class. Business Day,
18 November, p. 2.
Mafokomedia. 2014. Quick knowledge. Available from
http://www.mafokomedia.co.za/news.html (Accessed on 10 December
27
28
29
30
31
32
33
34
35
36
2014).
Ibid.
Taylor, A. 1995. Porsche slices up its buyers. Fortune, 16 January 1995, p. 24.
Adapted from Wells, W.D. & Tigert, D.J. 1971. Activities, interests and
opinions. Journal of Advertising Research vol. 11 (August), pp. 2735.
Perreault, W.D. & McCarthy, E.J. 1996. Basic marketing. Chicago: McGrawHill, p. 103.
Mohammed, R.A., Fisher, R.J., Jaworski, B.J. & Paddison, G.J. 2003. Internet
marketing: Building advantage in the networked economy (second edition).
Boston: McGraw-Hill, pp. 107109.
Joubert, M. 2000. Better in the old days. Financial Mail, 25 February 2000, p.
65.
Cranston, S. 2010. Heading above ground. Financial Mail, 15 October, p. 25.
Kotler, P. 2000. Marketing management (tenth Millennium edition). London:
Prentice Hall Europe, p. 247; Kotler, P. 1996. Marketing management (ninth
edition). Englewood Cliffs: Prentice Hall, pp. 493494.
Triplett, T. 1994. Consumers show little taste for clear beverages. Marketing
News, 23 May 1994, pp. 1, 11.
Sunday Times, 23 August 2007, p. 9.
CHAPTER
07
Positioning the firm and its

products
LEARNING OUTCOMES
1
2
3
4
5
6
7
8
9
10
11
12
13
Describe the nature of positioning.

Describe the typical undesirable outcomes if a firm fails to
position itself or its products properly.
Justify the role of differentiation in establishing a competitive
advantage and in a positioning strategy.
Explain the classification of industry types based on competitive
advantages.
Discuss the bases for differentiating firms, products and brands.
Discuss the bases that can be used to position products.
Describe the process of positioning a new product or brand.
Justify or provide reasons why a brand may need to be
repositioned.
Describe the process of repositioning a product or brand.
Describe the need for repositioning in the maturity phase of the
product life cycle.
Describe the development of a positioning strategy.
Discuss the typical positioning errors that firms make.
Critically evaluate the different tools used in positioning or
repositioning.

above outcomes.

Kulula humour earns its place
In case you have two children, choose the one you love
the most to help him or her first. Ladies and
gentlemen, welcome to Cape Town. You can disembark
in a moment. Except for the hunk in 13A, who is
welcome to stay, one flight attendant said upon
landing, leaving everyone scouting the plane only to
realise theres no row 13. These are the type of funky,
humorous air steward announcements that budget
airline Kulula has used to position itself away from its
boring, conservative competitors. Humour has been
part of Kulula from day one, said Heidi Braurer, the
airlines marketing chief. With a tiny budget, we
needed to be seen, she said. Since launching in 2001 as
Africas first low-cost carrier, Kulula has become South
Africas number two carrier, powered by ad campaigns
that have costumed ordinary flyers as cape-wearing
superheroes, under its slogan Now anyone can fly.
Their planes could be painted with cows, or arrows
marking the nose and tail. And they never hesitate to
turn to news headlines for inspiration. The airlines
name means its easy in Zulu, she said, and the

original idea was to make flying simple, at a time when
the non-budget SAA dominated routes. Over the last
decade, Kulula has claimed 20 percent of the domestic
market and transports 2,4 million passengers a year,
with several no-frills challengers following it into the
skies. The flight crews outlandish announcements
have become Kululas brand, helping passengers forget
that they have to pay for their snacks. Last year it
offered to pay lobola, a grooms traditional wedding
gift for his brides family, for Prince William to marry
Kate Middleton. The question posed to passengers:
How many cows do you think Kate is worth?
SOURCE: Business Report, 26 February 2012
QUESTIONS
1
2
How is Kulula perceived by consumers?

How does Kulula differ from other airlines?
1. Introduction
The term positioning refers to developing a specific
marketing mix to influence potential customers overall
perception of a firm, product or brand. In marketing terms,
positioning refers to the place that a firm, product, or brand
occupies in consumers minds in relation to competing
offerings. Positioning is a particularly valuable strategy for
the marketers of consumer products.
The concept of positioning dates back to the late 1960s

and early 1970s, referred to as the positioning era, when it
was popularised by a series of articles published by Al Ries
and Jack Trout. Positioning was approached from a
psychological perspective, with the emphasis that
positioning is not what you do to the product, but what you
do to the mind of the prospect.1 Accordingly, the ultimate
marketing battleground was believed to be the mind of the
consumer, and the better the understanding of how the
mind works, the better the understanding of how
positioning works.2
Today, at the start of the 21st century, the consumers
mind is still the primary battleground, bombarded with
information about firms, products, services and brands. In
trying to simplify their buying decisions, consumers
mentally organise these firms, products, services and brands
into categories in other words, position them in their
minds. It is also important to recognise that marketers deal
with mainly rational consumers who will try to maximise
their satisfaction for any given level of input (expenditure).
In other words, consumers will purchase those products and
brands that offer them the most satisfaction that is, the
best-positioned products and brands.
2. Planning a positioning strategy

Marketers should not leave to chance the positioning of
their firms, products or brands. Instead, marketers need to
plan unique positions that will afford their products and
brands the maximum advantage in selected target markets.

They also have to design marketing mixes to establish and
support these planned positions. Thus, marketers plan
positions that distinguish their products from competing
brands and give them the greatest advantage in that market.
In the motor-vehicle market, the Toyota Yaris and Honda
Civic are positioned on economy, Mercedes and Audi on
luxury, Porsche and BMW on performance. Volvo positions
powerfully on safety and Toyota positions its fuel-efficient
hybrid Prius as a high-tech solution to the energy shortage.
How far will you go to save the planet?, the Prius
promotional material asks. Goodyear tyres are positioned as
being prestige tyres with the slogan because not all tyres are
the same. Engen says, with us you are number one.
OUTsurance promises that you will always get something
out and Tracker Alert says they are taking back tomorrow.
Standard Bank promises to move forward, FNB asks how the
bank can help clients, and by contrast, Absas Today,
Tomorrow, Together emphasises nurturing lasting
relationships.
Unilever markets three brands of margarine: Stork, Flora
and Rama. Unilever has to plan a unique position in the
minds of consumers for each of them. Stork, for instance, is
positioned as a preparation brand. Unilever wants to
inspire people to prepare food from scratch more often (as
opposed to buying pre-prepared food), and reminds them
that the best ingredient for the job is, of course, Stork.
Unilever uses the tagline: Cook from scratch. Create more
than food to support this positioning.3
South African Breweries (SAB) also carefully plans the
positioning of each of its brands and utilises the marketing

mix to support and sustain that positioning. For instance, in
2001, Castle Lager was positioned as the friendship brew.
Every Castle Lager advertisement, be it a television,
magazine or newspaper advertisement or a billboard,
supported and strengthened its positioning as the
friendship brew. However, in 2004 SAB realised that the
slogan had not had as much impact on the market as it had
hoped, and starting downplaying the emphasis on the
friendship brew in its advertisements about Castle Lager in
favour of an emotional appeal about what is great about
South Africa. Now the slogan is: It all comes together with a
Castle.
3. The nature of positioning
LO1
Positioning assumes that consumers compare products on

the basis of important features. Marketing efforts that
emphasise irrelevant features are, therefore, likely to fail. For
example, Crystal Pepsi and a clear version of Coca-Colas
Tab failed in the United States because consumers
perceived the clear positioning as more of a marketing
gimmick than a genuine consumer benefit.4
Effective positioning necessitates assessing the positions
occupied by competing products, identifying the important
dimensions underlying these positions and choosing a
position in the market where the firms marketing efforts will
have the greatest impact. If all competitors are marketing
large, five-seat passenger vehicles that appeal to luxury
needs, why not build small, economy cars? If major

competitors are all stressing low prices, why not introduce a
prestige brand? If your major competitors are colas, perhaps
emphasise that your product is an uncola.
Hewlett Packard clearly believes that flexibility is a
dimension particularly important to consumers and a need
that other computer manufacturers fail to satisfy. Hewlett
Packard is positioned as the flexible computer because
consumers can decide on their own configuration of
computer that will best satisfy their needs. Similarly, CocaCola realised that Diet Coke, although not deliberately
positioned as a womens drink, was consumed mostly by
females. Although men were equally health-conscious, and
interested in a low-calorie drink, their reluctance to
consume Diet Coke left a gap in the market. Consequently,
Coca-Cola Zero, using essentially the same ingredients as
Diet Coca-Cola, was launched and positioned as a Mens
Diet Cola, in so doing preventing competitors from
occupying this position in the market.5
Regardless of how positioning is defined, there is little
doubt about its importance. It has been argued that the
position of a product is its real source of competitive power
and the key to product success, and that an effective
positioning strategy is critical in accomplishing the firms
marketing and business objectives.
3.1 The consequences of failing to select a

position
LO2
Failure to select a desired position in the market and to

develop a marketing action plan designed to realise and

hold this position may result in one of several undesirable
outcomes.
In other words, the firm or its products or brands:6

Are pushed into an undesirable position where they face
head-on competition from stronger competitors. Lion
Lager, before it was taken off the market, was pushed
into an undesirable position by the strong Castle Lager
brand
Are pushed into an undesirable position which nobody
else wants, because there is little customer demand
there. The retailer Diskom was pushed to a position
somewhere between the urban and the rural market
where nobody wants to be7
Are positioned in a way that is so fuzzy that nobody
knows what their distinctive features really are. Fair Lady
magazine faced this situation in the late 1990s, before it
was repositioned
Have no position at all in the market because nobody
has heard of them. Namibian Breweries Tafel Lager may
be facing this situation.
An example of the first problem (facing head-on

competition from a stronger competitor) is the situation that
South African wines face in the United States. There, South
African wines compare well with other wines in terms of
taste and price, but images of crime, violence, famine and
jungles still loom in the minds of American consumers. As
Americans associate wine with romance, they find it hard to
believe that South Africa can produce good-quality wine.
Also, South African wine marketers failure to position their

wines appropriately has led to direct competition with
American, French and Chilean wines.8
>>Strategy
Another example of poor positioning that led to
undesirable direct competition is Woolworths
experience in the 1990s, when it followed an
international upmarket trend by introducing higherpriced, designer-type fashions in its clothing
departments. This move, however, was met with
unprecedented resistance, particularly from female
customers. Many women reasoned that at such high
prices, they may as well buy their clothing at more
exclusive fashion boutiques. Woolworths experienced a
consequent drop in earnings of 38 per cent, losing its
competitive positioning as a result of having to
compete with fashion boutiques. It could not, however,
match the exclusiveness of fashion boutiques. Where
the firm in the past took advantage of buying clothing
in large quantities, enabling long manufacturing runs,
which kept prices affordable but quality high, it now
had to contend with high-fashion goods made in short
runs with imported materials, which were subject to
currency fluctuations. After returning to its previous
position of a narrow range of high-quality fashionable
clothing at consistently good prices, sales at
Woolworths recovered. This experience clearly
illustrates that Woolworths needed to find the right
positioning in the mind of the consumer by balancing

perceptions of quality, price and fashion to maintain an
effective position in the market.9
4. Differentiation the cornerstone of

positioning
LO3
It is true that most profitable strategies are based on

differentiation offering consumers something they value
that competitors do not have. This differentiation is
normally (but not always) what we have earlier described as
a competitive advantage. It is indeed the cornerstone of the
positioning strategy.
Differentiation is the process of identifying something
that is different about a firm or its products. The
differentiating variable (price, quality, product attribute or
image, to mention but a few) is not necessarily a competitive
advantage, however. The differentiating variable has to be
evaluated against at least four criteria:
Is the differentiating variable or characteristic desired

by consumers? If not, it is not a competitive advantage.
Unleaded fuel, for example, is certainly a characteristic
many consumers desire. Similarly the success of the iPod
was based on the desirable differential advantage of
seamless downloading of music from a dedicated store,
iTunes, to a mobile player that produced better sound
quality than its rivals.
Can we sustain the advantage over an extended period
of time? If not, it is not a competitive advantage. For

instance, in the fuel industry having the only unleaded
brand proved to be a competitive advantage that was not
sustainable and was soon copied. LG advertises the
worlds first curved OLED television but for how long
will it be a unique product feature?
Can we manufacture and market the product at a
price consumers will be prepared to pay? If not, it is
not a competitive advantage. Fuel firms have succeeded
in marketing unleaded fuel at prices that can be
described as affordable.
Is it profitable? If not, it is not a competitive advantage.
If the answer to all these questions is yes, then the

differentiating variable can be described as a competitive
advantage and it can (and should) form the basis of the
subsequent positioning strategy.
As pointed out earlier, consumers, in their selection of
products and services, opt for those that provide them with
the most value to maximise their need satisfaction (see the
Reader 35 Consuming interest bottled water). Therefore,
it is particularly important that marketers understand the
needs and shopping processes of potential buyers.
Marketing research information (see Chapter 5) and a sound
grasp of consumer behaviour (see Chapter 3) are, therefore,
critical inputs into planning differentiation and
consequently the positioning strategy. This information will
enable a firm to deliver better value than competitors offer
and as a consequence, win over and retain customers. A
firm gains a competitive advantage if it succeeds in
positioning itself as providing superior value to selected
target markets. The competitive advantage may come about

from various sources, such as lower prices than competitors,
or superior benefits that justify higher prices. However, it is a
prerequisite that if a firm positions its products or services as
offering the best quality and service, it must at all times
deliver the promised quality and service. Differentiating the
firms product to such an extent that it will give consumers
more value than the competitors products is the foundation
on which a firm can build its positioning. It is important to
realise, however, that a product should not only be different
it should be different in a way that is important to
consumers. Competing in a very competitive environment
Nedbank has chosen to position themselves as green bank.
Only time will tell whether this positioning is sufficiently
important to South African consumers.
READER 35 >> Consuming interest bottled water

How do you even begin to choose when confronted with the selection of
bottled water available in South Africa? Your best guarantee of consistent
quality is the stamp of the South African National Bottled Water Association
(SANBWA). Membership of SANBWA requires that the water meet international
hygiene standards: it will have been bottled in hospital-theatre-like conditions
and tested regularly to ensure that pH levels and mineral composition are in
order.
Christine Le Mesurier of the H2O Waterbar in the V&A Waterfront bases her
choices on quality, taste and beneficial properties. Water should have a pH of
seven or higher (anything much lower will be too acidic). Then theres the
mineral content. Mineral waters are drawn from deep within the ground and
contain the minerals of the rock strata through which they filter; spring waters,
like Valpr, Caledon and Chamonix, come from near the surface and have a
lower mineral content. Spring waters are good for detoxing as the body
doesnt have to contend with a great deal of mineral absorption, says
Christine. Some people want the energy lift that a high magnesium count
gives; others are after the benefits of calcium. Waters like Mountain Falls
from Hermanus and Paarls Aqua dOr have a balanced mineral content,
whereas those like Valvita or Karoo are high in minerals. Heart Foundationendorsed Blue is low in sodium, as is Drakenstein from Paarl. And
Franschhoeks La Vie won the South African Airways tender on taste. If this
werent enough to absorb, oxygenated waters, like Super Aqua, are said to
have energy-increasing capabilities.
SOURCE: Warrington, J. 2000. Consuming interest: Bottled water. House and Garden, 2000, p. 27
EXAMPLE >> What is important to consumers when they buy a fridge? An

advertisement for Whirpools fridge/freezer combination says: Listen to forty
thousand women telling you what matters most, and youre bound to come up
with the perfect fridge. With rounded lines, smooth contours for easy cleaning,
extreme flexibility allowing you to adjust the inside, and a no-frost feature so the
freezer never needs defrosting. Caltex tries to differentiate itself in the
competitive fuel market by positioning its unleaded Vortex brand as a
performance-enhancing fuel. According to Caltex, the differentiation is that
Vortex provides maximum power, enhanced acceleration, and better drivability
because it prevents foreign deposits going into the cars fuel intake system. Shell
V-Power, on the other hand, differentiates its fuel with Vaporon Combustion
Boosters which give enhanced vapour action. This leads to fuel being burned
more efficiently, which leads to enhanced performance. Shell V-Power is
consequently differentiated by power when you need it. The question is: are
these two brands (Caltex Vortex and Shell V-Power) sufficiently differentiated from
each other?
A drink such as Energade, for instance, is positioned in such a way that
consumers view it very differently from other competitive energy drinks. The
product clearly projects an image of not only being a thirst quencher, but also
that it replenishes important minerals and vitamins that the athletes body needs
for proper functioning and rapid recovery after strenuous exercise.
5. Classifying industries according to their

LO4
potential for differentiation and a
competitive advantage
The opportunities for a firm to differentiate its product(s) or
brands and gain a competitive advantage are not always
abundant. In some industries it can be very difficult to
differentiate a firms marketing offer. The Boston Consulting
Group identifies four types of industries (Table 7.1 illustrates
the four types), which are classified according to the number
of competitive advantages and the size of those advantages
that are possible in each category, as follows:10
Firms in volume industries typically have considerable

scope to establish significant competitive advantages.
The airline industry is an example of a volume industry.
In this industry a firm can strive for low costs (as do
Virgin Atlantic and Kulula) or differentiate by means of
the quality of the service it offers (as British AirwaysComair does). It is also possible to be a winner on both
price and quality. In industries of this nature,
profitability is closely related to the firms size and
market share. It is for this reason that so many major
airlines form global alliances to build market share.
South African Airways, for instance, is a partner in the
Star Alliance, which contains 27 full members, including

United Airlines and Swissair. Star Alliance competes with
two other alliances, namely Sky Team and One World.
Most of the industry leaders, such as British Airways and
Singapore Airlines, are able to offer both high-quality
services and low operating costs.
Products that offer few potential competitive advantages
each of which (if they exist at all) is too small to be of
significance are characteristic of stalemate industries.
The established steel and bulk-chemicals industries are
examples of stalemate industries. In these industries, it is
difficult or even impossible for firms to differentiate their
products or have meaningfully lower costs. Firms that
compete in low-cost labour markets, such as Asian
countries, sometimes succeed in these industries despite
the challenges because they are able to lower labour
input costs to some extent. The size (and, therefore,
volume output and economies of scale) of modern
plants in Europe and America is not sufficient to counter
their high labour costs, leading to poor differentiation.
Fragmented industries offer many opportunities for
differentiation, but each opportunity is small. Service
industries are good examples of fragmented industries.
Fast-food firms and restaurants are good examples of
fragmented industries. International franchised outlets,
such as Hard Rock Caf, Planet Hollywood, McDonalds,
and KFC, are popular and successful all over the world,
but they have a small share of the market relative to
market leaders in other industries. And in fragmented
industries profitability is not closely related to size or
market share.
Specialised industries are characterised by many

opportunities to differentiate in a way that produces a
high return. The pharmaceutical industry is a specialised
industry with firms that are highly successful. A large
portion of the worlds more successful firms such as
Merck, Pfizer and Norvartis - are market leaders for
particular medical treatments. Examples of other
specialised industries are publishing and scientific
instruments.
A study of successful US firms, called the Profit Impact of

Marking Strategy (PIMS) study, found that firms with the
lowest return on investment compete in commodity markets
where there is no differentiation.11 The coal industry market
is an example of such a market. The successful firms are
those that offer superior quality in differentiable markets.
Car manufacturers such as BMW, Mercedes and Toyota, for
instance, are examples of firms that succeed in
differentiating their products and brands. Therefore, there is
empirical evidence that successful differentiation is
profitable.
Table 7.1 A classification of industry types based on differentiation and
SOURCE: Adapted from Kotler, P., Armstrong, G., Saunders,

J. & Wong, V. 1996. Principles of marketing (European
edition). London: Prentice Hall Europe, p. 40
The opportunities for differentiation are limited in some

industries. Creative firms, however, always seem to discover
some means of differentiating themselves from the rest.
Petrol is a product in a stalemate industry, namely the oil
industry. Filling up the car with fuel and attending to tyre
pressure and radiator water levels have always been a chore
to most people. Recently, however, we have witnessed the
transformation of service stations into retail outlets that are
not only easy to use, but also pleasant to visit. Service
stations have now gone beyond providing ordinary
functions and levels of service. The addition of an ATM, a
24-hour convenience shop and, in some cases, a fast-food
restaurant, now makes a visit to a service station more
pleasant.
Competitive advantages (and the positioning on which
they are based) may unfortunately have a limited lifespan
for any firm. Some differential or competitive advantages are
quickly copied or imitated by competing firms. In the
financial services industry in particular, successful ideas are
quickly replicated by competitors. Examples are the use of
computer-aided quotations in the life-insurance industry
and telephone selling of short-term insurance.
For a firm to retain the initiative that flows from its
competitive advantage, it is necessary to continue

identifying new potential advantages for consumers and
then introduce them one by one to keep competitors off
balance. The idea is thus to introduce a series of advantages
that will enhance a firms positioning and, hopefully,
market share over time. Part of the success of market
leaders such as Canon, Hewlett Packard, Sony and Gillette
can be ascribed to the continuous introduction of new
improvements to existing products. Cellphone marketers do
the same, continually adding new features, such as video
players, voice commands, multi-media messaging services
and new apps. Many of these firms suggest that their true
competitive advantage is the market knowledge,
technological expertise, creativity and entrepreneurship that
allow them to continually and quickly develop new,
innovative products, and thus retain their differentiation
their competitive advantage.
6. Bases for differentiation
LO5
As shown earlier, firms need first to find a means of

differentiating their product or brand on a sustainable basis
and then to base their positioning strategy on that
differential, or competitive advantage. A firm can
differentiate its product from that of its competitors in a
number of ways. The typical bases available to a firm for
differentiation are related to the products features or
attributes, accompanying service(s), personnel and image.
6.1 Product differentiation

Product differentiation is a positioning strategy that some
firms use to distinguish their products from those of their
competitors. Some gymnasiums now target young,
professional females by providing them with a social
environment where they can both exercise and do business
at the same time similar to what a round of golf is to their
male counterparts. These gymnasiums want to move away
from the perception that gymnasiums are only for out-ofshape woman of a certain age and negate the negative
perception of a gym with heavy, bulky, off-putting
equipment ill-suited to their needs. For this reason they
have installed elliptical equipment with woman with a
smaller stride instead of huge plates and bars and lots of
dumbbells, balls, balancing equipment and body-weight
exercises. Women are also more likely to prefer group
exercise classes, stretching, yoga, boot camps and cardiovascular exercises.
Bleaches, aspirin, unleaded petrol and some soaps,
however, are differentiated by such relatively trivial means
as packaging, colour, smell or secret additives. In these
cases, the marketer attempts to convince consumers that a
particular brand is distinctive and that they should choose it
instead of a competing brand. Product differentiation can be
difficult for some products. For instance, many consumers
do not see much difference in various brands of salt, milk or
building sand, for example.
A firm has the choice of offering either a standardised
product or one that is highly differentiated. Although
standardised products such as steel and aspirin are

difficult to differentiate, some firms manage to differentiate
successfully. The Disprin CV 300 aspirin with platelet
aggregation-inhibiting properties is an example of a welldifferentiated aspirin. On the other hand, cars, cellphones,
CD players and clothing are products that can be
differentiated along a range of characteristics. The major
characteristics that are used for product differentiation
include features, product performance, durability and
reliability.12
6.1.1 Features
Features or attributes are product characteristics that
enhance the products basic function. Most products lend
themselves to being offered with various features. A motorvehicle manufacturer, for instance, can offer optional
features, such as automatic transmission, air conditioning
and leather seats. The key issue here is to decide which
features are to be standard and which to make optional. It is
possible that a specific feature will appeal to a group of
additional buyers who may be persuaded to buy the product
provided more than just the standard features are offered.
Features are competitive tools that can be used to
differentiate a firms product. The Japanese have become
known for the continuous improvement and addition of
new, innovative features to products such as cameras,
calculators, video recorders and watches. Cellphone
manufacturers have added features such as SMS technology,
Internet access and games to their products in recent years.
A firm that succeeds in introducing a new feature that
consumers appreciate will gain a competitive advantage at

least in the short term. An example is the sports goods
manufacturer Adidas, which claims that its ForMotionTM
technology (used in its running shoes) in the Supernova
Control (shoe) channels the energy of your heelstrike. It
adapts to your individual running style for a smooth
transition, keeping the momentum of your running going.
Marketing research can play an important role in

identifying new features that can be added to a product.
Current users of a product, especially recent buyers, can be
approached and asked questions such as the following:
What has been your experience or use of the product?

Are there any shortcomings?
What do you regard as the best features?

What features could be added that would enhance the
usefulness of the product and increase the satisfaction
you get from the product?
How much would you be prepared to pay extra for each
feature?
How do you feel about the following features that were
mentioned by other customers?
The answers to these questions can serve as input into the

development of new features that a firm may add to its
products. The firm can decide which of the features should
receive more attention by calculating the customer value
and the cost to the firm of each potential feature. If the
customer value exceeds the cost to the firm by a
predetermined margin, the feature can be further analysed
and researched in respect of market size and related issues
(a process similar to new product development see
Chapter 9).
6.1.2 Performance
Performance refers to the levels at which a products primary
characteristics function. A good example is personal
computers. If a Mecer has faster processing capabilities and
a larger memory than a Hewlett Packard in a specific price
class, it could be argued that the Mecer performs better.
Buyers of personal computers would normally compare the
performance features of different brands and be prepared to
pay more for better performance as long as the higher price
does not exceed the higher perceived value.
EXAMPLE >> The advertisement for the Peugeot 206 HDi 2l diesel model
says: Over 700 km on a single tank. Winner of the Total Economy Run.
GlaxoSmithKline has used a performance-based differentiation for its new
Aquafresh Flex tooth-and-tongue brush. The firm claims the brush removes five
times more bacteria than normal brushing. For its new toothpaste (Aquafresh
Extreme Clean) it uses a feature-based differentiation approach by pointing out
that the toothpaste has a micro-active foaming action.
When products are introduced to the market for the first
time, a firm can decide on a specific performance level, or
one of four levels of performance namely low, average,
high and superior. Not all products lend themselves to being
marketed at different performance levels, but where it is
possible this can serve as a good basis for differentiation.
Managing a products quality level over time is also closely
linked to performance. There are three performancemoderating approaches that can be adopted by a firm:
quality improvement, quality maintenance and quality
adulteration. Quality improvement is the typical strategy of
market leaders, such as BMW and Seiko, which continually
improve their products. The second approach is to keep the
product at the initial quality level unless obvious
opportunities or mistakes occur. The third approach is to
reduce product quality over time. With this approach a firm
will reduce quality in order to offset rising costs and hope
that consumers will not notice the deterioration.
A manufacturer of refuse bags that reduces the thickness
of the bags by 25 per cent is an example of the latter
approach. Another example is bakeries that reduced the
weight of their loaves of bread from 800 g to 700 g but kept
them the same size by adding more air and yeast to the
bread mix. The loaf size was unchanged, but the quality was
reduced.13
6.1.3 Durability
Durability is the measure of a products expected operating
life. The motor vehicle manufacturer Volvo claims that its
vehicles have the highest average lifespan of any motor
vehicle and that this warrants a premium price. Many
consumers, subject to some qualifications, are prepared to
pay more for a durable product. The typical qualifications
are that the extra price charged must not be excessive and
that the product must not be subject to high fashion or
technological obsolescence. The Duracell battery is an
example of a product that sells at a premium price because it
is more durable than competing batteries.
6.1.4 Reliability
Reliability is a measure of the probability that a product will
not malfunction or fail within a specified time period. A
Mercedes-Benz will, therefore, be more reliabile than a
Daewoo if its chance of not malfunctioning in some
important way within a month is 90 per cent compared with
75 per cent. Many consumers are willing to pay more for a
product that has established a reputation of reliability.
German cars and Japanese cameras are examples of
products that have managed to establish a reputation for
reliability over many years. The ACDelco car battery is
advertised under the heading absolute reliability.
6.1.5 Reparability
Reparability is a measure of the probability of being able to

fix a product that malfunctions or fails. Products such as
motor vehicles, motorbikes, televisions and video players
that are made of standard parts that are easily replaced and
have high reparability. Ideal reparability refers to a situation
where users can fix the product themselves with little or no
cost or time lost. In such a situation, a user would simply
remove the defective part and replace it with a new part.
With certain items of office equipment such as a
photocopier, for instance it is possible to include a
diagnostic feature that allows the service staff of the
manufacturer/supplier to fix a breakdown over the phone by
advising the user how to fix it.
6.1.6 Style
Style is a subjective measure that describes how the product
looks and feels to the buyer. Many car buyers are prepared
to pay a premium price for a car with an extraordinary
appearance. The sports models of BMW and Audi are typical
examples. Some firms have outstanding styling reputations
such as Alfa Romeo cars; Bang & Olufsen stereo equipment;
Swatch watches; and Gillette shaving equipment.
Exceptional styling has the advantage of creating product
distinctiveness that makes it hard for competitors to copy.
Style is not limited to highly visible products, however. In
the market for small kitchen appliances, German and Italian
manufacturers have succeeded in creating very appealing
products.
Packaging is a component of the style of consumer
products. Attractive, stylish packaging enhances the
appearance of many food products, cosmetics, toiletries and

small consumer appliances. Packaging is a powerful
communication tool. It is capable of turning the buyer on or
off and can have a profound impact on market share and
sales. For example, when Appletiser introduced a longer,
sleeker, 275 ml bottle with a set of sophisticated pressuresensitive labels, it resulted in a 14 per cent increase in sales
volume.14
6.1.7 Reseller brands

Marketing an own brand has the advantage of being able to
establish a label that ensures continuity at a specific quality
level. Woolworths ensures that its clothing fashion brands
offer the consumer a fashionable assortment of
merchandise at a consistent value-for-money price. An
interesting contrast with the advantage of an own brand of
high quality, however, is provided by PEP Stores. This

retailer, which supplies the lower end of the market, takes a
low-key approach to branding. An exception is PEP Stores
Student Prince schoolwear brand name, which has been
successfully branded as schoolwear of high quality.
6.1.8 Product range

The product range offered by a marketer is an important
source of differentiation. In the retailing arena, PEP Stores
has proved itself virtually recession-proof, thanks to a
product range that is basic and low in fashion content. In
times of recession, the higher-income segment tends to
trade down, increasing the sales of PEP Stores, and in times
of economic upswing the lower-income group can afford to
buy more at lower prices.15
To summarise: when a product perspective on
positioning is taken, it ought to be based on a clear
understanding of consumers wants and needs. Product
positioning encompasses the following meanings of the
word position:16
Position as place (what place does the product occupy in

the market?)
Rank (how does the product fare against competitors in
various evaluative dimensions?)
Mental attitude (what are the consumers attitudes
towards the given product?)
6.2 Differentiation based on services

accompanying the product

The services that accompany a product can also be used to
differentiate the product offering. Consider the example of
car-rental firms: how can Avis, Hertz, Budget and Imperial
differentiate themselves and compete with each other if they
use exactly the same vehicles to rent to their customers at
more or less the same rates? The answer is by means of
superior service delivery. Products that cannot be
differentiated by physical means or that have to compete in
a fiercely competitive market are especially likely to benefit
from differentiation by means of accompanying services,
such as delivery and installation.
6.2.1 Delivery
Delivery refers to how well a product or service is delivered
to a customer. Speed, accuracy and reliability are all part of
the delivery process. Some products, such as bigger
household appliances (a fridge, for instance), are mostly
delivered to the home of the buyer. In such cases, a
guaranteed fast delivery service would be a basis for
differentiation. Scooters promise to deliver pizzas within
39 minutes is an example.
Direct retailing firms also offer overnight delivery at a
price below the overnight tariffs of couriers in an attempt to
differentiate themselves from their competitors. Online
customer service is enhanced by facilitating customer
feedback by e-mail 24 hours a day even if telephone
operators and customer-service personnel are not available
and the ability to respond more rapidly (in real time) to
customer concerns.
Other examples are Pick n Pay and Woolworths who
differentiate their services from other traditional food
retailers by their online grocery shopping facility. These
retailers capitalise on their offline strengths by having added
very easy customer online ordering and delivery options.
Other online services, such as online banking and stock
trading, are differentiated both by the features they offer and
the service-consumption experiences.
6.2.2 Installation
Installation includes all the activities that have to be
undertaken to make a product operational at its place of
intended use. Large and heavy equipment, such as lifts,
mainframe computers and commercial ovens, are usually
marketed with installation costs included in the price.
Various consumer products, such as washing machines,
dishwashers and audiovisual equipment, as well as products
consisting of a number of components that need to be
assembled before they can function (such as automatic
garage doors), also present the opportunity to offer
installation as a basis for differentiation.
6.2.3 Customer training

Customer training refers to training the customer or the
customers employees to use the firms equipment properly
and efficiently. A firm such as General Electric, for example,
not only sells and installs expensive X-ray equipment in
hospitals, but also takes responsibility for training the staff
who will operate it. Buyers of Elna sewing machines are
offered free training sessions to learn how to use the

machines. The marketers of the software program Oracle
train new users to help them learn how to use the system,
and various microwave manufacturers offer microwave
cooking classes to buyers.
6.2.4 Consulting service

A consulting service is advice offered to buyers of a product
for free or at a low price. Cellphone firms, Internet service
providers and firms that sell computer software use this
strategy. Most Internet service providers have toll-free
telephone numbers that can be used to solicit the advice of
their in-house experts. The service is usually available by
telephone, e-mail or fax.
6.2.5 Repairs
Repairs refer to the quality and variety of repair services
available to buyers of the firms product. Caterpillar, the
manufacturer of heavy construction equipment, such as
front-end loaders, claims to provide better and faster repair
services anywhere in the world than its competitors. The
manufacturers of motor vehicles, domestic appliances,
woodwork tools and various other products offer repairs as
part of the product guarantee. The backward route that the
product follows from the buyer to the manufacturer for
repairs is known as the reverse marketing channel.
6.2.6 Miscellaneous services

In addition to the services mentioned above, a firm may
offer a variety of other services that add value to its products.
Better guarantees or maintenance contracts and patronage

awards, such as frequent-flyer programmes or the
accumulation of points such as First National Banks eBucks scheme, are examples of differentiation using
miscellaneous services. Highly specialised personal services,
like do-it-yourself websites, allow users to conduct
activities such as transferring phone services and making
international phone calls online (e.g. Skype). Websites such
as iTunes and Microsoft, which offer digital downloads of
music and software, build on the desire of users to help
themselves.
6.3 Personnel differentiation

By carefully selecting and training staff to be more
competent than competitors staff, firms can gain a
competitive advantage. Well-known firms such as
McDonalds and Disney invest a lot in their staff to ensure
that they are customer-orientated at all times. Staff working
at UShaka entertainment park in Durban are known to be
friendly and upbeat. Rovos Rail enjoys an excellent
reputation largely because of the grace of its employees.
GoldReef City in Johannesburg, Ratanga Junction in Cape
Town and UShaka in Durban theme parks all train their staff
to ensure that they are competent, courteous and friendly
from the hotel check-in agents to the monorail drivers, to
the ride attendants, to the people who sweep the streets.
Each employee understands the importance of
understanding customers, communicating with them
cheerfully and responding quickly to their requests and
problems. Each employee is carefully trained to make

people happy. Research indicates that better-trained
personnel exhibit the following six characteristics:17
Competence: the possession of the required skill and

knowledge
Courtesy: showing friendliness, respect and
consideration
Credibility: trustworthiness
Reliability: consistency and accuracy in the performance
of the service
Responsiveness: a quick response to customers requests
and problems
Communication: the ability to understand and
communicate clearly with the customer.
Indeed, the importance of people as a source of

differentiation to gain competitive advantage is reflected in
the business philosophies and annual reports of selected
groups of South African retailers:18
Edgars People are the ones who make the difference

in our performance.
Foschini Crucial to our continued success is the
calibre of our people.
PEP Stores We have always recognised that our people
are the key to our success.
Woolworths We believe in the people that work in
Woolworths employee empowerment might prove
to be our most valuable strategic advantage into the
future.
Specialty Stores Our real assets are not reflected on our

balance sheets. For our real assets are the wonderful
people in this group
These firms all regard their employees as their key success

factor and most valued asset. This acknowledgement also
explains the emphasis placed on training, developing the
potential of all employees and opportunities for them to
share in the firms success.
6.4 Image differentiation

Although buyers may regard competing products and their
accompanying services as similar, the images they portray
may differ. The cigarette market offers a number of
examples of image differentiation. Many cigarettes taste the
same, and are also sold in the same way. Despite this, Peter
Stuyvesant has created for itself a jet set image with the
cigarette-smoking public, and is perceived as such all over
the world. Tempest Car Hire has carefully cultivated an
image as an affordable car-rental firm with its consistent
message of ridiculously low rates in its advertising
campaigns.
Ideally, an image should fulfil various roles. In the first
instance, it must convey a single message in a distinctive
way that establishes a brands major characteristic and
positioning. A good image sets a brand or a firm apart from
competitors images. Furthermore, an image must deliver
emotional power that appeals to both the hearts and minds
of buyers. Castle Lite, for instance, is positioned as a
premium beer that appeals to the individualism of a young
up-and-coming market.
Dedicated creative work over long periods of time is a
prerequisite for developing a strong image for a brand or a
firm. Most well-known brands have continually established
their images over time through the use of all the available
marketing communication media and tools. To establish its
Just do it slogan, Nike used symbols, written and audiovisual media, events sponsorships and sports stars to convey
the message to its market.
Image is a complex factor and it is defined in a variety of
ways. As far back as the 1950s, a shops image was described
as a force which is the store personality the way in
which the store is defined in the shoppers mind, partly by
its functional qualities and partly by an aura of psychological
attributes.19 Image can also be described as a set of
expectations. A firm may, for example, be seen as innovative
or conservative, specialised or broad-based, discountoriented or upmarket. In the online world, the marketing
strategy often revolves around the firms image and product
information available on the web. As the first Internet book
retailer and one of the pioneer online retailers in any
category Amazon.com captured an early lead in online
book sales. The firm has grown substantially since its
inception in 1995; today Amazon is recognised as a leader
on the web. If a firm is first to provide the product or service,
the brand can potentially become synonymous with the
product as the best online provider. South African online
competitors,
such
as
Exclusive
Books
(http://www.exclus1ves.co.za) find it difficult to a degree to
compete with Amazon, since Amazon.coms brand is known
around the world and has become associated with a variety
of other products in addition to books. Amazons strong
image definitely helped the firm attain ownership of a
product in this case, online buying.
The impressions and images that consumers have about
the firm, whether true or false, real or imagined, guide and
shape consumer behaviour. Therefore, all firms need to
identify the strengths and weaknesses of their image and
take action if necessary to improve it, because image
represents to the consumer a composite picture of the firm
it is one of the most powerful tools in attracting and
satisfying consumers. An image, however, has to be actively
managed and continually adapted because markets and
consumers perceptions are not static, but change over time.
The typical elements, media and occasions that a firm has
at its disposal in order to develop and build an image are the
following:
Symbols. When a firm or a brand has a strong and wellknown image, it is immediately recognised by the
audience or people exposed to it. Firms endeavour to
design their corporate and brand logos specifically for
instant recognition. The Dettol sword shown on the
packaging and labels projects the protective nature of

the product. Sanlam uses a pair of hands and Old Mutual
uses anchors to portray the stability and protection
offered by their products. The dog on Husky pet food is
clever, healthy and active as a result of eating Husky
dog food. The Mercedes Benz trident and circle is one of
the most powerfully positioned symbols, designating
quality and safety.
Written and audio or visual media. All advertisements,
promotions and publications, including the websites,
stationery and business cards of a firm must
communicate the personality of the firm or the brand.
For instance, the slogan Let your fingers do the walking
and the walking logo of Yellow Pages have been viewed
on television, heard over the radio and seen at sports
meetings sponsored by Yellow Pages.
Events. Sponsoring events can result in a very positive
image for a firm. Castle Lager is well known for
sponsoring cricket and soccer in South Africa. Pick n Pay
has generated a great deal of goodwill and a positive
image by sponsoring road-safety programmes and the
Argus cycling race. Bakers mini-cricket development
programme helps create an image of community
involvement and responsibility for Bakers.
Atmosphere. The physical facility in which the firm
manufactures or delivers its products or services can be a
very powerful tool for projecting an image. The physical
facility in which a service is produced and consumed is
known as the servicescape and includes exterior
attributes, such as signage, parking and landscaping, as
well as interior attributes, such as layout, decor,
equipment and lighting. Similarly, a website can be

differentiated by providing visitors with a positive
environment to visit, search, purchase, and so forth.
Visitors want a website that is easy to download, portrays
accurate information, clearly shows the products and
services offered and is easily navigated. If customers
view the home-page and like what they see, they are
more likely to view additional pages and ultimately
become paying customers. Cape Towns Two Oceans
Aquarium at the Victoria and Alfred Waterfront has
created a wonderful atmosphere for its visitors, using
layout, decor, equipment and lighting. The atmosphere
makes it feel as if you are walking on the bottom of the
Atlantic Ocean when you enter the aquarium.
Retailers are known to make a big effort to project and create
a desired image among customers. A retailers image,
however, depends on several factors. The type of customer,
shop location, price levels, services offered, merchandise
mix, advertising and the characteristics of the physical
facilities are some of the factors responsible for creating
such an image. Generally, the components of retail image
ought to be considered on a broad basis. Convenience, for
example, means different things to different people. It may
relate to a convenient location in relation to ones home,
work or other outlets. Or convenience may relate to parking,
accessibility, business hours, internal layout and vertical
transport or even the means of payment.
An analysis of the images that various South African
clothing retailers wish to project shows that about half of the
retailers build their firms image on high quality and good
value for money. This is closely followed by the

fashionableness of the merchandise. It is significant that
within each retail group different images are projected. For
example, in the case of Specialty Stores (consisting of
Miladys, Mr Price and The Hub), an image of fine classic
fashion, no-nonsense fashion and good value
respectively are emphasised by the three retailers.
Shop atmosphere has a very important influence on
image. Creating and maintaining an image depends heavily
on a firms atmosphere. For store-based retailers such as
clothing retailers, atmosphere is closely linked to the firms
physical characteristics used in developing its image and in
drawing customers to the store. In this sense, atmosphere is
also understood to be the psychological feeling the customer
experiences when visiting the shop, or even the personality
of the shop.20
The atmosphere of a building is reflected in its tone or
mood, and it can be controlled to create the desired image.
If a retailer, for instance, wants to differentiate itself as
contemporary and modern, it is important to choose the
appropriate building and interior design, layout, colours,
materials and furnishings to reflect these qualities.21 A good
example of atmosphere contributing to a specific image is
that of Mr Price. The atmosphere at Mr Price outlets has
been described as electric. The decor is simple and
honest. Windows are spontaneous, sparking high-voltage
looks, attitudes and statements. The staff are said to be
bouncy, creating a buzz, playing cool music, laughing and
just oozing atmosphere.22 The retail atmosphere may
further influence consumers enjoyment of shopping in
terms of the time spent browsing and examining the

retailers products, their willingness to converse with staff
and to use such facilities as dressing rooms. It can also
influence the likelihood of consumers spending more
money than originally planned (impulse buying).
Image, therefore, is a powerful tool available to a firm and
one must remember that when competing products look the
same, buyers may perceive a difference based on the image
of the firm and its brands.
7. Bases for positioning products
LO6
In the preceding sections we have seen that firms have many

different bases on which to differentiate a marketing offer.
This differentiation is the basis on which a positioning
strategy is built differentiation is not positioning in itself.
Often, however, firms are restricted in the number of
options available to them for positioning a product.
Over time, certain bases have been favoured for positioning
and may include:23
Attribute. A product is normally associated with an

attribute or product feature. For example, Windhoek
Lager is positioned as a natural beer with no additives or
preservatives used in the brewing process. Its
advertisements refer to made of the right stuff and
100% pure beer to support that positioning. The South
African firm Conlog hopes to market a television that is
theft-proof. These are product attributes according to
which the product is positioned in a market in relation to
its competitors. Another good example is MercedesBenz, which uses product features to support its
positioning of quality and safety. One of its

advertisements says: Why have motoring journalists
called our Electronic Stability Programme the biggest
breakthrough yet in safety? Well, imagine you were
following a heavy-duty truck. Suddenly its tyre bursts.
You break and swerve violently to avoid it. Amazingly
there is no drama. No skidding. No loss of control. ESP
has responded to the emergency by automatically
regulating your breaking and engine output. Now,
imagine the scenario without this safety feature.
Mercedes-Benz drivers need not bother, since were the
only manufacturer to offer ESP as standard on our entire
range. Dunhill Light and Kent have chosen to position
its cigarettes in terms of their lightness and taste.
Benefit. A consumer benefit is something a consumer

gains as a result of a product attribute or product feature.
Benefit positioning is generally a stronger basis for
positioning than attribute positioning because of its
customer orientation in answering the question, what
will the product/service do for me? Knorr markets its
Light and Tasty soup in the following terms: Itll fill you
up without the [fat] rolls, and staying in shape has never
been this tasty. Bostik emphasises no nails, no screws

when advertising its Montage brand of glue. Hush
Puppies shoes will keep your feet dry in driving rain,
pounding hail and anything nature unleashes. The Polo
website focuses on how its products shape an entire
lifestyle. Its products are much more than a tie or a jacket
they are designed to help adventure, style and culture.
Another example is Annique beauty care products that
emphasise the benefits of health and a perfect body.
Price and quality. This positioning base may focus on
high price as a signal of quality or emphasise low price as
an indication of value. Pierre Cardin clothing, Gino
Ginelli ice cream, Alpha Romeo cars and Michel
Herbelin watches are all positioned as expensive, but
high-quality, products. While Woolworths is known for
its high quality garments, Pep Stores and Mr Price are
known for unbeatable prices and might become fierce
competitors, similar to how Woolworths surpassed
Edgars.
Use or application. Focusing on use or application can
be an effective means of positioning a product with
buyers. Orange juice is often positioned as a breakfast
drink, and sparkling wine as a drink for celebrations.
Similary, Graca wine is positioned as a wine to be
enjoyed at all kinds of fun occasions. Various
manufacturers of 4x4 vehicles emphasise the usefulness
of their vehicles for discovering otherwise inaccessible
outdoor terrains. Epson says its printers can be used for
network printing, for printing large volumes and for
colour printing. Also think of Campbells positioning of
soups for cooking purposes, via their Campbells
Kitchen.
Product user. This positioning base focuses on a
personality or type of user. The retailer Sport n Surf is
where the real surfers shop, while Dooleys Lemon Ale is
for the elegant woman.
Product class. The objective here is to position the
product as being associated with a particular category of
products. An example is to position a margarine brand
relative to butter. Margarine is positioned as a lowercost, healthier alternative to butter, whereas butter
provides better taste and wholesome ingredients.
Canderel sweetener uses this approach to position itself
against sugar. Hansa aims to position itself as a pilsener.
The marketers of Red Bull say: Its not a soft drink, and
Vivitar (marketers of cameras) says were the point &
shoot people. A museum or planetarium that is
traditionally regarded as an educational institution may
elect to position itself as a tourist attraction.
Competitor. Positioning against competitors is part of
any positioning strategy. The Avis rental car positioning
as number two exemplifies positioning against specific
competitors. BMW would find it useful to position its
cars directly against those of Mercedes Benz, its closest
rival in South Africa. PSG Asset Management says: In the
race to the top weve simply left the rest behind. Law
firm DLA Cliffe Dekker Hofmeyr positions themselves as
the No. 1 law firm for merger and acquisition (M&A)
deals (see advertisement on page 247).
Origin. Some firms want to be associated with a certain
geographical region or origin. Examples are Scotch
whisky, Perrier water (French) and Audis Vorsprung
durch Technik (German).

Technology. Positioning on the basis of technology
shows that a firm is on the cutting edge of contemporary
developments. First National Bank emphasis the use of
technology in their service delivery and has introduced
services such as PayPal, Instant Accounting and eWallet.
The website of South African Airways offers various tools
to allow customers to manage their flight arrangements,
access their frequent flier account (SAA Voyager), and do
personalised travel planning and their own seat selection
when booking overseas flights. In addition, SAA offers
flight status notifications via text message, e-mail or
voicemail to any receiving device. The manufacturer of
electronic products Bosch (see advertisement on page
247) positions their washing machine on technology
considerations when it says: Water saving technology to
make a splash about. Our new 8 kg washing machine
uses exactly the right amount of water for every load.
And not a drop more.
It is not unusual for a marketer to use more than one of

these positioning bases simultaneously. Ericsson, for
instance, bases the positioning of its cellphones on size
(attribute) and ease of use (use/application). The
Woolworths food section is based on both price/quality and
user (i.e. buyers who want nutritious, convenient, easy-toprepare meals).
In addition to the abovementioned bases for positioning,
the Internet has also given rise to new positioning choices
that are worth examining.24 Table 7.2 shows appropriate
online positioning strategies, using the dimensions of
customer similarity and focus of effort.

Table 7.2 Positioning strategies for firms moving online
Blanket positioning. In the first scenario, the target

segment does not change and appropriate positioning is
fairly simple. A good strategy would probably borrow
entirely from existing offline positioning strategies
because the objective is to appeal to the same group of
customers. Additionally, the offering would be
positioned with the added advantage of the Internet,
such as convenience and access. Most South African
firms follow this approach, which is adopted
characteristically by first entrants to the online
environment. In this case, firms see a website as an
extension of their existing media strategies. The website
of retailer Game, for instance, offers nothing extra to the
online customer, except easy access to existing
promotional material and the contact details of the
various shops.
Beachhead positioning. In the second scenario, in
which the target segment is a subsection of the larger
offline segment, the positioning is similar but may be
more focused towards the smaller group. A positioning
strategy here might emphasise more of the value-added
advantages of the Internet. This positioning assumes that

the smaller segment puts more value on the Internets
extended capabilities for convenience and access. The
positioning of ExclusiveBooks.com, for instance, is
almost the same as for the offline retailer, except that
consumers have more control over the purchase
function over and above access to all the books offered
within the chain.
Bleed-over positioning. The third scenario assumes that
the target segment is composed of both existing
customers and a new type of customer. This positioning
would resemble the offline offering, but also make the
online offering attractive to new types of customers. Such
a positioning strategy will try to appeal to previously
different segments. For example, Standard Bank Internet
banking emphasises online beneficiary payments and
future-dated payments (appealing to the traditional
offline segment) while simultaneously stressing the
ability to tailor banking services online through a portal
where one can change customer PIN numbers and
profile details, and even engage in online investment
activities.
New-opportunity positioning. The last scenario
repositions the offering entirely, attempting to capture
the attention of a completely new target segment.
Arguably, such a positioning strategy is more effective if
previous offline positioning strategies have not yet
affected the new segments perception of the offering.
This works, for instance, when increased geographic
reach allows a firm to communicate with new and
different customers over the Internet, giving the firm a
chance to build a new position. A good example of a firm

pursuing an opportunity in a new segment that was not
previously targeted online is NetFlorist, which has a
range of flowers and gifts.
8. The process of positioning a new

product or brand
LO7
To position a new product or brand, a firm needs to know

two things. Firstly, it must establish which attributes of a
product are important to consumers, and, secondly, it has to
know how the competing brands are perceived by
consumers in terms of those attributes. Westfalia Fruit is
entering the edible oil market with its range of avocado oils.
Its positioning is based on amazing goodness. But to be
effective, the firm needs to understand how it is perceived
relative to other edible oils such as sunflower oil and olive
oil in terms of health benefits and usage benefits (cooking,
baking, drizzling, dipping, frying and roasting).
A positioning (or perceptual) map is a means of

graphically displaying in two dimensions the location of
products, brands, or groups of products in consumers
minds. Such a map displays the psychological distances
between products or brands, and is a very useful tool for
developing a positioning strategy. Toothpaste, for instance,
may have a number of attributes that are important to
different consumers. Some consumers may regard the
plaque-fighting ability of a toothpaste as its most important

attribute. Others may prefer a toothpaste that prevents tooth
decay or ensures fresh breath. All the consumer preferences
must be determined before a firm can proceed with
positioning its own product or brand. Lets assume that a
toothpaste manufacturer undertook marketing research and
identified the following attributes of toothpaste as the ones
that are important to consumers. The sequence of the
attributes also indicates their ranking in terms of
importance to consumers:
Prevention of tooth decay

Plaque-fighting ability
Fresh breath
Ability to whiten teeth
Gum protection.
From this list, it can be seen that preventing tooth decay and
plaque-fighting ability were found to be the two most
important attributes that consumers want in a toothpaste.
Consumers can now be asked in a survey to indicate the
ideal combination of tooth decay prevention and plaquefighting ability they want in a toothpaste by rating the
importance of the two attributes on a five-point scale. The
firm now knows what consumers prefer with respect to
these two major attributes, and this information can now be
used to draft a consumer preference map (see Figure 7.1
(A)).
Figure 7.1 (A) Consumer preference map
Figure 7.1 (A) illustrates a hypothetical distribution of

consumer preferences for the two toothpaste attributes.
Each of the dots represents a particular combination of
preferences (as expressed by consumers during interviews)
for the two attributes.
Figure 7.1 (A) shows that there are four distinguishable
segments in the toothpaste market, namely:
Those consumers who want a toothpaste with a high

tooth-decay-prevention capability, but do not care at all
about plaque fighting those in quadrant 1
Those consumers to whom both tooth decay prevention
and plaque fighting are important those in quadrant 2
Those consumers for whom average tooth-decayprevention capability and average plaque-fighting
capability are satisfactory those in quadrant 3
Those consumers who want a toothpaste with a high

plaque-fighting capability, but who do not care at all
about tooth-decay-prevention capability those in
quadrant 4.
Next the firm must establish how all the brands of

toothpaste currently competing in the market are perceived
by consumers in respect of the two attributes. Consumers
are asked to rate the prevention of tooth decay and plaquefighting abilities of all the existing brands of toothpaste on a
five-point scale. Figure 7.1 (B) is a product-position map
that illustrates how existing brands are perceived by
consumers in terms of their ability to prevent tooth decay
and fight plaque.
Figure 7.1 (B) shows that there are three brands competing
in this market, namely:
Brand A is a toothpaste with a high tooth-decayprevention capability, but is rated low on plaque-fighting
capability and is placed in quadrant 1
Brand B is rated low on both tooth-decay-prevention
capability and plaque-fighting capability and is placed in
quadrant 3
Brand C is rated highly for its plaque-fighting capability
but low on its tooth decay prevention capability, and is
placed in quadrant 4.
Figure 7.1 (B) Product/brand position map
It is also important to realise that the ratings in Figure 7.1 (B)

are based on consumers perceptions of the brands, and not
on the objective characteristics of the brands. Once the firm
has all the consumer preferences and current product
positions, it can compile a map that combines consumer
preferences and product positions. Figure 7.1 (C) is an
illustration of such a combined map.
Figure 7.1 (C) shows that:
Brand A appeals directly to those consumers who want a

toothpaste with a high tooth-decay-prevention
capability, but do not care at all about plaque fighting
those in quadrant 1
Brand C appeals to those consumers who want
toothpaste with a high plaque-fighting capability, but
who do not care at all about tooth-decay-prevention

capability those in quadrant 4
Brand B does not quite succeed in satisfying the needs of
those consumers for whom average tooth-decayprevention capability and average plaque-fighting
capability are satisfactory those in quadrant 3
There is no brand that attempts to satisfy the needs of
those consumers to whom both tooth-decay prevention
and plaque fighting are important those in quadrant 2.
It is now possible to establish which existing products meet

consumers preferences in respect of the two attributes. The
combined map also clearly identifies gaps in the market. For
instance, Figure 7.1 (C) shows that there is not a brand that
targets the needs of those consumers to whom both toothdecay prevention and plaque fighting are important (those
in quadrant 2). In other words, this gap exists because there
is a market segment that wants toothpaste with a particular
combination of the two attributes, but none of the existing
products or brands satisfies such preferences.
Figure 7.1 (C) Positioning map for toothpaste (hypothetical)
When entering a new market, a firm has one of two

positioning options: position close to an existing competitor
or away from competitors. In other words, it can decide
whether to position its product in a gap where there is no
competition or position right next to an existing brand and
fight for market share. If the firm decides to go for a gap it
must meet three conditions. In the first instance, it must be
able to manufacture a product that will be perceived by
consumers as having the combination of attributes desired
by them. Secondly, the firm must be able to market such a
product at a price that the market is willing to pay. The third
condition is that the gap must have a sufficient number of
consumers to make the strategy profitable. If the firm can
succeed in meeting these three conditions, it will offer a
product that will satisfy the needs of a hitherto unsatisfied
segment of consumers which should be profitable. The

strategy to position away from existing competitors has the
obvious advantage of limited direct competition, but the
disadvantage of uncertainty in terms of whether there will
be sufficient demand.
To some extent, Cell C tried to position itself away from
Vodacom and MTN when it entered the cellphone market.
Cell C offers packages that are both more flexible and
cheaper than those of the two established operators.
The retailer Stuttafords, basically the only truly
department store left in South Africa, has positioned itself
away from other competing retailers. Marco Cicoria, the
CEO of Stuttafords says: I cant be an Edgars, Woolworths or
Truworths. I dont have the [sales] volumes, IT systems or
the people. I am not in the [sales] volume game, he says. I
am in the margin game. With a chain of only 13 shops, what
Stuttafords can afford to have is service. Cicoria plans to
introduce old-fashioned service: tailors, corsetiers and a
personal dresser are waiting in the wings.25
The alternative for the firm is to position the product
close to a competing brand. This approach might work if the
firm can convince the market that, for example, its
toothpaste brand has the combination of attributes that
most dentists recommend, or a similarly convincing appeal.
If the firm cannot claim such differentiation or any other
important difference, it will compete head-on against the
(often dominant) brand currently occupying that position in
the market. To be able to compete effectively, the firm must
have the financial and other resources to fight for market
share. In other words, it will have to out-market established
competing firms.
The footwear firm Converse has decided to position away
from its competitors with the slogan Shoes are boring, wear
sneakers. When the bookshop Facts & Fiction launched, it
was positioned close to Exclusive Books, but was unable to
differentiate itself sufficiently and failed.
The advantage of positioning close to the existing
products or brands is that the volume of demand is known.
However, it is an expensive option because substantial
marketing resources have to be committed in order to take
on well-established, well-entrenched competitors.
Regardless of the strategy option favoured, for a brand to
be successfully positioned, it must be perceived as having
attributes that a large enough segment of consumers regard
as important and desirable, or which are not offered by
existing competing products. When a product is positioned
successfully, it occupies a clear, distinctive and desirable
place in the minds of target customers.
9. Repositioning a product or brand
LO8
Repositioning is a process whereby product or brand

elements are realigned to enhance the satisfaction of the
needs and wants of a market or market segments. No matter
how well a product or brand is positioned in a market
initially, the firm may have to reposition it at a later stage.
The purpose of repositioning is mainly to increase the sales
volume and profitability of an existing brand or product by
matching the needs and wants of the market more
effectively with the product or brand attributes. There are

five typical reasons why a product may be in need of
repositioning:
The product was originally not positioned correctly

there was a mismatch between product and market (see
the example of the Brandy Foundation, below)
Competitors positioned products nearby and as a result
market share is divided among too many products.
Smirnoff Ice is a good example. When Smirnoff Ice was
launched in 2002, it revolutionised the ready-to-drink
alcoholic beverages market. The brands share has since
dropped to just 12 per cent of the market and it was
taken off the market because there are now about 12
imitators and the clutter is slowing down category
growth26
Customer tastes and preferences shifted and left the
firms brand with inadequate demand (see the KFC
example, below)
Factors in the macro-environment (e.g. recession,
changing demographics, changing attitudes) that are
beyond the control of the firm cause consumers to
purchase cheaper versions or reduced quantities of the
product. The newspaper the Sowetan had to reposition
owing to the changing demography of its readership
Research and technology create breakthroughs with
profit potential that can be exploited if the firm or
product is repositioned. With the Internet, many firms
are repositioning themselves, and many have
transformed themselves into global firms.
Repositioning is a useful strategy when a firm needs to

change consumers perceptions of a brand. Because people
are becoming increasingly health-conscious, Kentucky Fried
Chicken, for example, is trying to reposition itself to attract
more health-conscious customers. The strategy includes
gradually changing the franchisers name to KFC, reducing
dependence on the word fried, and adding grilled, broiled
and baked chicken items to the menu.
Changing demographics, declining sales, or changes in
the social environment often motivate firms to reposition
established brands (see Reader 36 Renamed Teba seeks
clients in wider market). For example, the changing
demographics of the primary market for snacks and an
eroding market share compelled the US firm Frito-Lay to
reposition its top-selling brand, Fritos, after 58 years of
successfully targeting all ages. The repositioning effort
includes making major changes in the Fritos logo and
packaging, focusing on consumers between the ages of 9
and 18, and launching a major new radio and TV advertising
campaign.
READER 36 >> Renamed Teba seeks clients in wider

market
TEBA Bank has changed its name to uBank as the medium-sized lender
abandons a 35-year history of serving mainly mine workers and begins to lay
siege to the broader market. CEO of uBank, Mark Williams, said on Friday the
bank, which has about 500 000 customers, would be expanding its customer
base over the next 18 months. The bank, which is owned by a trust jointly
managed by the National Union of Mineworkers and the Chamber of Mines,
had been implementing a five-year transformation strategy that recently

culminated in the name change, driven by the decision to extend its services
beyond the niche traditional market. Mr Williams said uBank would grow its
footprint by opening branches and expanding delivery channels to cover the
major urban and metropolitan areas. Before, uBank had predominantly
focused on local and migrant mine workers. Our expanded customer base is
growing every month and we would like to close the gap (with competitors)
quite significantly in terms of our numbers. Over the next 18 months we are
talking of growing into the millions, Mr Williams said. The bank will be
competing with rivals particularly Capitec and African Bank who are also
expanding particularly into the unbanked market, where experts estimate that
as many as 10 million people do not have access to banking services.
Capitec Bank, with about 2,5 million customers by the end of last month and
a branch network of more than 400, is using its low-fee structure and
paperless banking to woo customers. The growth of this market is seen as key
to the expansion of income for banks once these customers become eligible
for such high-fee earning products as vehicle and personal loans. Mr Williams
said he was not worried about competition because uBank was not necessarily
going head-to-head with rivals. It had a different and unique business model
more suited to the lower end of the market, including illiterate rural
customers.
These were customers who would be frightened to visit the branches of
the larger banks where they felt intimidated, he said. How do we differentiate
ourselves? Our customers are our owners because the depositors are the
beneficiaries of the trust that owns the bank. There is a balance between
serving customers well and getting a reward and deploying that reward to the
trust that owns us, he said. Our profile is fundamentally different from our
competitors. We have been operating in a worker environment for the past
30 years and we have a significant rural base as our market. Our profile as an
institution and being black-owned as well as our products make us uniquely
competitive, said Mr Williams.
SOURCE: Kamhunga, S. 2010. Renamed Teba seeks clients in wider market. Business Day Companies
Section, 11 October, p. 1
In 2009, Carling Black Label managed to topple Castle Lager

as South Africas top brand of beer as well as becoming the
beer with the largest market share in South Africa. Although
Carling Black Label was described as South Africas
favourite beer in the late 1960s and early 1970s, its relevance
to the market faded and by the early 1990s, this products
market share had dropped to single figures. At this point,
SAB considered dropping Carling Black Label from its stable
of brands. However, SAB accepted a proposal from its
advertising agency, Ogilvy & Mather, and the brand was
repositioned from the (now irrelevant) icon of its heyday,
the cowboy, to a modern, urban blue-collar worker. This
repositioning strategy allowed the brand to be revitalised.
The reason for the success of this repositioning was that the
repositioned brand embraced the new, emerging social
changes that took place in South Africa in the 1990s.
However, in order to maintain relevance to the mass market,
the positioning of the brand has had to be tweaked from
time to time, moving the emphasis from the hardworking
blue-collar worker to the hardworking (and successful)
white-collar worker.27, 28
Research conducted by the Brandy Foundation has
shown that brandy has an image of either a get-drunkquickly drink; or of rich old men in smoking jackets, lying
lazily in reclining chairs and dipping bulbous noses into
balloon glasses, in cold castles in Europe. The Brandy
Foundation is determined to change these images and to
reposition brandy in the South African market. It wants to
position brandy as a sophisticated, elegant, stylish drink, by

(among others) increased barrel maturation and creative
packaging. It also wants to emphasise purity and quality in
its promotion and will specifically target women during this
repositioning campaign.29
Yahoo! is a good example of the need for repositioning
during the life cycle of an online business. Yahoo! started life
as a network of Internet guides. Soon it sought to attract new
customers and keep them coming back to the site, and was
perceived as the first place to go when looking for anything
online. To accomplish its objective, Yahoo! repositioned
itself from online guide to web portal. Now content from
Yahoo!s site and its partners can be downloaded by PCs
and PDAs and other wireless devices. Furthermore, it invites
users to set up customised webpages through My Yahoo!
Other features to draw traffic include Yahoo! chat and
Yahooligans! Its brand message, distribution arrangements
and content partnerships combine to position the site.
Yahoo! made the repositioning official in 2004 by changing
its tagline from search engine to life engine.
Similarly, Amazon has repositioned itself within the last
few years. Originally, Amazon was positioned as the worlds
largest bookstore. Today, it promises the earths biggest
selection of a variety of products from music to electronics
and more. And Facebook, which was not even a player
several years ago, has already repositioned by moving away
from its social networking for students position. Facebook
now hosts many business-page profiles and offers a myriad
of third-party applications.
10. The repositioning process
LO9
To reposition a product or brand, a firm has to go through

the first two phases of the positioning exercise again it has
to determine what consumer preferences are and how
existing products, including its own, are perceived by
consumers.
The orange-squash drink Oros had to be repositioned
recently. Before it repositioned, it had a very good idea of
how the market perceived Oros and its competitors
products: research revealed that mothers were concerned
about the quality of Oros. They were looking for quality
reassurance the fun for the kids image was not enough.
Although Oros had an image of affordability, it could not
compete with the quality and goodness associated with pure
fruit juice. It was decided that mothers had to be reassured
about its quality, while retaining and enhancing childrens
enjoyment of Oros. Once the firm has this kind of
information, it can decide whether there are positions, or
segments, available in which to position its own brand or
product. Regardless of which position is available to the
firm, the organisation has to consider the following four
factors for repositioning:
The first factor is whether the firm is able to manufacture

a product that will be perceived by consumers as having
the combination of desired attributes
The second factor is whether the firm is able to
manufacture and market the product at a price that
consumers are prepared to pay
The third factor is the cost of repositioning the brand to

the particular position or segment. The cost of
repositioning includes possible changes to the products
attributes, packaging, advertising, sales promotion and
any other costs that may have to be incurred to achieve
the repositioning. The repositioning of Diskom cost R24
million. The further a brand needs to be repositioned
from its present position, the higher the repositioning
costs tend to be. This increase in costs has to do with
convincing the target market that the product does
possess the new attributes assigned to it. Generally, a
greater repositioning distance necessitates a higher level
of convincing
The fourth factor is the income that the product will earn
in the new position. The income to be earned depends
on the number of consumers in that particular segment;
their usage and purchase rate of the product; the
number of competitors and strength of the competition
in the segment; and the price that the firm can demand
for its product.
If a number of positioning alternatives are available to the

firm, every position as mentioned above has to be evaluated.
In some instances, a firm may be better off in terms of profits
creating a new brand rather than repositioning the present
brand.
10.1 Repositioning in the maturity phase of

LO10
the product life cycle
Products and brands in the maturity phase of the product

life cycle face market conditions typified by increasing
competition as new competitors enter the market, with a
resultant drop in sales and market share. Therefore, the firm
needs to re-establish the products differentiation and
positioning. Several opportunities for positioning and
repositioning products and brands in the maturity phase of
the product life cycle have been identified and utilised over
time. Some of the better-known examples are as follows:
Promoting more frequent use of the product by

current customers: Orange juice has been successfully
re-positioned as a drink for more occasions than just
breakfast.
Identifying new target markets for the product:
Johnsons baby shampoo was repositioned to appeal to
all members of the family. The fuel firm Sasol wants to
reposition and rebrand to facilitate international
expansion. The arms manufacturer Denel wants to reposition to widen the scope of its business to get
involved in the non-defence market, such as airline
refurbishing.
Identifying new uses for the product: Baking soda has
been positioned for a number of new uses in recent
years, including its use as an air freshener. Oxo Spread is
promoted as a beefy spread that can be used as a spread,
in cooking and as a hot drink.
Adding new ingredients or removing old ones: The
washing-powder market has experienced numerous
repositionings of washing powders. Toothpastes have
fluoride added to reposition them as products that fight
tooth decay.As mentioned earlier, positioning is not so

much about the actual nature of the product but what
the consumers think about the product.
READER 37 >> City Lodge refreshes its brands to

differentiate offerings
JSE-listed City Lodge Hotels is undertaking an evolutionary brand and logo
refreshment exercise, starting with its recently-opened Town Lodge Gaborone.
CEO Clifford Ross said the aim of the exercise is to become more relevant and
attractive to our existing guests and to attract new guests who can identify
more effectively with our offerings. City Lodge said it had embarked on the
exercise to refresh its four individual brands Courtyard, City Lodge, Town
Lodge and Road Lodge. The roll-out of the exercise started with the groups
website, stationery and its new Town Lodge Gaborone. City Lodge said its new
marketing message, small things that make a difference, would be
communicated across TV, digital mobile and social media marketing
platforms, along with the new logos and brand identities. Among the changes
was the groups tree logo, which had been modernised to reflect physical
changes made to hotels across the four brands over the years. The four brand
logos were altered to differentiate offerings across the groups and to show the
linkage between the individual logos and the new City Lodge Hotel group.
For example, it is now Road Lodge by City Lodge Hotels and Town
Lodge by City Lodge Hotels. City Lodge and Courtyard also had their own
new-look brand identities with the word hotel added, the group said.
SOURCE: Nick Hedley, N. 2013. City Lodge refreshes its brands to differentiate offerings. Business
Day, 6 August, p. 12
Rebranding a product: The petroleum firm BP has

recently rebranded its products. The firms global
expansion necessitated reconsidering the brands image.
After some research, it discovered that the name BP was
associated with dirt, as BP was part of the old economy
and an oil giant. Management consequently decided to

move away from this undesirable image. It repositioned
and rebranded the firm as a progressive, global energy
group. BP wanted to emphasise that it markets not only
petrol and oil, but also other energy products such as
natural gas and chemicals. It also wanted to move away
from the direct association with Britain and pointed out
that it is a global firm with interests in almost every
continent in the world. The rebranding of BP also had to
support its image as an ethical energy firm. But
rebranding is an expensive exercise. Besides the cost of
the brand equity destruction, BP spent $7 million on
research and development and $100 million on
implementation and support. In South Africa Vodacom
spent R200m in its re-branding from the earlier blue
livery to red (the going red campaign). Auditing firm
PricewaterhouseCoopers rebranding can be seen in the
advert on the left.
For a repositioning exercise to be successful, a number of
prerequisites need to be met:
A clear vision of the new position

All stakeholders must believe in what the brand stands
for
Management must lead with conviction and
commitment
Everyone involved must ensure that the brand lives up to
its promise
There must be a good fit between image and reality.
READER 38 >> Lafarge South Africa announces new

brand positioning
In 2013, Lafarge South Africa (a building cement producer) has announced
the repositioning of the international Lafarge Groups global master brand to
reflect the increasing shift to urbanisation taking place throughout the world.
The new brand signature Building better cities pledges Lafarges commitment
to help create sustainable cities and rural developments that are desirable
environments for all people. The new brand signature is more than a slogan: it
conveys both the force of the Groups ambition and of its strategy. It expresses
Lafarges vision, gives its actions both meaning and clarity, and marks its
difference. It is our ambition to contribute to building better cities, says
Lafarge Industries and Lafarge Mining Chairman, Nonkqubela Mazwai, The
solutions we propose contribute to constructing cities that can provide
everyone with decent housing, cities that are more compact, cities that are
more durable, cities that are better connected, and lets not forget cities
that are more beautiful! concludes Mazwai. The firm is no longer only a
producer of materials but also a supplier of solutions, located close to its
markets and customers. Building better cities emphasises our position as a
solution provider with innovative products, the expertise and the unparalleled
technical support of the Group, says Lafarge South Africas Country CEO,
Thierry Legrand. By contributing towards building better cities, we will sustain
growth and improve the lives of people. The brand repositioning builds on the
firms established reputation: it represents a pledge to customers that Lafarge
South Africa can be relied on to help provide innovative solutions for the
diverse challenges that are continually being presented by construction.
SOURCE: InfrastructureNews. 2013. Lafarge South Africa announces new brand positioning. Available
from http://www.infrastructurene.ws/2013/04/16/lafarge-south-africa-announces-new-brandpositioning/ (Accessed 29 July 2014)
11. Development of a positioning

strategy
LO11
A firm usually has a number of alternative strategies

available on which to base its positioning strategy. The
problem is usually not one of finding differences to focus on.
Instead, the challenge usually lies in identifying brand or
product differences that are meaningful or worthwhile to
exploit. Another decision, namely how many differences
should be promoted, has also been the topic of many
positioning debates. Some experts contend that firms
should aggressively promote only one benefit to the target
market, whereas others maintain that they should position
themselves on more than one differentiating factor. The
former maintain that if only one attribute such as quality,
price or technology is chosen, the firm can tout itself as
number one on that attribute. A firm that focuses on one of
these positions, and consistently delivers on it, will probably
become best known and remembered for it because buyers
tend to remember number one better, especially in an
over-communicated environment.30 Consider, for example,
the low-price positioning of Pep Stores and the quality
positioning of Woolworths.
Positioning on more than one factor may, however, be
necessary if two or more firms are claiming to be the best on
the same attribute. For instance, several cigarette brands
claim to be light, including Cartier, Vogue, Dunhill and
Benson & Hedges. Positioning on lightness is no longer a
differentiating factor and, therefore, dubious as a basis for
positioning. As a result, marketers of these brands now also

use other positioning variables. Chesterfield Lights are
positioned as Classic American taste in a light cigarette;
Cartier Vendme is positioned as Light with the luxury
pearl tip; and Vogue Luxury Slims as Long and slim for
mildness with extra taste.
In a situation where the mass market is fragmented into
many small segments, some firms aim to broaden their
positioning strategies to appeal to more segments. This
strategy is used by the various trading divisions of some of
South Africas major retailers. Mr Price, for example, sells
casual wear mainly on a price basis to the youth market.
Miladys, on the other hand, directs its classic fashion at the
working woman, and The Hub is positioned as a family
department store. Yet all three of these retailers belong to
the Specialty Group.
A differentiating factor is worthy of use as a positioning
factor when it is:
Important and delivers a highly valued benefit to target
buyers
Distinctive, in that competitors do not offer the same
differentiating factor, or the firm can offer it in a more
distinctive way
Superior to other ways in which customers might obtain
the same benefit
Communicable and visible to buyers
Pre-emptive, so that competitors cannot easily copy the
difference
Affordable to buyers
Profitable in other words, the firm can introduce the
difference profitably.31
10.1 Typical positioning errors
LO12
A firm should be careful not to make too many claims for its
products or brands: it is possible that the market may not
believe the claims. This could lead to the loss of the
products distinct positioning. Besides the dangers
associated with a failure to position described earlier, there
are four main positioning errors that firms should avoid
when formulating a positioning strategy. These errors are:32
Under-positioning. Under-positioning occurs when

buyers do not sense anything special about the
difference being promoted. The brand is perceived as
just another entry in an already crowded market. Underpositioning occurred when Pepsi introduced its clear
Crystal Pepsi in 1993 and customers didnt see clarity as
an important benefit in a soft drink.
Over-positioning. When consumers have too narrow an
image of a brand it can be described as over-positioning.
A consumer may have the perception that a retailer such
as Woolworths sells only high-priced goods, although it
may also offer very affordable goods. Bata Toughees
shoes were (almost too well) positioned as school shoes
for children. Finding the positioning too restrictive, the
firm now tries to convince consumers that Bata
Toughees can be used as a normal, everyday shoe.
Confused positioning. Buyers have a confused image of
a brand (see Reader 39: Mixed brand messages)
because the firm makes too many claims for it or

changes its positioning too often. Simbas Lays claims
that its potato chip is the worlds number-one, bestselling, most popular, spectacularly thin, unbelievably
light, amazingly crispy, impossibly irresistible, real
potato chip
In the US Miller Genuine Draft suffered as a result of
confused positioning (as shown by the ever-changing
taglines below), and continued to lose market share
(shown in brackets):
> 2001 Never miss a genuine opportunity (2,6%)
> 2002 Pure MGD (2,2%)
> 2003 Keep whats good (2,2%)
> 2004 Good call (2,0%)
> 2005 Various changes (1,8%)
> 2006 Beer. Grown up (1,6%)
> 2007 Experience is golden (1,5%).33
Another example of confused positioning happened
to Michelob, a US beer brand. In the 1970s, Michelob ran
advertisements featuring successful young professionals
that confidently proclaimed, Where youre going, its
Michelob. The firms next ad campaign trumpeted,
Weekends were made for Michelob. Later, in an
attempt to bolster sagging sales, the theme was switched
to, Put a little weekend in your week. In the mid-1980s,
managers launched a campaign telling consumers that
The night belongs to Michelob. In 1994, the public was
told, Some days are better than others, which went on
to explain that A special day requires a special beer.
That slogan was subsequently changed to Some days
were made for Michelob. Pity the poor consumers!

Previous advertising campaigns simply required that
they look at their calendars or out of a window to decide
whether it was the right time to drink Michelob. By the
mid-1990s, they had to figure out exactly what kind of
day they were having as well. After receiving so many
different messages, consumers could hardly be blamed if
they had no idea when they were supposed to drink the
beer. Predictably, sales suffered. From a high in 1980 of
8,1 million barrels, sales dropped to just 1,8 million
barrels.34 Another example of confused positioning is
stationary film CNA (see Reader 39 Mixed brand
message).
Doubtful positioning. Buyers may find it hard to believe
brand claims in view of the products features, price or
manufacturer. The firms history and its other products
may make it difficult to believe that it can produce a
product with such attributes. It was pointed out earlier
that Americans associate wine with romance and can
hardly believe that South Africans can produce goodquality wine. Another example of a doubtful positioning
was Aviss original positioning of Being the best which
was changed to we try harder, which was changed in
2012 when the company rolled out a new ad campaign
and a new tagline: Its Your Space, targeted at busy
business travellers.
It sometimes happens that products or brands loose their

position due to ill-considered decision-making. Products or
brands positioned on the basis of luxury are particularly
susceptible to this problem. As Colin Cowie, a marketing
consultant says: Real luxury cannot be purchased on every

street corner. To illustrate how luxury has lost its lustre in
recent years he uses the example of Louis Vuitton, which
moved production of its bags from France to China and
opened its own stores. It made much bigger profits but that
affected perceptions of luxury he says. Luxury is not mass
manufactured. Is there anything luxurious about a Dolce &
Gabbana mens jacket that is sold in hundred countries and
heaven knows how many stores and outlets? he asks.35 The
luxury motor vehicle Ferrari is determined not to fall into
this trap. It recently announced that it will cut production by
4 per cent to to preserve its exclusivity. Its total
production for the year will be less than 7 000 vehicles.36
READER 39 >> Mixed brand message

Sir, any time I go into a CNA I am reminded that senior management appears
unsure of what business they are in. Is it books? Not really a patch on
Exclusive Books. Is it stationary? Mmm, not really that either, Waltons has a
bigger selection, as do Game and Makro. The toy section doesnt exactly
threaten Toys R us either. Now I notice, the till lanes are overflowing with
chocolate displays, but not as big a selection as Pick n Pay. CNA
management: tell us why we should visit the stores. What does CNA have that
can buy greater customer loyalty? Not sure? Well then send me a consulting
fee for pointing out the obvious: you need a different product mix and
message to own a brand space in the minds of your consumers.
SOURCE: Letter to Business Day, 28 February 2012, p. 10
12. Tools and approaches to facilitate

positioning
LO13
The risks involved in positioning or repositioning a product

or service can be extremely high. The technique of
perceptual mapping (or positioning maps) may be used to
substantially reduce those risks (see Figure 7.1(c)).
Positioning maps help examine the position of a product in
relation to competing products. They help marketing
managers to:
Understand how competing products or services are

perceived by various consumer groups in terms of
strengths and weaknesses
Understand the similarities and dissimilarities among
competing products and services
Understand how to reposition a current product in the
perceptual space of consumer segments
Position a new product or service in an established
market
Track the progress of an advertising or marketing
campaign on the perceptions of targeted consumer
segments.37
It must be kept in mind, however, that a positioning map is

no more than an aid to decision-making. It cannot replace
the manager or his or her market experience and market
knowledge.
Marketing managers can use a variety of different
approaches to facilitate a positioning or repositioning in
essence manipulating the marketing mix to realise the

positioning objectives.
Finally, we have to remind ourselves that positioning
assumes that consumers compare products on the basis of
important features. Effective positioning requires an
assessment of the positions occupied by competing
products, determining the important dimensions
underlying these positions, and choosing a position in the
market where the firms marketing efforts will have the
greatest impact. As we said, many approaches can be used
to facilitate positioning, including advertising, packaging
and slogans. Advertising slogans are powerful tools for
creating a position in the consumers mind. Many South
Africans will immediately remember slogans such as
Toyotas everything keeps going right, which changed to
Moving Forward, Nissans lifes a journey, enjoy the ride
and British Airways the worlds favourite airline.
<<< LOOKING BACK

Kulula has been very successful in positioning itself as a fun
flying experience and uses humour effectively, both in its
marketing communication material, its staff uniforms and
its onboard interactions to facilitate that positioning. The
airline clearly positioned itself away from its boring,
conservative competitors. In fact, Kulula is one of South
Africas most successful positioning case studies of the past
decade.
SUMMARY
The nature of positioning. Positioning assumes that

consumers compare products on the basis of important
features. Effective positioning entails assessing the
positions occupied by competing products, determining
the important dimensions underlying these positions
and choosing a position in the market where the firms
marketing efforts will have the greatest impact.
2 The typical undesirable outcomes if a firm fails to
position itself or its products properly. A firm or
product that does not position effectively is pushed into
an undesirable position where it faces head-on
competition from stronger competitors; or is pushed into
an undesirable position which nobody else wants
because there is little customer demand there; or its
positioning is so fuzzy that nobody knows what its
distinctive features are; or it has no position at all in the
market because nobody has ever heard of it.
3 The role of differentiation in establishing a
competitive advantage and in a positioning strategy.
Differentiation is the process of identifying something
that is different about a firm or its products. Once it has
been established that the something is desired by
consumers, it can then be described as the firms or
products competitive advantage. The competitive
advantage then forms the basis of the firms positioning
strategy.
4 The classification of industry types based on
competitive advantages. Different industries can be
classified as fragmented, specialisation, stalemate or
volume, depending on the size of the advantage and the
number of approaches to achieve the advantage.
The bases for differentiation of firms, products and

brands. Firms, products and brands can be
differentiated in terms of product attributes, service,
personnel and image.
6 The bases that can be used to position products. Firms,
products and brands are typically positioned in terms of
product attribute, benefit, price and quality, use or
application, product user, product class and competitor.
7 The process of positioning a new product or brand. To
position a product or a brand, a firm needs to know two
things. First, it must establish what attributes of a
product are important to consumers. Secondly, it has to
know how the competing brands are perceived by
consumers in terms of those attributes. It must then
decide whether it wants to position close to or away from
existing competitors.
8 The argument that positioning a service tends to be
more demanding than positioning a product. Services
are indeed more difficult to position than a physical
product. The most important reason is that a service is
intangible and, therefore, difficult to illustrate to
consumers and to associate with variables, such as
product attributes.
9 Positioning alternatives available to firms. Alternatives
are used to strengthen an existing positioning, search for
an unoccupied position or reposition the product or
brand.
10 Reasons why a product/brand may need
repositioning:
A product was originally not positioned correctly, e.g.
there was a mismatch between product and market
Competitors introduced products nearby and,

therefore, caused market share to be divided among
too many products
Customer tastes and preferences shifted, leaving the
firms brand with inadequate demand
Factors in the macro-environment (e.g. recession,
changing demographics, changing attitudes) that are
beyond the control of the firm cause consumers to
purchase cheaper versions or reduced quantities of
the product
Research and technology produce new
breakthroughs with profit potential that can be
exploited if the product is repositioned.
11 The process of repositioning a product or a brand. To
reposition a product or a brand, a firm has to go through
the first two phases of the positioning exercise again. The
firm has to determine what consumers preferences are
and how existing products, including its own, are
perceived by consumers. Once the firm has this kind of
information, it can decide whether there are positions
or segments available in which to reposition its own
brand or product. No matter which position is available
to it, the firm also has to consider whether the
repositioning can be sustained, whether consumers will
be prepared to pay for the new positioning and whether
it will be profitable.
12 Repositioning in the maturity phase of the product life
cycle. This repositioning can be achieved by promoting
more frequent use of the product, identifying new
markets, identifying new uses of the product, adding new
ingredients or rebranding the product.
13 The development of a positioning strategy. A firm

usually has various strategies available on which to base
its positioning strategy. The problem is usually not one of
finding differences to focus on the challenge usually
lies in identifying brand or product differences to exploit
that are meaningful or worthwhile.
14 The typical positioning errors that firms make. Four
errors are typically made:
Under-positioning: Occurs when buyers dont sense
anything special about the difference being
promoted. The brand is perceived as just another
entry in an already crowded market
Over-positioning: Occurs when consumers have too
narrow an image of a brand
Confused positioning: Occurs when buyers have a
confused image of the brand because the firm makes
too many claims or changes the brands positioning
too often
Doubtful positioning: Occurs when buyers find it
hard to believe the brand claims in view of the
products features, price or manufacturer.
15 Tools to facilitate positioning or repositioning. The
risks involved in positioning or repositioning a product
or service can be extremely high. The technique of
perceptual mapping may be used in order to
substantially reduce those risks. Perceptual mapping
helps managers, among others, to understand how
competing products or services are perceived by various
consumer groups in terms of their strengths and
weaknesses; to understand the similarities and
dissimilarities among competing products and services;
and to understand how to reposition a current product

in the perceptual space of consumer segments.

1
A friend of yours has opened a small grocery shop in a

wealthy suburb. Advise him on the dangers of poor
positioning.
As the product manager of Healthy Orange Juice,
suggest strategies you will use to reposition orange juice
as an all-day drink.
Your firm will soon enter a new market segment. Advise
your CEO on the dangers of positioning too close to the
dominant brand in the market.
Draw a positioning map of the four dominant cellphone
service providers in South Africa: Vodacom, MTN, Cell C
and Virgin Mobile. Based on your analysis, advise Cell C
on a repositioning strategy.
STRATEGY READER >> Sowetan revamped,

repositioned
The daily newspaper the Sowetan has embarked on a major repositioning
exercise. The Sowetan said that it will in future have a new, fresh look and
aims for more aspirational content for readers who are in the know and on
the move. The relaunch initiative was taken after research conducted by the
paper confirmed that the contemporary black communitys Living Standards
Measurements have moved up and that change is required. The revamped
design and content include a different layout design for the front page with all
the headline news stories being reflected through the personality involved in
the story.
Key changes also include additional shorter articles, more informational
news, educational articles aimed at children, more information on technology,
coverage on a greater range of sports, respected thought leaders and
columnists and a more upmarket and aspirational entertainment section.
Enver Groenewald, Avusa Medias general manager for advertising revenue
and strategic communications, said: We are now in the new space to reflect
the aspirations, hopes and dreams of our readers. Because we want to be a
respectable face of our society and a model of a different kind of journalism,
we have done away with the toko-loshes and all that jazz to ensure that our
content resonates in the new spectrum of the readers minds.
Sowetan executive editor, Fikile-Ntsikelelo Moya, said: Our readers have
evolved from the narrow confines of our previous social and political past. We
now want to offer them a newspaper that not only knows where they have
been, but to be their co-traveller on their way to the top, where they know they
belong.
SOURCE: Adapted from: Da Silva. 2009. Sowetan revamped, repositioned. Bizcommunity online
newsletter, 4 June 2009.
QUESTIONS
1
2
Why did the Sowetan reposition itself?

Do you think the reasons for the repositioning are valid?
KEY CONCEPTS
Attribute: a product feature.
Benefit: something a consumer gains as a result of a product attribute or product
feature.
Communication: the effort to understand the customer and to be clearly
understood by the customer.
Competence: the possession of the required skill and knowledge by employees.
Competitive advantage: something offered by a firm that is valued by
consumers and that competitors do not have.

Competitor positioning: assessing the positions occupied by competing
products and choosing a position in the market where the firms marketing
efforts will have the greatest impact.
Confused positioning: a positioning phenomenon that arises when buyers have
a confused image of the brand because the firm makes too many claims or
changes the brands positioning too often.
Consulting service: advice offered to buyers of a product for free or at a low
price.
Courtesy: friendliness, respect and consideration shown by employees.
Credibility: the trustworthiness of employees.
Customer training: refers to training the customer or the customers employees
to use the firms equipment properly and efficiently.
Delivery: refers to how well the product or service is delivered to a customer.
Doubtful positioning: a positioning phenomenon that arises when buyers may
find it hard to believe the brand claims in view of the products features, price or
manufacturer.
Durability: a measure of a products expected operating life.
Features: product characteristics that enhance the products basic functioning.
Image differentiation: differentiating a firm or product by means of a distinct
image or perceptions.
Installation: includes all the activities and tasks that have to be undertaken to
make a product operational at its place of intended use.
Miscellaneous services: in addition to its standard services, a firm may offer a
variety of other services that can add value to its products.
Origin positioning: a positioning strategy adopted by a firm that wishes to be
associated with a certain geographical region or origin.
Over-positioning: a positioning phenomenon that occurs when consumers have
too narrow an image of a brand.
Perceptual map: a positioning tool that displays the psychological distances
between products or brands.
Perceptual mapping: a means of graphically displaying, in two or more
dimensions, the location of products, brands or groups of products in
consumers minds.
Performance: the levels at which a products primary characteristics function.
Personnel differentiation: differentiating a firm or product on the basis of the
superior skills and attitude of its personnel.
Positioning: in marketing terms, refers to the place that a firm, product or brand
occupies in consumers minds in relation to competing offerings.
Price and quality positioning: a positioning strategy that focuses on either high
price as a signal of quality or emphasises low price as an indication of value.
Product class positioning: the product is positioned in order to be associated

with a particular category of products.
Product differentiation: a positioning strategy that some firms use to
distinguish their products from those of competitors. The distinctions can be
either real or perceived.
Product user: positioning base focusing on a personality or type of user.
Rank: how the product fares against its competitors in various evaluative
dimensions.
Rational consumers: consumers who try to maximise their satisfaction for any
given level of input (expenditure).
Reliability: consistency and accuracy in the performance of a service by
employees; also a measure of the probability that a product will not malfunction
or fail within a specified time period.
Reparability: a measure of the probability of fixing a product that malfunctions
or fails.
Repairs: the quality and variety of repair services available to buyers of the firms
product.
Repositioning: a process whereby product or brand elements are realigned to
enhance the satisfaction of the needs and wants of a market or market segments.
Responsiveness: a measure of the speed of employees response to customers
requests and problems.
Style: a subjective measure that describes how the product looks and feels to the
buyer.
Under-positioning: a phenomenon that occurs when buyers do not sense
anything special about the difference being promoted.
Use or application positioning: a strategy that emphasises uses or applications
as a means of positioning a product with buyers.
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1
2
3
4
5
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Specialty Stores Limited, 1996 Annual Report, p. 26.
23 These bases for positioning were provided by David W. Cravens, Texas

Christian University, Texas, USA.
24 Mohammed, R.A., Fisher, R.J., Jaworski, B.J. & Paddison, G.J. Internet
marketing: Building advantage in a networked economy (2nd edition).
Boston: McGraw-Hill, p. 112.
25 Planting, S. 2009. Reviving a grande dame. Financial Mail, 12 June 2009, p. 50.
26 Smirnoff Ice taken off the market. Business Day, 15 October 2002.
27 www.themarketingsite com (Accessed 16 April 2010).
28 www.bizcommunity.com (Accessed 20 April 2010).
29 Sinclair, R. 1997. Brandy sheds its hard-drinking image. Financial Mail
special report, 16 May 1997, p. 79.
30 www.Mediatoolbox.co.za/pebble, 2006 (Accessed 20 April 2010).
31 Adapted from: Kotler, P. 2000. Marketing management (10th Millennium
32 Adapted from: Kotler, P. 2000. Marketing management (10th Millennium
33 www.brogan.com/blog/pssst-miller-genuine-draft-your-answer-is-not-anew-slogan/ (Accessed 27 August 2008).
34 Keller, K.L. 2000. The Brand Report Card, Harvard Business Review, January,
pp. 147157.
35 Fleeced and loving it. Financial Mail, November 22 November 27, 2013, p.
63.
36 Clark, J. 2013. Ferrari says bigger is not better as it cuts production. Business
Day, 10 May, p. 20.
37 Jain, S.C. 1997. Marketing planning & strategy (5th edition). Cincinnati:
South-Western College Publishing, p. 350.
PART
02
Implementing marketing mix strategies
CHAPTER
08
Product decisions
LEARNING OUTCOMES
1
2
3
4
5
6
7
8
9
10
11
12
13
14
Define the term product.

Distinguish between different product levels.
Classify consumer products according to a given set of criteria.
Describe the nature of different consumer products and relate
them to the marketing relevance of each classification.
Distinguish between the terms product item, product line and
product mix.
Describe the benefits of organising related items into product
lines.
Distinguish different types of adjustments to product items, lines
and mixes.
Articulate the value of branding by referring to its objectives and
benefits.
Identify the features common to effective brand names.
Distinguish between the following branding strategies: generic
and branded products, between manufacturers brands and
private brands and between individual brands and family brands.
Set out an argument in favour of co-branding.
Distinguish between a brand name and a brand mark.
Describe the legal implications of branding in South Africa.
Explain the marketing-related value of packaging and labelling.
15 Describe how and why product warranties are important

marketing tools.
above outcomes.

Many boardrooms still dont
understand how brand values work
South African brands have a lot of growing up to do if
they are to succeed in an increasingly competitive
market. Interbrand Sampson chairman Jeremy
Sampson says while directors of large companies are
starting to take marketing seriously, most fail to
understand the value of their brands. Marketers need
to communicate more with the other members of the
executive suite, says Sampson. One of the methods is
through measurement and analytics. It makes
marketing and the brand accountable, but also
educates the rest of the business about the importance
of branding and marketing.
A recent global study by the Interbrand group found
that many leading companies around the world owe
much of their value to the success of their brands. The
same is true of listed SA companies, but directors often
dont understand this. Local mobile giant MTN recently

became the first African brand to make it into Millward
Brown BrandZtop 100 brands. Interbrand has also
studied MTN. When we valued it, we found that over
one-third of its market capitalisation was brand value,
Sampson says. Often another third is intellectual
capital such as patents and copyright, which means
that less than one-third is tangible.
He adds: Twenty years ago people used to measure
companies by bricks and mortar, but thats swung
around since the 1990s, when intellectual capital
started to come into play.
SOURCE: Zweli Mogata, Z. 2012. Many boardrooms still dont understand
how brand values work. Financial Mail, 22 June, p. 62
QUESTIONS
1
2
Can the value of an intangible asset such as a brand be measured?

How do you interpret the statement: Marketers need to communicate
more with the other members of the executive suite. One of the
methods is through measurement and analytics. It makes marketing
and the brand accountable, but also educates the rest of the business
about the importance of branding and marketing.
1. Introduction
The product offering, the heart of a firms entire marketing
effort, is usually the starting point in creating a marketing
mix. A marketing manager cannot set a price, design a
marketing communication strategy or create a distribution
channel until the firm has a product to sell. Moreover, an

excellent distribution channel, a persuasive marketing
communication campaign and a fair price have no value if
they are associated with a poor or inadequate product
offering. The product is the physical manifestation of the
firms efforts to satisfy customer needs.
2. What is a product?
LO1
A product may be defined as anything, both favourable and

unfavourable, that a buyer receives in an exchange
normally for money. A product may be a tangible product
like a pair of shoes, a service like a haircut, an idea like dont
litter or drive safely, or any combination of these three.
Packaging, style, colour, options and size are typical
examples of product features. Just as important are
intangibles, such as service, the sellers image, the
manufacturers reputation and the way consumers believe
others will view the product that they have bought.
To most people, the term product means a tangible
product. However, from a marketing perspective, services
and ideas are also products. The marketing process
identified in Chapter 1 is the same whether the entity
marketed is a product, a service, an idea or some
combination of these. A variety of other entities can also be
marketed, from an image to sports stars to politicians.
Special efforts are made these days to market countries
(Brand SA and Proudly South African) and even cities
(Johannesburg is marketed as a world-class African city).
From a marketing perspective, they are all products.
3. Product levels
LO2
In planning a product and product strategy, the marketer

needs to think in terms of five levels of the product. Each
level adds more customer value than the previous level, and
the five levels constitute a customer value hierarchy (see
Figure 8.1). The most fundamental level is the core benefit
the fundamental service or benefit that the customer buys.
The core benefit is directly linked to the most basic or
fundamental need that the buyer wants to satisfy. A car
buyer buys private transport. The purchaser of a Red Bull
drink is buying energy. The buyers of Energade buy
rejuvenation and replenishment. Someone who buys an
iPhone or Samsung Galaxy are buying more than a wireless
mobile phone, e-mail and web-browsing device, or personal
organizer. They are buying freedom and on-the-go
connectivity to people and resources. The great marketers of
our time understand consumers needs and see themselves
as benefit providers.
At the second level, the marketer has to convert the core
benefit into a basic, tangible product. A car buyer to
continue the example buys a roof, windows, a steering
wheel, a colour, etc. At this level, the manufacturing
department and the marketing department have to cooperate closely to ensure that the basic tangible product is
able to offer the need-satisfaction benefits that consumers
want. The mobile phone (iPad or Samsung Galaxy) is the
basic or tangible product. Its name, parts, styling, features,

packaging and other attributes have all been combined
carefully to deliver the core benefit of staying connected.
At the third level, the marketer prepares an expected
product a set of attributes and conditions that buyers
normally expect and agree to when they purchase this
product. For example, the car buyer expects the car to start
when the ignition key is turned, windows that wind down,
windscreen wipers that clean the window, and so forth.
At the fourth level, the marketer prepares an augmented
product that not only meets the customers desires and
expectations, but sometimes exceeds them. Exceeding
expectations is a way of differentiating a product and
establishing a competitive advantage. A car manufacturer,
for example, augments its product by including a radio, an
air conditioner and a warranty. Product augmentation
focuses the marketers attention on the entire process of
how buyers buy and consume products. In other words, it is
a holistic assessment of the way a purchaser of a product
goes through the buying and consumption process and links
this to the satisfaction of specific pre-purchase needs. If
done this way, it is likely that the marketer will identify many
opportunities to augment its basic product in innovative and
competitively effective ways. The marketers of luxury motor
vehicles, such as Mercedes-Benz, BMW and Lexus, realise
all too well that some people want to be seen to buy the
right labels. Therefore, they try use their marketing
activities to link their products to perceptions of status and
prestige. Both Apple and Samsung must offer more than just
a communication device with the iPhone and Samsung
Galaxy respectively. It must provide consumers with a

complete solution to mobile connectivity needs. Thus, when
consumers buy one off these brands, the respective firm and
its dealers are giving buyers a warranty on parts and
workmanship, instructions on how to use the device, quick
repair services when needed, and a toll-free telephone
number and Web site to use if they have problems or
questions.
The fifth level deals with the potential product. This level
includes all the augmentations and transformations that the
product might undergo over time. At this level, the marketer
addresses the possible future evolution of its product with a
view to increasing customer satisfaction and thereby also
differentiating the product from those of competitors. In the
future, motor vehicles will increasingly make use of
computer technology. Possibly the most exciting thing about
smartphone technology is that the field is still wide open. Its
an idea that probably hasnt found its perfect, real-world
implementation yet. Every crop of phones brings new
designs and new interface ideas. No one developer or
manufacturer has come up with the perfect shape, size or
input method yet. The next killer app smartphone could
look like a flip phone, a tablet PC, a chocolate bar or
something no one has conceived of yet. Another thought
might be that instead of waiting for handsets to come with
higher-capacity batteries, manufacturers might go one step
further and design a smartphone that runs on an alternative
power source altogether or even technology that allow
phone users to hold two phones next to each other and
transfer battery power in this way.
The success of the online auctioneering website, eBay, is

the result of offering a series of services and service
innovations that appeal to a broad customer base, and a
thorough understanding of the different product levels.
eBays core benefit is summarised succinctly in its registered
trademark, The worlds largest marketplace. eBays whole
marketing strategy rests on the fact that it wants people to
think of eBay first when they are in shopping mode. Today,
eBay has built its brand around this core benefit, beginning
with its basic service and evolving it over time. To leap from
a versatile commerce platform to the worlds largest
marketplace, eBay provides additional services and
constantly develops new and improved products. eBays
efforts to augment its core service to meet the needs and
expectations of a greater spectrum of customers have largely
been successful. In general, eBays product augmentation
falls into two categories: additional features (Buy it Now,
Safe Harbor, eBay Direct Pay and Escrow) and additional
platforms (eBayMotors, eBayStores, eBay-LiveAuctions,
eBayShowrooms and eBayPremier). At the potential product
level, eBay can consider pre-sale support by offering
functionalities that include comparative shopping, product
selection guides or product demonstrations.2
The marketing strategies used for different products often
depend on the type of product it is. Marketers therefore
classify products into different product classes.
4. Classifying consumer products

LO3
Products can be classified in a variety of ways. One approach

is to use durability as a classification variable to distinguish
between non-durable products (which include products
that are consumed after one or a few uses, such as soft
drinks and toothpaste) and durable products (products that
allow repeated usage, such as refrigerators and TV sets).
Another method of classification employs usage as a
classification variable. Using this approach (see Figure 8.2),
we can distinguish between consumer products and
business products (also called industrial products). The key
distinction between the two types of products is their
intended use. If the intended use is a business purpose, the
product is classified as a business or industrial product. A
business product is used to manufacture other products or
services, to facilitate a firms operations (e.g. a front-end
loader or lubricating oil) or to resell to other customers. In
other words, the product is bought for use in the firm or to
resell, but not for personal consumption. A consumer
product is bought to satisfy an individuals personal wants.
In other words, it is bought for consumption purposes.
Sometimes, the same item can be classified as either a
business or a consumer product depending on its intended
use. Examples include light bulbs, pencils and paper, and
personal computers. In this book our focus is on consumer
products.
Figure 8.1 The customer value hierarchy
SOURCE: Adapted from Kotler, P. 2000. Marketing

management: The International edition. London:
Prentice Hall, p. 395
5. Types of consumer products
LO4
Marketers need to know about and understand product

classifications because business and consumer products are
marketed differently. They are marketed to different target
markets and tend to use different distribution, advertising
and pricing strategies. Therefore, it is important to

categorise consumer products that can be marketed more or
less similarly. Although there are several ways to classify
consumer products, the most popular approach includes
four types of products (see Figure 8.2):
Shopping products
Speciality products
Unsought products.
This approach classifies products according to how much

effort (collecting information, comparing different products
and brands, etc.) is normally expended by consumers to
shop for them.
Figure 8.2 A usage classification of consumer products
5.1 Convenience products

A convenience product is a relatively inexpensive item that
merits little shopping effort. Convenience products are
usually low-priced and marketers place them in many
different shopping locations to make them readily available
when customers need them. Consumers are generally

unwilling to shop extensively for such an item. Convenience
products are relatively inexpensive: milk, chocolates, soft
drinks, chewing gum, combs, headache tablets and small
hardware items, such as screws, fall into the convenience
product category. Consumers buy convenience products
regularly, usually without much pre-purchase planning,
information collection or comparison between different
brands. Nevertheless, consumers do know the brand names
of popular convenience products, such as Coca-Cola, Bayer
aspirin tablets and Colgate shampoo.
Convenience products normally require good branding,
regular advertising and wide retail distribution in order to
sell sufficient quantities to be profitable. Convenience
products can be subdivided into three subgroupings,
namely staples, impulse products and emergency products.
This distinction is based on how consumers think about
products rather than on the features of individual products.
Staples are products that consumers buy routinely and
without much shopping effort, such as toothpaste and
cigarettes. These products are available in conveniently
located purchase points, such as vending machines, cafes
and supermarkets. The brand (e.g. Mentadent P toothpaste
and Five Roses tea) is important to consumers because they
have developed a sense of trust and confidence in it.
Repeated customer satisfaction is, therefore, associated with
the brand, ensuring repeat purchasing and ease of
shopping.
Impulse products are bought quickly with little prepurchase effort and without planning. Impulse buying
occurs on sight in response to a strong need that was not

anticipated. Buying an ice cream on the beach may be an
impulse purchase. Many chocolates, magazines and packets
of chewing gum have been bought (unplanned) while
shoppers have been waiting in the checkout lines in
supermarkets. From a marketing point of view, however,
these were not accidental purchases, but, indeed, carefully
planned. Retailers know that up to 70 per cent of buying
decisions (in certain product categories) are made at the
shelf.3
A fridge filled with tempting Magnum ice creams placed
near the cash register is there because the marketers of
Magnum ice cream know that ice cream is an on-sight,
impulse purchase. Distribution (or place) is, therefore, a
crucial strategy when marketing impulse products, simply
because if the product is not available when needed, the
potential sale is lost.
Pick n Pay markets its clothing in hypermarkets as
impulse products, and even South African Breweries is also
making a concerted effort to capitalise on impulse-buying
trends.
Emergency products are purchased immediately and
under duress when a strong and unexpected need exists. For
example, there is no time to shop around and compare
prices for different car-towing services when you have been
involved in a car accident, toothbrushes when you discover
at the airport that you left yours at home, or raincoats when
you have been caught in a rainstorm on the way to the sports
field. Distribution (or place) is, therefore, important to the
marketers of emergency products. Price is not particularly
important to consumers in an emergency situation. They

need it and they need it now. As a result, marketers
satisfying this need are in a position to charge a price
premium for making emergency products available.
Availability (distribution) is consequently a very important
strategy for the successful marketing of emergency goods.
Examples include many suburban cafes, convenience stores
at petrol stations and retailers in airports stocking
emergency items, such as over-the-counter medicines,
personal-care products, flowers and gifts. Under these
circumstances most customers do not mind paying a bit
extra because they see these products as emergency
purchases and are pleased to have access to them.
5.2 Shopping products

A shopping product is usually more expensive than a
convenience product and is found in fewer shops, but
provide deeper sales support to help customer in their prepurchase comparisons. Consumers usually buy a shopping
product only after comparing several brands or shops in
terms of buying considerations or attributes such as style,
practicality, reliability, price and lifestyle compatibility
(these attributes will differ depending on the product). They
are willing to invest a limited amount of effort, such as prepurchase planning and comparisons in this process to get
the desired benefits.
There are two types of shopping products: homogeneous
and heterogeneous. Consumers perceive homogeneous
shopping products as basically similar for example,
dishwashers, tumble dryers, refrigerators and televisions.

When considering buying homogeneous shopping
products, consumers normally look for the lowest-priced
brand that has the product features they want largely
because they do not see much difference between the
various brands.
In contrast, consumers perceive heterogeneous shopping
products as essentially different for example, furniture,
clothing and sports equipment. Consumers often have
trouble comparing heterogeneous shopping products
because the prices, quality and features (or product
attributes) vary so much. The benefit of comparing
heterogeneous shopping products is finding the best
product or brand for me but, of course, this decision is an
individual and highly personal one.
Because consumers see very little difference between
competing homogeneous shopping products (absence of a
competitive advantage) they are typically very priceconscious and not particularly brand-loyal. Marketers are,
therefore, likely to compete on price and make every effort
to keep costs (and thus prices) to a minimum. Because Pick
n Pay markets mainly homogeneous shopping products, it
claims to be the lowest-price clothing retailer in South
Africa.4 Being price-competitive is a huge challenge for
retailers, in particular for those that are wedged in between
profit-driven suppliers and price-sensitive buyers.
Marketers of heterogeneous shopping products, on the
other hand, have a differential (competitive) advantage that
other products do not have. In other words, consumers do
not see all products in this category as the same. As a result,
comparisons among non-standardised products are also

more difficult and the relative importance of pricing in the
mind of consumers is consequently reduced. Other
attributes, such as quality, reliability, style, suitability or a
specific brand (depending on the nature of the product) are
more important. Each of these attributes can be a source of
competitive advantage for which consumers are prepared to
pay a little extra.
EXAMPLE >> A wine lover may be prepared to pay more for the
flavour of a wooded Chardonnay (a competitive advantage) than for a wine that
did not mature in a wooden cask. Clients of private banks demand higher levels
of service than that provided by ordinary commercial banking, but have to pay
higher banking fees. Gino Ginelli and Magnum ice creams are more expensive
than many other ice cream brands, but many consumers are prepared to pay
more for the special taste. Wine, banking services and ice cream are all
heterogeneous shopping products because there are ways in which they can be
meaningfully differentiated from similar competing products.
In a retail context the buyers of heterogeneous shopping
products often expect some assistance from retail personnel
or a sales force before buying. Examples include alterations
to clothing, the installation of electronic products, such as
an exercise treadmill, and usage advice in the case of items
such as computer software.
Poor differentiation and the absence of a competitive
advantage, as we saw in Chapter 7, can lead to some serious
problems, including the loss of customers and market share,
and eventually the demise of the product.

The digitising of content
Modern technology, and particularly the Internet, has
allowed marketers to convert what used to be shopping
products into convenience products by means of
digitisation. A product must be digitisable for it to be
delivered online. This means that any product that can
be converted into digital information can be delivered
directly to customers over the Internet. Software,
music, video and news are examples of informationbased products that can be distributed to customers via
the Internet. Virtually any product appearing in print,
audio or visual media, as well as software and other sets
of digital instructions, can be converted in this manner.
Currently, the primary limitation on digitisable
products is the amount of bandwidth going into
customers office or homes. Downloadable music using
MP3 technology is a new product form, compared with
the traditional CDs or DVDs we are used to. Another
product gaining prominence is audiobooks, which are
increasing in popularity given the increased use of the
iPad and the Kindle.
SOURCE: http://www.marketing-schools.org/types-ofmarketing/conversion-marketing.html (Accessed on 10 April 2010).
5.3 Speciality products

When consumers search extensively for a particular item

and are extremely reluctant to accept substitutes, that item
is known as a speciality product. Fine watches, such as Rolex,
Rolls-Royce cars, expensive stereo equipment, gourmet
restaurants and highly specialised forms of medical
procedures, such as cochlear implants, are generally
considered speciality products. A buyer of a speciality
product is willing to search to find the desired brand or
product. Marketers want their products to be speciality
products because loyal customers will not even consider
buying a competing alternative or substitute. Importantly,
speciality products need not be expensive products. In the
eyes of the customer who insists on Pirelli car tyres, or a
specific hairdresser or a Duracell battery, these are speciality
products.
Marketers of speciality products often use selective,
status-conscious advertising to maintain their products
exclusive image. Michel Herbelins wristwatch advertising
says: Masterpieces for the individual. Nedbanks
advertising for its private banking service says: Dont call us.
Well call you. Distribution of such products is often limited
to one or a very few outlets in a geographic area. For
example, many medium-sized cities in South Africa will only
have one Mercedes-Benz dealership to enhance the image
of exclusivity and status. Brand names and quality of service
are often very important buying considerations for buyers of
speciality products such as cameras, watches and motor
vehicles. Branding and cultivating an appropriate image are
important strategies for speciality products.
5.4 Unsought products

A product unknown to the potential buyer or a known
product that the buyer does not actively seek is referred to as
an unsought product. There are two types of unsought
products: new unsought products and regularly unsought
products. Brand-new products that have not been on the
market before fall into the new unsought product category
until advertising and distribution increase their consumer
awareness. Initially, consumers are not aware of the benefits
these products have to offer.
Regularly unsought products are products that we need,
but do not like to think about or want to spend money on.
Tombstones, funeral policies, fire extinguishers and similar
unsought products require aggressive personal selling and
highly persuasive advertising to be successful. Salespeople
actively seek leads to potential buyers, because buyers will
not approach them. Because consumers usually do not seek
out this type of product, the firm must go directly to them
through a salesperson, direct mail, direct-response or
electronic advertising.
6. Product items, lines and mixes
LO5
A firm rarely sells a single product to generate its income;

usually it sells a variety of products that appeal to different
market segments. Levis, for instance, markets a range of
jeans that fit different bodily shapes. The Levis 545 is
described as Super low and sexy, the Levis 557 Eve is
TomBoy chic and Levis 529 is Everyday perfection (see

the Levis advertisement). A product item is a specific
version of a product that can be designated as a distinct
offering among a firms products. A product item is also
known as a stock-keeping unit (SKU). Gillettes Sensor razor
is an example of a product item (see Table 8.1).
A group of closely-related product items is a product line.
For example, the column in Table 8.1 under the heading
Blades and razors represents one of Gillettes product lines.
Different container sizes and shapes also distinguish items
in a product line. The length of a product line is the number
of variants in it. Coke Light, for example, is available in cans
and various plastic bottles. Each size and each container is a
separate product item.
A firms product mix includes all the products it sells. All

Gillettes products blades, razors, toiletries, writing
instruments and lighters constitute its product mix. Each
product item in the product mix may require a separate
marketing strategy. In some cases, however, product lines
and even entire product mixes share some marketing
strategy components. Volkswagen South Africa, for example,
promotes all Volkswagen products using the slogan, Das
Auto. This slogan, which literally means the car, moves

away from For the love of peoples cars and underlines the
groups vision to be the most innovative volume brand in
the world. Global alignment to the German language slogan
will uphold and communicate the strength and consistency
of the Volkswagen brand throughout the world. Volkswagen
makes peoples cars that set standards, and Das Auto
articulates this orientation.
Table 8.1 Gillettes product lines and product mix
6.1 Organising related items into product

LO6
lines
Marketers derive several benefits from organising related
items into product lines. These include the following:
Advertising economies. Product lines provide

economies of scale in advertising. Several products can
be advertised under the umbrella of the same product
line. The liquor brand Monis often advertises its sherry,
muscadel and port in the same advertisement.

Package uniformity. A product line can benefit from
package uniformity. All packages in the line may have a
common look and still keep their individual identities.
All Colgates shampoos are marketed in the sameshaped bottle, although they are different products with
different fragrances targeted at different target markets.
Standardised components. Product lines allow firms to
standardise components, thereby reducing
manufacturing and inventory costs. For example,
Volkswagen uses the same chassis for many of its
vehicles. Some parts in the engines of both Volkswagens
and Audis are exactly the same.
Efficient sales and distribution. A product line enables
the sales staff of firms like Tiger Brands and Unilever to
provide a full range of choices to customers.
Intermediaries and retailers are often more inclined to
stock the firms products if it offers a full line. Tiger
Brands, for instance, markets whole chickens under the
Goldi brand, flavoured chicken (such as sweet and sour
or lemon and black pepper) under the County Fair
brand, and chicken livers under the Festive brand.
Transportation and warehousing costs are likely to be
lower for a product line than for a collection of individual
items from a variety of different suppliers. When South
African Breweries added the Pilsner Urquell brand to its
range of products, the increased distribution cost was
negligible.
Equivalent quality. Consumers usually expect and
believe that all products in a line are about equal in
quality. Consumers expect, for example, that all Dulux
paints (no matter what the colour) and all Revlon

cosmetics will be of similar quality. Buying different
products in a well-known, established product line is,
therefore, less risky than buying a new stand-alone
brand.
Diversified risk. By not putting all their eggs in one
basket, firms reduce their risk. Toyota thus does not rely
only on farmers and the agricultural market to buy their
bakkies and 4X4s. It has a range of other products to
mitigate the negative impact when this market segment
is economically under pressure.
Product mix width (or breadth) refers to the number of
product lines a firm offers. In Table 8.1, for example, the
width of Gillettes (hypothetical) product mix is four
product lines. As shown in Table 8.1, the blades and
razors product line consists of 12 product items; the
toiletries product line includes ten product items.
Firms increase the width of their product mix to appeal

(profitably) to the needs of different market segments and to
diversify risk. To generate sales and boost profits, some firms
spread risk across many product lines rather than
depending on only one or two. Some also widen their
product mix to capitalise on an established reputation. For
example, SA breweries has widened its product mix by
marketing a new flavoured beer Flying Fish.
EXAMPLE >> Tiger Brands, whose footprint extends across the African
continent and beyond, is one of the largest manufacturers and marketers of fast
moving consumer goods (FMCG) products in Southern Africa. Tiger Brands has
widened its product mix over several decades. Its success is grown and
maintained thanks to the perpetual renovation and innovation of its brands, while
its approach to expansion, acquisitions and joint ventures has developed a
distribution network that now spans more than 22 African countries. The focus is
on the core business of FMCG categories that spread synergy across the value
chain a broad basket of categories that spans food, home and personal care as
well as baby products. The wide range of brands are underpinned by
comprehensive research and meaningful insights into each of the markets in
which Tiger Brands does business.5
Other firms lengthen their product lines to attract buyers
with different preferences, to increase sales and profits by
further segmenting the market, to capitalise on economies
of scale in production and marketing and to even out
seasonal sales patterns. For example, the watch
manufacturer Timex has increased its wristwatch line from
300 to 1 500 items.6
6.2 Adjustments to product items, lines

and mixes
LO7
Over time, firms change product items, lines and mixes to

take advantage of new technical or product developments or
to respond to changes in the environment. They may adjust
by modifying products, repositioning products or extending
or contracting product lines.
6.2.1 Product modifications

Marketing managers must decide if and when to modify
existing products. Product modification includes the
following categories:
Quality modification refers to changes in a products

dependability or durability. Reducing a products quality
may allow the firm to lower the price and appeal to target
markets unable to afford the original product. On the
other hand, enhancing quality can help the firm
compete more effectively with rival firms. Increasing
quality can also result in increased brand loyalty, greater
ability to raise prices or new opportunities for market
segmentation. Car safety features such as antilock brakes
and airbags are examples of this type of quality
modification. Colgate has made a quality modification
when it started using rubber bristles in its Massager
brand of toothbrushes. These bristles are multi-height
bristles that gently stimulate gums and reach deep
between teeth to prevent plaque from building up.
Functional modification refers to a change in a
products versatility, effectiveness, convenience or
safety. In response to widespread consumer perceptions
that aerosol sprays are harmful to the environment,
many manufacturers offer products such as deodorants
in trigger-spray versions. As research has shown that
most people eat tomato sauce with their hot chips,
tomato sauce maker Heinz now markets a frozen potato
chip, called Ketchip. In this product there is tomato
sauce already inside the chip. Some pharmaceutical
firms have revitalised old over-the-counter brands by
marketing some medicines in edible film format thin
patches that melt instantly on the tongue. The Swiss firm
Novartis has used this strategy for cough and cold
medicines, such as Triaminic and Theraflu Thin Strips. A

similar functional modification allows Sony to market its
Digital 8 as a video recorder that can now record both
pictures and sound digitally. It also allows purchasers to
play back their old analogue videos digitally. The
cellphone manufacturer Sony Ericsson has turned its P
800 model into a cellphone, PDA and digital camera all
in one.
Style modification is an aesthetic product change,
rather than a quality or functional change. Clothing
manufacturers commonly use style modifications to
motivate customers to replace products before they are
worn out. Planned obsolescence is a term commonly
used to describe the practice of modifying products so
those that have already been sold become obsolete
before they actually need replacement. This is an
approach frequently used in the motor industry. Some
argue that planned obsolescence is wasteful whilst
others claim it is unethical. Marketers respond that
consumers favour style modifications because they like
changes in the appearance of goods like clothing and
cars. Marketers also contend that consumers, not
manufacturers and marketers, decide when styles are
obsolete.
6.2.2 Product line extension

Product line extension occurs when a firms management
decides to add products to an existing product line in order
to compete more broadly in the industry. For instance,
Toyota South Africa has added the Lexus to compete in the
luxury end of the passenger-vehicle market. Adidas, the
sports clothing manufacturer, has added eyewear
(sunglasses) to its product line. Graa has added a ros to its

product line of wines. Airbus has added to its product line
the Airbus A380 900 (the worlds largest passenger aircraft,
with a capacity of 900 passengers), capable of flying 15 000
km, without refueling.
Product line extensions can often be described as an
upward stretch, a downward stretch or a two-way stretch.
An upward stretch occurs when a firm is competing at the
bottom end of the market, but then decides to try to utilise
an opportunity at the top end of the market. A downward
stretch is the exact opposite: a firm is competing at the top
end of the market, but then decides to try to utilise an
opportunity at the bottom end of the market.
EXAMPLE >> British Airways/Comair, competing at the top end of the

South African airline industry, performed a downward stretch when it introduced
its no-frill airline Kulula.com. Sanlam performed a downward stretch when it
bought African Life to compete in the entry-level market. Shoprite Checkers did
the same when it launched Usave to target the lower-income market. MultiChoice
performed a downward stretch when it launched its DStv Compact service (a
reduced bouquet of eleven channel options) for those who cannot afford the full
DStv Premium service. MWeb did the same when it launched its Polka value for
money Internet service. Absa Bank performed an upward stretch when it
launched its private bank service and downward stretch when it launched its
Transact account. Similarly Capitec Bank is busy with an upward stretch to target
the same market the other major retail banks are competing in.
A two-way stretch, on the other hand, occurs when a firm competes in the
middle of a market and then stretches both upwards and downwards at the same
time. Holiday Inn has performed a two-way stretch in South Africa by adding both
luxury and very inexpensive accommodation to its range of hotels.
6.2.3 Product line contraction

Does the world really need 31 varieties of Head & Shoulders
shampoo? Or 52 versions of Crest? The American consumergoods firm Procter & Gamble (P & G) has decided that the
answer is no. P & G is contracting product lines by
eliminating unpopular sizes, flavours and other variations to
make it easier for customers to find what they are looking
for. After decades of introducing new-and-improved this,
lemon-flavoured that and extra-jumbo-size the other thing,
P & G has decided that its product lines are over-extended.7
When Unilever recently established that of its 1 600 brands
marketed worldwide, 1 000 of them generate only 8 per cent
of sales. This product line over-extension caused
considerable overlap and competition for company
resources for brand building. Unilever addressed the
product line over-extension by reducing its product mix to
the 600 most profitable brands.8 The dairy manufacturer
Clover has reduced the number of SKUs (Stock Keeping
Units) in its portfolio from 1 700 to 600.9 The food
manufacturer Tiger Brands summarises its philosophy
towards product-line management as follows: We are either
first or second in a category, or we dont compete. We will
know we have arrived when we are no. 1 or 2 in every
product category.10
Symptoms of product line over-extension include the
following:
Some products in the line do not contribute to profits

because of low sales, or they cannibalise sales of other
items in the line
Manufacturing or marketing resources are
disproportionately allocated to slow-moving products

Some items in the line are obsolete because of new
product entries in the line or new products offered by
competitors.
Anglovaal, the owner of the Irvin and Johnson (I & J) brand,

recently sold its frozen-goods interests to McCain because
the brand did not contribute satisfactorily to profits. Frozen
vegetables contributed 40 per cent to sales, but a much
smaller proportion to profit, the firm said.11
Other examples of product line contraction include
Unilevers decision to drop the Toppers brand from its food
line, and Volkswagen has dropped the Microbus (Kombi)
and the Citi Golf from its product line. The Microbus was
dropped because of modest sales and the high cost of
importing some of its components. Toyota has dropped the
Conquest from its product line. The publisher Media24
recently closed its Nova newspaper, targeted at the young
and upwardly mobile, blaming flat sales. Absa Private Bank
recently closed its Private Equity Fund. Television stations
also continually make product line modifications and drop
programmes that lose their popularity.
Three major benefits are likely when a firm contracts an
over-extended product line. First, resources are focused on
the most important products. Second, managers no longer
waste resources trying to improve the sales and profits of
poorly performing products. Third, new product items have
a greater chance of being successful because more financial
and human resources are available to manage and support
them.
7. Branding
LO8
The success of any business or consumer product depends

in part on the target markets ability to distinguish one
product from another. Branding is often the primary tool
marketers use to distinguish their products from the
competitions. A brand is a name, term, symbol, design or
combination thereof that identifies a sellers products and
differentiates them from competitors products. A brand
name is that part of a brand that can be verbalised,
including letters (MTN, CNA), words (Nandos, Edgars) and
numbers (3M, 7-Eleven). The elements of a brand that
cannot be verbalised are called the brand mark for
example, the well-known Mercedes-Benz, Volkswagen and
Southern Sun symbols.
The late Robyn Putter, former CEO of advertising agency
Ogilvy & Mather Rightford, described a brand as a product
that has earned a place in a consumers life through
perceptual experience, beliefs and feelings, to the extent that
a relationship of consequence has developed. Whereas an
unbranded product is mostly about tangible things, a brand
is about intangibles, such as trust, loyalty, friendship and
belonging.12 Good branding, therefore, leads to an
emotional bond between the consumer and the product.
Successful branding can sustain a product for many years
because of this bond. Nederburg wines, for instance, date
back to 1810 and Mrs Balls chutney to 1852. The Barlows
brand is 110 years old, All Gold 105 years.13
READER 40 >> Planned ban on adverts insults the

consumer
Immediately after the 1917 communist revolution, brand names were banned
for all goods produced in the Soviet Union. The effect of the ban was to reduce
the quality of goods supplied, as all goods were then unidentifiable from each
other. Producers manufacturing indistinguishable products do not have an
incentive to develop the reputations that are so important to product branding
and consumer welfare. Maize meal is a good example, not only because it is
the dominant staple food in South Africa, but also because it is a highly
competitive market, with maize futures traded on the South African Futures
Exchange. White Star is the most popular brand, with about 8,1 million adults
over the age of 15 reporting it as the brand they purchase most often,
followed by Ace (5,7 million) and Iwisa (3 million). This year the average price
of a 10kg pack of White Star maize meal was R69.27, while Ace was R66.72
and Iwisa was R65.89.
The premium for the most consumed brand of maize meal appears to fly in
the face of first-year economics teaching, according to which higher demand
and unchanged supply is associated with lower, not higher, prices. Some
argue that paying higher prices is wasteful and irrational for consumers. But
when it is difficult to determine the quality of a product before purchase and
the consequences of poor quality for the consumer are significant, it makes
economic sense for them to rely on brand names and company reputations. By
paying more for a brand-name product in those circumstances, consumers are
not acting irrationally. Consumers know that companies with reputations for
consistent high quality have more to lose if they do not perform well the loss
of the ability to continue to charge higher prices.
SOURCE: Sharp, L. 2014. Planned ban on adverts insults the consumer, Business Day, 13 November,
p.11
7.1 Benefits of branding

Branding has three main purposes: product identification,
repeat sales (loyalty) and enhancing new-product sales (i.e.
new products on the market). The most important purpose,
however, is product identification. Effective branding yields
advantages both to the marketer and the buyer.
7.1.1 Benefits for marketers

Branding allows marketers to distinguish their products
from all others. It is a means, therefore, of differentiation
and can, over time, become a critical competitive advantage.
Effective identification makes shopping easier for buyers
(reduced time and effort), which means they rely less on
salespeoples support. Reduced selling time and effort mean
cost reductions for the marketer.
>> Strategy
To illustrate: to overcome competition from Russia,
Angola, Australia and Canada, diamonds producer De
Beers has decided to brand its diamonds. The branding
plan involves inscribing the De Beers name and an
individual security number on the table (the largest
facet on the crown) of each diamond. The inscription
which will be a few microns deep will be visible only
through a powerful microscope. De Beers is developing
and patenting both the inscription technology and the
reader device. The purpose is to differentiate a De
Beers diamond from the competition. De Beers spends

millions of dollars annually on advertising and
promotional campaigns to sell diamonds and it irks the
group that the benefits of this expenditure rub off on all
diamond producers including their competitors.14
Effective branding leads to a preference for that brand over
other competing brands. In an experimental study in the
United States, a group of children were given two chicken
nuggets that were exactly the same in every respect except
for the fact that one was packaged in a bag that bore
McDonalds branding material, and the other was in an
unmarked bag. When asked to choose one, the children
consistently chose the nuggets in the branded McDonalds
packaging rather than the one that came out of the
unmarked packaging. This was despite the fact that the
nuggets were exactly the same. When asked which one of
the two tasted the best, they said the McDonalds nugget
tasted the best.15

Brand communities
A brand community is a group of like-minded
consumers who identify with a particular brand. The
importance of a brand community for businesses is
that its members buy more of the brand, remain loyal,
and, accordingly, marketing costs are reduced. Good
examples of brands that have exploited brand
communities are Harley-Davidson, Apple and

Starbucks (an international chain of coffee shops).
However, in order for the brand community to be
successful as a marketing tool, the brand should be well
differentiated and there should be some mechanism
for consumers to publicly share their experiences of the
brand.
Until recently, most brand communities were
facilitated by the firms that own the brands. This
usually meant setting up technological platforms to
allow consumers to interact, but the advent of Web 2.0,
has changed the paradigm. Consumers are able to
provide much of the content to the Internet by virtue of
applications such as blogs, Myspace, Wikis, podcasts
and video sharing. Nowadays, brand communities are
regularly and spontaneously generated by consumers
who wish share their experiences about a particular
brand. These ubiquitous applications also allow
smaller firms to set up brand communities. For
example, Shamwari Game Reserve has set up a
Facebook page to allow guests and staff to share
experiences and developments about this brand.
The dilemma for businesses, however, is deciding on
the extent to which they should become involved in the
brand groups. Conventional wisdom argues that to
unlock the full potential of brand communities,
marketers must consider ways to add value to the
consumer experience to earn the consumers attention
outside the context of the purchase or use of the brand.
However, a recent study demonstrated that many firms
misconstrue their role in generating value from these

organisations. The study maintains that brand
communities generate more value when the members
control them and in so doing are able to lead the firm in
terms of generating ideas for innovative practices and
products. It follows, therefore, that brand communities
should not be just part of a marketing strategy, but
should be integrated into the overall businesss
strategy.
SOURCES: Muniz, A.M. Jr, & OGuinn, T.C. 2001. Brand community.
Journal of Consumer Research vol. 27, pp. 412432; Fournier, S. & Lee, L.
2009. Getting brand communities right. Harvard Business Review, April
2009, pp. 105111
Effective branding also allows firms to charge a price

premium for their product if it is properly differentiated. Jet
Stores used effective branding of jeans (the No! brand) to do
just that. Jet Stores MD at the time, Graham Evans, said:
One of the purposes of brands is to allow us to make
premium margins. It is easier to sell denim with a brand.
With bigger [profit] margins on branded items, you have
more flexibility with pricing 16 Effective branding spills
over to other products, and particularly new products,
leading to faster consumer acceptance. The introduction of
Mentadent S toothpaste has certainly benefited from the
well-established image of the Mentadent P brand. The same
applies to Sta-softs introduction of its new Peach-scented
Sta-soft. Effective branding can also help the image and
positioning of a brand. Brands such as Ray-Ban sunglasses,
Nike sportswear, and Calvin Klein clothing have a brand
image associated with them that appeals to and attracts

some consumers.
Branding is usually protected by legal means, which
means brands cannot be copied by competitors. Branding
also fosters brand loyalty among consumers. A further
advantage of branding is that it leads to advertising
synergies. In other words, advertising by Nashua of its
photocopier range benefits in the form of higher levels of
awareness and recognition from the branding of its
cellphone range of products.
7.1.2 Benefits for consumers

Consumers also benefit from the easy identification that
branding makes possible. Besides easier shopping (reduced
buying time), branding offers buyers the security and
confidence of buying a product they are familiar with in
terms of shopping criteria such as reliability and quality. The
annual Sunday Times Markinor Top Brands survey listed the
ten consumer brands with the highest level of consumer
awareness, in descending order, as Coca-Cola, Koo, KFC,
Tastic, Nokia, Sunlight, Pick n Pay, Lucky Star, Shoprite and
Samsung.17
It must be pointed out, however, that brand awareness
(which is often measured by firms and marketing research
firms alike) does not necessarily lead to profitability. South
African Airways may be a brand that everyone is aware of,
but this does not mean that the firm is profitable from a
purely commercial point of view.
The term brand equity refers to the monetary value of
brand names. A brand that has high awareness, perceived
quality and brand loyalty among customers has high brand

equity. A brand with strong brand equity is a valuable asset.
Tiger Brands, for instance, has bought the Mrs Balls brand
for R475 million. And they spend millions of rands a day to
reinforce the brand equity of their products. Brand Finance
in partnership with Brand South Africa and Brand Africa
value the most valuable brands in South Africa.18 The top 10
valuable South African brands according to them are:

1
2
3
4
5
6
7
8
9
10
MTN
SASOL
Vodacom
Standard Bank
Absa
NedBank
FNB
Mediclinic
Investec
Woolworths
R56,3 bn
R20,8 bn
R18,3 bn
R16,6 bn
R12,8 bn
R12,5 bn
R11,1 bn
R9,6 bn
R9,5 bn
R9,4 bn
The Interbrand Group, which pioneered professional brand

valuation in South Africa, values the top ten global brands as
follows:19

1
2
3
4
5
6
7
8
9
10
Apple
Google
Coke Cola
IBM
Microsoft
General Electric
McDonalds
Samsung
Intel
Toyota
$98 316 m
$93 219 m
$79 213 m
$78 808 m
$59 546 m
$46 947 m
$41 992 m
$39 610 m
$37 257 m
$35 346 m
7.2 Features of effective brand names
LO9
What constitutes a good brand name? Most effective brand

names have several of the following features. Effective brand
names:
Are easy to pronounce (by both domestic and foreign

buyers)
Are easy to recognise
Are easy to remember
Are short
Are distinctive, unique
Describe the product
Describe product use
Describe product benefits
Have a positive connotation
Reinforce the desired product image
Are legally protectable in home and foreign markets of
interest.
Obviously no brand exhibits all of these characteristics. The
most important issue is that the brand can be protected for
exclusive use by its owner. Some US brands command
substantial premiums in many places around the world:
Procter & Gambles Whisper sanitary napkins sell for ten
times more than local brands in China; Johnson & Johnson
brands, like Johnsons Baby Shampoo and Band-Aids,
command a 500 per cent premium in China;20 and Gillette
disposable razors sell for twice the price of local brands in
India.
The best generator of repeat sales, however, is satisfied
customers.21 Branding helps consumers to identify products
they wish to buy again and to avoid those they do not. Brand
loyalty, a consistent preference for one brand over all others,
is quite high in some product categories. More than half the
users in product categories such as cigarettes, toothpaste,
coffee, headache remedies, photographic film, bath soap
and tomato sauce are loyal to one brand. Brand identity is
essential for the development of brand loyalty. Care must
thus be taken not to harm the brand with short-term
strategies, such as price discounting.
In addition to product identification, an important
purpose of branding is to facilitate sales, and particularly
new-product sales. Company names and brand names are
extremely useful when introducing new products or when
firms face a very competitive environment. For example, if
Sea Harvest were to add a new product (angel fish fillets, for
example) to its existing range of seafood products, market
acceptance would be a lot quicker than it would have been if
Sea Harvest had not already been a well-established brand

name.
7.3 Branding strategies
LO10
Firms often face complex branding decisions. The first

decision is whether to brand at all. One of the essential
strategies for maintaining and growing a brand is
consistency in the brand positioning and the
communication of the brand. Some firms use a tool known
as a brand key or a brand footprint to ensure that
successive brand managers understand the soul of the
brand. This technique provides a concrete, functional and
tangible way of defining the brand, and in so doing guides
the marketing communications to ensure consistency in
positioning of the brand in the consumers mind.
As Figure 8.3 shows, a brand key suggests that eight
dimensions can be used to position the brand. These
dimensions are:

1 The competitive environment (i.e. the market and the
alternative choices available to the consumer)
2 The target market
3 Consumer insight (i.e. what drives the consumer to
purchase the product)
4 The benefits of the brand (i.e. the emotional and
functional benefits that drive the consumer to purchase
the brand)
5 The values, beliefs and personality (i.e. what the brand
6
7
8
stands for and believes in)

Reasons to believe (i.e. why consumers should believe
that the positioning of the brand is credible
The discriminator (i.e. the most important reason why
consumers will buy the brand)
The brand essence. This last dimension attempts to
capture the heart of the brand in a few words. For
example, the brand essence of the deodorant Axe could
be described as grooming men to seduce, if one has
regard to the risqu Axe advertisements. The brand
essence of the VW Jetta is a car you can depend on.22
Figure 8.3 Brand key
SOURCE: European Institute of Brand Management,

http://www.eurib.org/ (accessed 30 March 2010)
Some firms actually use the lack of a brand name as a selling

point. Unbranded products are called generic products (noname brands). An alternative is that firms may decide to
brand their products using manufacturers brands or private
(intermediary) brands, or both. In either case, they must
then decide between a policy of individual branding
(different brands for different products), family branding
(common names for different products), or a combination of

individual branding and family branding (see Figure 8.4).
Figure 8.4 Major branding decisions
7.4 Generic products versus branded products

A generic product is typically a no-frills, no-brand-name,
low-cost product that is simply identified by its product
category. (Note that a generic product and a brand name
that becomes generic, such as cellophane, are not the same
thing.) In South Africa, generic products (also called private
brands or private labels) have captured significant market
shares in some product categories, such as canned fruits,
canned vegetables, paper products and beauty products. For
instance about 20 per cent of Clicks sales can attributed to
their private labels but they want to increase that to 25 per
cent. These unbranded products are frequently identified
only by plain, simple lettering on white packages. Examples
are Pick n Pays No Name brand and the Shoprite Checkers
Yellow Band brand.
The main appeal of generics is their low price. Generic
grocery products are usually 30 to 40 per cent cheaper than
manufacturers brands in the same product category and 20
to 25 per cent less expensive than retailer-owned brands.

Another product category where generics have made
inroads is pharmaceuticals. When patents on successful
pharmaceutical products expire, low-cost generics rapidly
appear on the market. For example, when the patent on
Mercks popular anti-arthritis drug, Clinoril, expired, sales
declined by 50 per cent almost immediately as generics
entered the market.
READER 41 >> Upping the ante: Value-driven

consumers sparking a surge in private labels
At the rate at which theyre growing, private labels could become a major
contributor to beauty and healthcare retailer Clicks sales in the near future.
House brands or private labels have become a fast-growing phenomenon and
a margins enhancer for retailers as consumers become more value driven. The
recession has laid the trend bare, when over the past couple of years branded
consumer goods producers such as Tiger Brands were reporting declines in
sales while retailers were seeing growth in their private labels. Clicks house
brand currently constitutes 20 per cent of its sales, which includes both its
front shop and dispensary division thats still largely developing. Otherwise,
Clicks front shop private label accounted for 25,9 per cent of sales over the
six months to February 2011, thanks to a growing product range.
CEO David Kneale says it was the first time Clicks had reached the 25 per
cent mark. Shoprite has previously said its house brands contribute around 15
per cent to sales; Pick n Pays 10 per cent. General merchandise group
Massmart hopes to leverage Wallmarts private label if the intended merger
goes through. Kneale says Clicks plans to achieve a private label contribution
of 25 per cent across the board. The front shop could go as far as 30 per
cent, as the group expands its product range. In developed markets, private
labels account for as high as 30 per cent to 40 per cent of retailers sales.
SOURCE: Makholwa, A. 2011. Upping the ante: Value-driven consumers sparking a surge in private
labels. Finweek, 28 April, p. 27
7.5 Manufacturers brands versus private brands

The brand name of a manufacturer such as Samsung or
Steinhoff is called a manufacturers brand. Sometimes the
term national brand is used as a synonym for a
manufacturers brand. This term is not always accurate,
however, because many manufacturers serve only regional
markets. The term manufacturers brand more precisely
defines the brands owner. A private brand (sometimes also
referred to a store brand or distributor brand), on the other
hand, is a brand name owned by a wholesaler or a retailer,
for instance Woolworths, Pick n Pay or Shoprite Checkers.
Who buys private brands? According to one expert, the
young, discerning, educated shopper is the private-label
buyer. These individuals are willing to purchase private
brands because they have confidence in their own ability to
assess quality and value.23 Table 8.2 identifies key issues that
wholesalers and retailers should consider in deciding
whether to sell manufacturers brands or private brands.
Many firms, such as Pick n Pay, Spar, Shoprite Checkers
and now also Woolworths offer a combination of both.
Table 8.2 Comparing manufacturers and private brands from the resellers
perspective
Key advantages of carrying

manufacturers brands
Key advantages of carrying private

brands
Heavy advertising to the

consumer by manufacturers like
Unilever.
A wholesaler or retailer can usually earn

higher profits on its own brand. In
addition, because the private brand is
exclusive, there is less pressure to mark
the price down to meet competition.
Well-known manufacturers
brands, such as Five Roses and
Fisher-Price, can attract new
customers and enhance the
dealers (wholesalers or
retailers) image.
A manufacturer can decide to drop a

brand or a dealer at any time or even
become a direct competitor to its
dealers.
Many manufacturers offer quick

delivery, enabling the dealer to
carry less inventory and save
costs.
A private brand ties the customer to the

wholesaler or retailer. One for instance
can only buy Pot OGold sauce at certain
retailers.
If a dealer happens to sell a

manufacturers brand of poor
quality, the customer may simply
switch brands but remain loyal to
the dealer.
Wholesalers and retailers have no

control over the intensity of distribution
of manufacturers brands.
7.6 Individual brands versus family brands

Many firms use different brand names for different
products. This practice is referred to as individual branding.

Most firms use individual brands when their products vary
considerably in use, quality or performance. For instance, it
would not make sense to use the same brand name for a pair
of socks and a cricket bat. Unilever targets different
segments of the soap market with different brands such as
Dove, Lux, Vinolia, Breeze and Sunlight.
On the other hand, a firm that markets several different
products under the same brand name is using a family
brand. For example, Sonys family brand includes radios,
televisions, stereos and other electronic products. A brand
name can be stretched only so far, however. In the United
States, Holiday Inn uses the following family brand names:
Holiday Inn, Holiday Inn Express, Holiday Inn Select,
Holiday Inn Sunspree Resort, Holiday Inn Garden Court and
Holiday Inn Hotel & Suites. Some critics believe that
because of the overuse of the family brand by Holiday Inn,
most travellers cannot distinguish between them anymore.24
7.7 Conditions favourable to branding

The benefits of branding described above make a
compelling argument in favour of branding. However,
sometimes conditions make branding unsuitable. For
instance, some products are not brandable because their
physical characteristics make them unsuitable. Examples
are building sand and nails. Other products do not have a
characteristic or attribute that could form the basis of a
competitive advantage (eggs could be an example). Besides
these requirements, branding works well when there is
sufficient demand to ensure continuity of the brand and to

ensure that the benefits of economies of scale are realised.
7.8 Co-branding
LO11
Co-branding or partnering new products is a growing trend

in marketing. Combining the branding efforts of two
powerful brand names can exponentially enhance the brand
awareness and brand equity of both brands. Co-branding
arrangements vary, but generally the partners share
research and development costs, slotting fees (paid to
retailers to get better shelf placement), advertising and
promotion budgets. There are different degrees of
partnership.
EXAMPLE >> Some arrangements are one-offs, such as when Disney

promoted The Lion King by allowing Nestl to print scenes from the movie on its
chocolate bars. Others are more permanent examples include Simba chips cobranding its chutney-flavoured chips with Mrs Balls chutney; Kulula.com and
Discovery Lifes Vitality programme; Wimpy and Engen; Shoprite and Computicket;
and House of Coffees and Russell Hobbs. Nandos co-branded with Langeberg All
Gold tomato sauce when it launched a hot peri-peri tomato sauce carrying the
brands of both firms. South African Airways has co-branded with MTN in the past.
MTN subscribers earn frequent-flyer points towards free flights by using their
cellphones. Liqui-Fruit co-brands a Liqui-Fruit ice-cream with Ola, Whirpool cobrands with Omo washing powder and AEG with Handy Andy household cleaner
(see the AEG advertisement on page 288). Standard Bank co-brands with
Woolworths to demonstrate the benefits of a business partnership with the bank.
Co-branding may also be used to identify product

ingredients or components. The brand name NutraSweet
and its familiar brand mark appear on more than 3 000 food
and beverage products. Intel, the microprocessor firm, pays
microcomputer manufacturers, such as IBM, Dell and
Compaq, to include the words Intel inside in their
advertising, on the computers and on the boxes they are
packed in.
As with brand extensions, there are both benefits and

disadvantages associated with co-branding. Consumers
expect the advantages of both brands to be evident in the
product, which is potentially a strong selling point.
Combining brand names can also expand product-market
boundaries.
On the other hand, if the co-branding product fails, then
the reputation of the original brand name may suffer.
Another potential problem is customer confusion if the
two brands have different images, the customer may not
understand the relationship. Finally, there is always the risk
of over-exposure.
7.8.1 The risks associated with co-branding25

The most important risk of co-branding is incompatibility of
the partners. After a compatible partner has been identified,
the risks of the co-branding project must be considered. The
following situations could pose serious risks for a participant
and should be addressed in the co-operation agreement:
The failure of the project because of financial or other

strategic objectives not being achieved
A change of strategy or withdrawal of products
A breach of contract, insolvency or change in control of
one of the participants
The sudden degeneration of a participants previously
stainless reputation
The unauthorised use of a participants trademark.
It is particularly important that appropriate contractual

measures be put in place to ensure that participants retain

ownership of, and quality control over, their individual
trademarks. This can be accomplished with properly
worded, reciprocal trademark licences incorporated into the
co-operation agreement. These licences should not only
stipulate what constitutes authorised use of the parties
trademarks, but also which restrictions and limitations
apply.
A serious risk that all trademark proprietors should guard
against is the dilution of their trademarks. Using the
trademark on products other than those in respect of which
the mark is registered or renowned for will tarnish or
damage its distinctive character or reputation. For instance,
it is conceivable that Coca-Cola restaurants, Coca-Cola
motors, Coca-Cola paint and the like may eventually dilute
or destroy this well-known mark.
The risk of dilution is inherent in co-branding, and the
contract should, therefore, provide a participant with the
option to terminate the licence in appropriate
circumstances. Co-branding is not to every firms liking. It is
interesting to note that the motor vehicle manufactuer BMW
forms strategic alliances only in exceptional circumstances.
However, despite the risks involved, co-branding
participants can derive enormous benefits from such an
exercise, given the right circumstances. In addition, cobranding should be planned and managed with the
necessary care.
7.9 Levels of brand familiarity

Brand acceptance does not come easily, and marketers must

work very hard often over many years to build up a
brand. Brand familiarity refers to the extent to which
consumers recognise and accept a firms brand. Five levels
of brand familiarity can be distinguished:26
Brand rejection means the potential buyer will not buy

the product. Some smokers will not buy certain brands,
for example
Brand non-recognition means potential consumers are
simply not aware of the brand
Brand recognition means consumers are aware of the
brand, but not necessarily buyers. Many smokers will
have a substantial evoked set
Brand preference is a situation where a consumer
regularly buys the brand ahead of others out of sheer
habit or because of satisfactory use in the past
Brand insistence implies that consumers insist on the
brand and are willing to search for it. It means that the
firm faces an inelastic demand curve. Brand insistenece
is obviously the most desirable position for the marketer.
The marketing of brands with different levels of brand

familiarity will differ in terms of advertising and distribution
in particular. To encourage brand insistence, for example,
marketers will try to enhance brand loyalty using
relationship marketing strategies, and use tools such as
frequent-flyer programmes (e.g. South African Airways
Voyager programme) and other loyalty programmes (e.g.
Clicks Club Card).
7.10 Trademarks
LO12
A trademark signifies the exclusive right to use a brand or

part of a brand. Others are prohibited from using the brand
without permission. A trademark that is registered is
normally identified by the symbol next to the name or mark
of a brand.
7.10.1 The relationship between trademarks and brands27

A trademark is a legal concept and a term primarily used by
the legal community. It is demarcated by law (common or
statutory) and interpreted by the judiciary. By contrast, the
concept brand is a term used by marketers and consumers.
A brand is a broader and less well-defined concept than a
trademark. The process used to create and manage a brand
is known as branding, which refers to the variety of
marketing techniques that integrate a trademark with a
business strategy in order to create a unique image for the
general public, referred to as the brand. Therefore,
trademarks are static in nature, whereas brands are
dynamic. This is so because trademarks exist in a
supposedly objective environment the law whereas
brands are subjective in nature because they depend on the
publics perception.
Although trademarks and brands both designate the
source, brands convey information about the trademark
behind the brand, other trademarks supporting the brand,
any family of marks, domain names, sub-brands, product
packaging, the manufacturer and its trade name, advertising
of the product, distribution of the product, celebrity
endorsements and shelf displays at retailers and/or displays

on the Internet. This information forms part of the public
domain of knowledge associated with a particular product,
service or firm, of which certain portions are protectable
under trademark law and others not. For example, certain
functional elements of a product, like the colour of its
packaging, may be unprotectable under trademark law even
though it forms an integral part of the brands image. This
may be because the role of visual images used by brands to
communicate information can seldom be empirically
proved or disproved. Because trademark represents the
legal foundation or protectable element of the brand, the
line between trademarks and brands often blurs.
To summarise, not all brands are trademarks, but most
trademarks are brands. This is because a brand needs to be
registered according to appropriate law as a trademark in
order to be afforded legal protection. As soon as a trademark
is registered according to appropriate law, it awards the
owner of the registered trademark with a legal monopoly on
the trademark. The primary purpose of a legal monopoly
provided by the trademark is to preserve a trademark
owners brand equity. However, owning a trademark for a
brand is not an absolute guarantee that the trademark will
enjoy unchallenged and unqualified protection. Recent
statistics in the United States showed that a trademark
holder filing a trademark case has a slightly better than 50
per cent chance of succeeding on the merits of the case, a 55
per cent chance of obtaining an injunction (interdict) if
demanded and a 5,5 per cent chance of receiving any
damages at all.
At one stage, Cadbury attempted to have Beacon Sweets

registration of the mark Liquorice Allsorts removed from
the trademark register. Cadbury wished to deal in Liquorice
Allsorts sweets and to describe them as such. The court
ruled, however, that the phrase constituted an original
descriptive epithet, which was not in ordinary linguistic use
and was distinctive of Beacons product. Supermarkets that
used the trademark did so under license from Beacon.28
In 2004, Weber (manufacturer of the well-known kettle
braais) accused Cadac of infringing its trademark. This came
as a result of Cadac retailing its own design of charcoal kettle
braais under the name Cadac Charcoal Pro. Cadac argued
in court that its barbeques differ substantially from Webers
and that it does not infringe on the rights of Weber.29
EXAMPLE >> Parts of a brand or other product identification may

qualify for trademark protection. These include:
Shapes, such as the Jeeps front grille and the Coca-Cola bottle. Toblerone
has registered the triangular shape of its chocolate to protect it from direct
competition.
Ornamental colour or design, such as the decoration on Nike tennis shoes,
the black-and-copper colour combination of a Duracell battery and Levis
small tag on the left side rear pocket of its jeans.
Catchy phrases, such as Everywhere you go, How can we help you?, We try
harder, Its finger-lickin good, No more tears.
Abbreviations, such as Coke, M-Net and MTN.
The Harley-Davidson Motor Company has even applied to
the US Patent and Trademark Office to register the
distinctive exhaust sound of its motorcycle engines as a
trademark. The firm cites several precedents for the Patent
Office awarding a trademark registration for a sound,

including the roar of the MGM lion and the ringing of the
NBC chimes.30 Media24 is trying to claim the numeral 24 as
part of its trademark and has objected to the use of
Properties24.co.za by a local entrepreneur competing with
its own Property24.com.31 Other examples of unusual
attempts trademarks are Henkel, the manufacturer of the
Pritt glue stick who tried to register the colour red as
element of its packaging and Apple Computers who tried to
register its store lay out.
7.10.2 The legal implications of branding
LO13
The Trademarks Act (No 194 of 1993) provides for the

registration and certification of trademarks. One is able to
register a trademark for a period of ten years, but it can be
renewed from time to time. A mark means any sign capable
of being represented graphically, including a device, name,
signature, word, letter, numeral shape, configuration,
pattern, ornamentation, colour or container for goods or
any combination of these. The definition of a trademark in
the Trademarks Act provides for a mark that is used or to be
used for distinguishing any firms goods or services from
those of competing goods or services. The Intellectual
Property Laws Amendment Act (No 38 of 1997) also
amended certain clauses of the Trademarks Act to provide,
among others, for conformation with international
agreements and conventions, such as the Trade-Related
Aspects of Intellectual Property Rights (TRIPS) and the
Berne Convention, which gives global protection to
copyright holders.
Marketers planning to introduce new brands, trademarks

or packages should consider the following suggestions:32
WEBSITE
Test your ability to identify brands on the
Brand Logo Quiz with answers on the
following website:
http://www.greatgroupgames.com/logogame.htm
Check carefully before adopting a trademark or

packaging style to make sure you are not infringing on
someone elses distinguishing branding
After a thorough search, consider registering your
trademark
Make your packaging as distinctive as possible
Police your trademark.
Firms that fail to protect their trademarks face the problem

of their product names becoming generic. A generic product
name identifies a product by class or type, and cannot be
trademarked. Former brand names that were not sufficiently
protected by their owners and were subsequently declared
to be generic product names in US courts include aspirin,
cellophane, linoleum, thermos, rollerblade and cola. In
South Africa, brands such as Tippex, Cellotape, Velcro and
Vaseline have become generic names because their
trademarks were not properly protected.
Other firms like Rolls-Royce, Xerox, Levis, Frigidaire and
McDonalds aggressively enforce their trademarks. RollsRoyce, Coca-Cola and Xerox even run newspaper and
magazine advertisements stating that their names are
trademarks and should not be used as descriptive or generic

terms. Some advertisements threaten lawsuits against
competitors that violate trademarks.
Despite severe penalties for trademark violations,
trademark infringement lawsuits are not uncommon (see
Reader 42 Court finds Pepkor did not earn its stripes).
Often the major battle is over a brand name that closely
resembles another brand name. The US beer maker Coors
Brewing, for example, sued Robert Corr, who produces a
line of soft drinks under the name Corrs Beverages. Hyatt
Hotels has blocked Hyatt Legal Services from featuring the
term Hyatt in its advertising. Probably the most celebrated
case in South Africa is South African Breweries case against
Laugh It Off Promotions (see Reader 43 Supreme Court of
Appeal laughs off T-shirt manufacturer, below).
Many firms must also contend with fake or unauthorised
brands, such as fake Levis jeans, Microsoft software, Rolex
watches, and Reebok and Nike footwear. Levi Strauss has
spent more than $2 million on more than 600 investigations
of counterfeit Levis jeans. Other firms, including IBM and
Coca-Cola, are very aggressive in trying to identify and
eliminate counterfeiters. In South Africa it is estimated that
up to 47 per cent of all business software is pirated.33
In Europe, a firm can sue counterfeiters only if its brand,
logo or trademark is formally registered. Until recently,
formal registration was required in each country in which a
firm sought protection.
READER 42 >> Court finds Pepkor did not earn its

stripes
The Supreme Court of Appeal has interdicted and restrained Pepkor Group
from infringing on the trademarks of global shoe giant Adidas by selling four
types of shoes featuring four stripes. The court also interdicted Pepkor from
passing off its footwear as that of Adidas, and directed that an inquiry be held
to determine the amount of damages to be awarded to Adidas. The
judgement, passed on Thursday, made it clear that the rights acquired by
Adidas were infringed by unauthorised use of a mark which so nearly
resembled the registered mark as to be likely to deceive or cause confusion.
The court also ordered Pepkor to remove the infringing marks from its
footwear, and, where this was not possible, to deliver the footwear to Adidas.
Senior associate at Edward Nathan Sonnenbergs intellectual property
department Rachel Sikwane said Adidas only needed to show that there was a
likelihood of confusion. The test for the likelihood of confusion (or deception)
is an objective one, she said. In about October 2007 Adidas discovered that
Ackermans and Pep Stores had been selling trainers and soccer boots
featuring two and four parallel stripes.
SOURCE: Mabuza, E. 2013. Court finds Pepkor did not earn its stripes.
Business Day, 5 March, p. 1
7.10.3 Copyright
It is important to distinguish between copyright and
trademarks. Copyright is the exclusive legal right to
reproduce, publish and sell the matter and form of a literary,
musical or artistic work. Copyright is identified by the
symbol . The copyright of this book you are reading is
vested with the publisher (see the back of the title page), and
any copying from it without the permission of the publisher
violates copyright laws.
READER 43 >> Supreme Court of Appeal laughs off Tshirt manufacturer

Laugh it Off Promotions CC (Laugh it Off) is a firm responsible for printing Tshirts featuring puns of well-known trademarks used in relation to Carling
Black Label beer. Laugh it Off replaced the words Black Label and Carling
Beer with controversial slogans in a similar design and colour combination to
that of the Black Label product of South African Breweries (SAB).
SAB instituted legal proceedings against Laugh it Off on the basis of
trademark infringement. As opposed to the conventional trademark
infringement of using a trademark that is identical or confusingly similar to
that of a registered trademark of another, the infringement that SAB alleged in
this particular case was by way of the dilution of its trademark rights through
tarnishment. Tarnishment essentially meant that Laugh it Off was, through its
conduct, acting to the detriment of the reputation that is vested in the
trademark of SAB, and taking unfair advantage of it for its own products and
benefit.
In the light of the economic value of SABs Black Label brand and, in
particular, of its reputation and advertising value or selling power, the court
weighed up Laugh it Offs right to freedom of expression against SABs right of
property and freedom of trade. The court held that Laugh it Offs reliance on
the fundamental right of freedom of expression was misplaced, and that its
right of freedom of expression had in fact been abused.
The message on the T-shirt was considered to be materially detrimental to
the reputation of SABs Black Label trademark. The Court of Appeal held that it
was not necessary for SAB to prove that it had suffered actual loss. It was
sufficient that damage to the reputation of the trademark was likely to be
caused.
In essence, Laugh It Off was using the reputation of SABs wellknown Black
Label trademark, which has been established at considerable expense over a
lengthy period of time, to the detriment of the trademark and without
justification. Such use and detriment was unfair and, accordingly, constituted
trademark infringement.
Consequently, the Supreme Court of Appeal confirmed the order
prohibiting Laugh It Off from making any further use of the trademarks of SAB.
The court also ordered Laugh It Off to pay SABs legal costs.
SOURCE: Adapted from Norton, R. 2004. Supreme Court of Appeal laughs off T-shirt manufacturer.
Bizcommunity online newsletter, www.bizcommunity.com, 19 September 2004
WEBSITE
Visit the following website to get a sense
of the extent of the global packaging
industry: www.dotpackaging.com
8. Packaging
LO14
Packaging has always served a practical function. Packages

hold contents together and protect goods as they move
through the channel of distribution. Today, however,
packaging is also a means of establishing a competitive
advantage (see Reader 44 Silent but effective marketing), a
container for promoting the product and a way of making
the product easier and safer to use (such as stand-up
pouches). It is also an important dimension of an integrated
marketing strategy rather than an isolated area of decisionmaking.
8.1 Packaging functions

The three most important functions of packaging are to
contain and protect products, promote products and

facilitate the storage, use and convenience of products. A
fourth function of packaging that is becoming increasingly
important is to facilitate recycling and reduce
environmental damage.
8.2 Containing and protecting products

The most obvious function of packaging is to contain
products that are liquid, granular or otherwise divisible.
Packaging also enables manufacturers, wholesalers and
retailers to market products in specific quantities, such as
grams. Physical protection is another obvious function of
packaging. Most products are handled several times
between the time they are manufactured, harvested, or
otherwise produced, and the time they are consumed or
used. Many products are shipped, stored and inspected
several times between production and consumption. Some,
like milk, need to be refrigerated. Some, like beer, are
sensitive to light. Others, like medicines and bandages, need
to be kept sterile. Packaging protects products from
breakage, evaporation, spillage, spoilage, light, heat, cold,
infestation and many other conditions.
READER 44 >> Silent but effective marketing

If nobody picks up your product, nobodys going to buy it. So what makes
consumers choose to pick up your brand in a sea of alternative options? Your
packaging. The fifth P of the marketing mix has been playing a much
stronger role in the advertising of a product and new product launches, says
Desiree Gullan, creative director of Guerrilla Marketing. Ten years ago, product
manufacturers saw packaging as a way to cut costs, instead of a marketing
vehicle to generate product awareness or create some consumer excitement.
This trend changed in the 1990s. New start-up firms suddenly hit the
market with products featuring head-turning, innovative packaging designs.
After a couple of months, they were racking up sales and market share. Brands
such as SKYY Vodka leapt into the marketplace with a beautiful cobalt-blue
bottle. The packaging created an on-premise buzz and massive product
awareness. SKYY didnt have a huge advertising budget. So they put a priority
on packaging design. And caught their competitors off guard, comments
Gullan.
Your packaging has to work hard; it not only has to entice consumers to
pick it up, it also works hard to inform them of how your product is going to
enhance their lives. It encloses and protects your products for distribution,
storage, sale and use. It assists with meeting legal and health specifications.
It provides security for breakage and theft. It has to work well on shelf
displays. A brands packaging is a vital component of the marketing matrix,
she adds.
SOURCE: Adapted from Bizcommunity online newsletter, www.bizcommunity.com, 7 July 2008
8.3 Promoting products

Packaging does more than just identify the brand, list the
ingredients, specify features and give user instructions. A
package differentiates a product from competing products
and may associate a new product with a family of other
products from the same manufacturer.
Packages use designs, colours, shapes and materials to
influence consumers perceptions and buying behaviour.
Kimberly-Clark and Procter & Gamble recently introduced a
wide array of more appealing boxes for Kleenex and Puffs

tissues. The idea is that if boxes are more attractive, people
wont mind displaying them in every room of the house. So
far, the strategy appears to be working. Both Willards and
Simba are marketing their chips in foil packaging rather
than plastic to enhance the freshness of their chips.
Woolworths ToGo range of products is packaged so that
consumers can clearly see the products through the
packaging to support Woolworths positioning as supplying
the freshest, most tempting foods available: fresh, healthy
and deliciously appealing.
Kaleidoscopic packaging can also enhance the marketing
of the product. In kaleidoscopic packaging, certain
components of the packaging are changed continually.
Breakfast cereal manufacturers, such as Weetbix, use
kaleidoscopic packaging, printing images of different
animals from time to time on box lids. Kaleidoscopic
packaging creates a demand for the product by creating a
demand for the packaging. Children are often the target
market when kaleidoscopic packaging is used.
8.4 Facilitating storage, use and convenience

Wholesalers and retailers prefer packages that are easy to
ship, store and stock on shelves. They also like packages that
protect products, prevent spoilage or breakage and extend
the products shelf life. Consumers requirements for
convenience cover many dimensions. Consumers are
interested in items that are easy to handle, open and reseal,
although some consumers want packages that are
tamperproof or childproof. They also want reusable and

disposable packages. Therefore, packaging can be a means
of establishing and sustaining a competitive advantage.
Surveys conducted by Sales & Marketing Management
magazine revealed that consumers dislike and avoid
buying leaky ice cream boxes, overly heavy or fat vinegar
bottles, immovable pry-up lids on glass bottles, key-opener
sardine cans and hard-to-pour cereal boxes. Such packaging
innovations as zipper tear strips, hinged lids, tab slots,
screw-on tops and pour spouts were introduced to solve
these and other problems. Pharmaceutical firm Johnson &
Johnson has introduced Tylenol FastCap, a new patented
package that will open with a flick of the wrist.34
Some firms use packaging to segment markets. For
example, the Tylenol FastCap is targeted to adults over 50
who suffer from arthritis and to households without young
children. Different-sized packages appeal to heavy,
moderate and light users of the product. Salt is sold in
package sizes ranging from a single serving, to picnic size to
giant economy size. Campbells soup is packaged in singleserving cans targeted at the elderly and singles market
segments. Beer and cold drinks are similarly marketed in
various package sizes and types. Packaging convenience can
increase a products utility and, therefore, its market share
and profits.
8.5 Facilitating recycling and reducing

environmental damage
One of the most important packaging issues today is
compatibility with the environment. The ability to recycle is

also important. Some firms use their packaging to target
market segments that are environmentally concerned.
Brocato International, for example, markets shampoo and
hair conditioner in bottles that are biodegradable in
landfills. Procter & Gamble markets Sure Pro and Old Spice
in eco-friendly pump-spray packages that do not rely on
aerosol propellants.
>> Strategy
Packaging can be a very important competitive strategy
for many firms but is often a risky and expensive
strategy. Kolosus, the owner of Bull Brand the leading
brand in the corned meat market recently converted
to easy-opening cans. Conversion to easy-opening cans
is a move which, judged by consumer convenience,
might seem obvious and overdue. But elsewhere in the
corned meat industry, which is sticking with the
(finger-cutting) tear strip, key-opening feature, the view
is that Bull Brand is taking a risky step in a highly
traditional, declining, price-sensitive market. Critics of
Bull Brands new packaging tactic say that corned meat
is competing in an easily-substitutable protein
commodity market in which consumers switch
between canned meats, chicken, pilchards and polony
largely on the basis of price. Bull Brands new easyopening cans are 300 g rectangular cans, whereas the
traditional South African tear-strip 200 g corned meat
can has a squarer shape.35
To summarise, the advantages of packaging for the

consumer are that it makes products convenient to store
and use, and convenient sizes can restrict wastage.
Packaging can also make products safer to use. It is
important, however, to see packaging as an important
dimension of an integrated marketing strategy rather than as
an isolated area of decision-making. Some firms, however,
fail to do that and miss opportunities not only to satisfy
consumer needs, but also to establish a competitive
advantage. As a result, packaging is often criticised. Some
say that it is often of poor quality (e.g. sugar) and difficult to
open (e.g. some coffee tins). Some say that claims about
recycling and biodegradability are questionable, that some
packaging is dangerous (e.g. bottles breaking easily) and
that some packaging is deceptive.
8.6 Labelling
LO14
An integral part of any package is its label. Labelling

generally takes one of two forms: persuasive or
informational. Persuasive labelling focuses on a
promotional theme or logo, and consumer information is
secondary. Foodstuffs, such as certain sauces, make use of
persuasive labels, with the objective of strengthening brand
identity. Note that overused promotional claims such as
new, improved and super are no longer very persuasive.
Consumers have been saturated with newness and,
therefore, pay very little attention to these claims.
Informational labelling, by contrast, is designed to help
consumers make specific product selections (including

contents, features, how to care for and use the product and
nutritional information) and lower their cognitive
dissonance after the purchase. Sears attaches a label of
confidence to all its floor coverings. This label provides
product information such as durability, colour, features,
cleanability, care instructions and construction standards.
Most major furniture manufacturers affix labels to their
wares that explain the products construction features, such
as type of frame, number of coils and fabric characteristics.
The Foodstuffs, Cosmetics and Disinfectants Act (No 54
of 1972), and amendments thereto, controls the sale,
manufacture and importation of foodstuffs, cosmetics and
disinfectants. This act provides for penalties if a misleading
advertisement of any foodstuff, cosmetic or disinfectant is
published. The act also provides for offences in respect of a
false or misleading label description with regard to any
foodstuff, cosmetic or disinfectants origin, nature,
substance, composition, quality, strength, nutritive value or
other properties, or the time, mode or place of its
manufacture. A label, in terms of the law, means any brand
or mark or any written, pictorial or other descriptive matter
appearing on any foodstuff, cosmetic product or
disinfectant, or the packages of such products. Guarantees
are also subject to a number of prescriptions.
>> Strategy
Can something as mundane as product labelling yield a
competitive advantage for a firm? Consider the
following two examples. Each Debonairs pizza has a

sticker placed over a hole in the pizza box, which under
normal circumstances is black. When a hot pizza is
placed in the box the sticker turns red and the words
hot & fresh become visible. This technique is known
as thermochromic labelling, and the only other product
using this type of labelling is Castle Lite. In the case of
Castle Lite, the label turns blue when the beer is cold
enough.36
WEBSITE
Visit the website www.tetrapak.com to see
how packaging can be used to protect the
quality and nutritional value of dairy
products, beverages, deserts, and sauce
products.
READER 45 >> The influence of the Consumer

Protection Act
As of 1 March 2012, retailers and manufacturers might have felt that their job
descriptions suddenly included publishing. Thanks to the new R146 foodstuffs
labelling legislation, issuing product labels has turned from simple product
descriptions and price tags into what might seem like a small novel to the
untrained eye. New labels are to include a full ingredient declaration in
descending order, with special provisions in place for food additives. Terms
like sugar free are to be replaced with no added sugar to minimise
confusion for the customer. More transparency in product origin is required by
differentiating between product of South Africa and produced in South
Africa.
SOURCE: Mack, M. 2012. Driving innovation in packaging and labelling. Supermarket & Retailer, July
2012. Available from http://www.supermarket.co.za/SR_Downloads/S&R%20July%202012%20
Packaging.pdf (Accessed on 12 August 2014)
8.7 Universal product codes

The universal product codes (UPCs) that appear on many
items in supermarkets and other high-volume outlets were
first introduced in 1974. Because the numerical codes
appear as a series of thick and thin vertical lines, they are
often called bar codes. The lines are read by computerised
optical scanners that match codes with brand names,
package sizes and prices. They also print information on
cash register tapes and help retailers to prepare rapidly and
accurately records of customer purchases, control
inventories and to track sales. The South African Numbering
Association administers the allocation of UPCs in South
Africa. Most retailers today refuse to accept products that do
not carry a UPC.
8.8 Product warranties
LO14
Just as a package is designed to protect the product, a

warranty protects the buyer and gives essential information
about the product. A warranty confirms the quality or
performance of goods or a service. An expressed warranty is
a written guarantee. Expressed warranties range from
simple statements such as 100 per cent cotton (a guarantee
of quality) and complete satisfaction guaranteed (a
statement of performance), to extensive documents written
in technical language. By contrast, an implied warranty is an

unwritten guarantee that the item or service is fit for the
purpose for which it was sold.
The camera manufacturer Unomat says: all Unomat
products carry a one-year warranty against manufacturing
defects. If anything goes wrong with your Unomat product,
be it a video light, cellphone charger or any other item in the
vast range, and the fault is due to manufacturing error,
Unomat will repair or replace the item free of charge.
<<< LOOKING BACK

It is unfortunately true that, in our accountant-driven
business world, intangible assets have not been properly
valued. One outcome of this unfortunate situation is that the
contribution of marketing (in this case the building of a
brand) has also been under-valued. Thanks to the efforts of
firms such as Interbrand this situation is slowly changing. It
is increasing being realised that many leading companies
around the world owe much of their value to the success of
their brands. Without their brands there often is not much
else. The same is true of many South African firms, but
unfortunately many company directors still do not
understand the value of their brands or the value of the
marketing department.
SUMMARY
1
The term product. A product is anything desired or

not that a person or firm receives in an exchange. The
basic objective of purchasing is to receive the tangible

and intangible benefits associated with a product.
Tangible aspects include the products packaging, style,
colour, size and features. Intangible qualities include
service, the retailers image, the manufacturers
reputation and the social status associated with a
product. A firms product offering is a crucial element in
any marketing mix.
2 Different product levels. In planning a market offering,
the marketer needs to consider five levels of the product.
Each level adds more customer value, and the five
constitute a customer value hierarchy. The most
fundamental level is the core benefit. The others are the
basic product, the expected product, the augmented
product and the potential product.
3 Classifying consumer products. Consumer products
are classified into four categories: convenience products,
shopping products, speciality products and unsought
products. Convenience products are relatively
inexpensive and require limited shopping effort.
Convenience products can also be subdivided into
staples, impulse products and emergency products.
Shopping products are of two types: homogeneous and
heterogeneous. Because of the similarity of
homogeneous products, they are differentiated mainly
by price and features. By contrast, heterogeneous
products appeal to consumers because of their distinct
characteristics. Speciality products possess unique
benefits that are highly desirable to certain customers.
Finally, unsought products are either new products or
products that require aggressive selling because they are
generally avoided or overlooked by consumers.

4 The nature of different product classes and their
marketing relevance. Products are classified as either
business (i.e. industrial) or consumer products,
depending on the buyers intentions. The key distinction
between the two categories is their intended use. If the
intended use is a business purpose, the product is
classified as a business, or industrial, product. A
consumer product is bought to satisfy an individuals
personal wants. These classifications can be further
subdivided. It is important to understand product
classifications because business and consumer products
are marketed differently. They are marketed to different
target markets and tend to use different distribution,
communication and pricing strategies. It is important,
therefore, to group together consumer products that
could be marketed similarly.
5 Product items, product lines and product mixes. A
product item is a specific version of a product that can be
designated as a distinct offering among a firms
products. A product line is a group of closely related
products offered by a firm. A firms product mix is all the
products it sells. Product mix width refers to the number
of product lines a firm offers. Product mix depth refers to
the variety of sizes, colours and models offered within
each product line. Firms modify existing products by
changing their quality, functional characteristics or style.
Product line extension occurs when firms add new
products to existing product lines.
6 Benefits of product line organisation. Marketers derive
several benefits from organising related items into
product lines, such as advertising economies, package

uniformity, standardised components, efficient sales and
distribution and equivalent quality.
7 Types of adjustments to product items and product
lines. Product modification changes one or more of a
products characteristics:
Quality modification change in a products
dependability or durability
Functional modification change in a products
versatility, effectiveness, convenience or safety
Style modification aesthetic product change, rather
than a quality or functional change
Repositioning changing consumer perceptions of a
product
Product line extension occurs when a firms
management decides to add products to an existing
product line in order to compete more broadly in the
industry
Product line contraction some products are
removed from the product line.
8 Objectives and benefits of branding. Branding has
three main purposes: product identification, repeat sales
and new-product sales. The most important purpose is
product identification. Branding allows marketers to
distinguish their products from all others. Effective
branding also allows firms to charge a price premium for
their product if it is properly differentiated.
9 Requirements of a good brand name. Most effective
brand names have several of the following features: they
are easy to pronounce (by both domestic and foreign
buyers); easy to recognise; easy to remember; short;
distinctive and unique; describe the product; describe

product use; describe product benefits; have a positive
connotation; reinforce the desired product image; and
are legally protectable in home and foreign markets of
interest.
10 Distinguishing between generic and branded
products, between manufacturers brands and private
brands and between individual brands and family
brands:
Generic and branded products. A generic product is
typically a no-frills, no-brand-name, low-cost
product that is simply identified by its product
category. These unbranded products are frequently
identified only by simple lettering on white packages.
Manufacturers brands and private brands. The
brand name of a manufacturer such as Kodak or
La-Z-Boy is called a manufacturers brand.
Sometimes the term national brand is used as a
synonym. The term manufacturers brand more
precisely defines the brands owner. A private brand,
on the other hand, is a brand name owned by a
wholesaler or a retailer.
Individual brands and family brands. Many firms use
different brand names for different products, a
practice referred to as individual branding. Most
firms use individual brands when their products vary
considerably in use or performance. On the other
hand, a firm that markets several different products
under the same brand name is using a family brand.
11 An argument in favour of co-branding. Co-branding is
a useful strategy when a combination of brand names
enhances the prestige or perceived value of a product or

when it benefits brand owners and users.
12 A brand name and a brand mark. A brand is a name,
term, symbol, design or combination thereof that
identifies a sellers products and differentiates them
from competitors products. A brand name is that part of
a brand that can be verbalised, including letters, words
and numbers. The elements of a brand that cannot be
verbalised are called the brand mark.
13 The legal implications of branding in South Africa. The
Trademarks Act (No 194 of 1993) provides for the
registration and certification of trademarks. The
registration of a trademark is for a period of ten years,
but it can be renewed. A mark means any sign capable of
being represented graphically, including a device, name,
signature, word, letter, numeral shape, configuration,
pattern, ornamentation, colour or container for goods, or
any combination of these. The definition of trademark
provides for a mark that is used or to be used for
distinguishing a firms goods or services from those of
competing goods or services. The Intellectual Property
Laws Amendment Act (No 38 of 1997) also amended
certain sections of the Trademarks Act to provide for,
among other things, conformation with international
agreements and conventions.
14 Marketing uses of packaging and labelling. Packaging
has four functions: containing and protecting products;
promoting products; facilitating product storage, use and
convenience; and facilitating recycling and reducing
environmental damage. As a tool for promotion,
packaging identifies the brand and its features. It also
serves the critical function of differentiating a product

from competing products and linking it with related
products from the same manufacturer. The label is an
integral part of the package, with persuasive and
informational functions. In essence, the package is the
marketers last chance to influence buyers before they
make a purchase decision.
15 How and why product warranties are important
marketing tools. Product warranties are important tools
because they offer consumers protection and help them
gauge product quality. A warranty also counteracts
cognitive dissonance.

1
A local community organisation has asked you to give a

presentation about planned obsolescence. Rather than
pursuing a negative approach by talking about how
businesses exploit customers through planned
obsolescence, you have decided to talk about the
benefits of producing products that do not last forever.
Prepare a one-page outline of your presentation.
Woolworths is now marketing both its own brands (as it
has always done) as well as so-called national brands.
Prepare a report outlining both the potential benefits
and dangers of this new strategy.
The MTN brand is valued at R8,895 billion and the
Vodacom brand at R6,501 billion. What do you think
accounts for the difference?
How have several snack-food firms modified their
products to serve the emerging needs of their customers?

Your new boss has asked you to prepare a brief memo
about the future of online supermarket shopping and its
likely impact on packaging. Prepare an outline of your
memo.
STRATEGY READER >> Beer war now in premium passarounds

The beer battle brewing between South African Breweries (SAB) and its rival,
Brandhouse, will happen in green 660 ml bottles. In South Africas
aspirational, growing middle-class market, this is a key product that both the
entrenched incumbent (SAB) and its deep-pocketed international rival
(Brandhouse) are seeking to tap. In one corner of the ring is SAB with Castle
Lite, sold in a green bottle to denote its premium nature. In the other corner is
Brandhouse with Amstel.
This is not the first time SAB has fought competition on home soil. But it is
the hardest fight yet. This is probably the most important one SAB has had to
deal with. Theyre up against a gigantic and effective global competitor in the
form of Heineken, says Chris Gilmour, an analyst at Absa Investments. It is
early days yet. The beer-bottle battle is just starting. Brandhouse a joint
venture between Heineken and UK-based Diageo only started producing the
660 ml sharing pack bottle last month.
But now that it is producing locally, Brandhouse can sell its beer in
returnable bottles. Using bottles that can be returned for a deposit allows
Brandhouse to pit Amstel head-to-head with SAB in a township market that is
fast becoming more affluent.
The traditional market for returnables is for 750 ml bottles of mainstream
brands, such as Castle and Carling Black Label. But the market is expanding
upwards into the premium brands. [Beers] like the Peroni 660 ml are seen as
the fashionable returnable, Gilmour says. In a stroke of irony, it is also a
market that SAB largely created with Amstel. In 1998, SAB began selling
Amstel in large returnable bottles to the shebeen market. By 2007, when
Heineken did not renew SABs right to produce Amstel in South Africa, it was
the largest premium brand at 2,4 million hectolitres, and was growing at 26
per cent a year. Amstel left the market, but is now back. And SAB faces losing
a market it created. [SAB] started a whole new market of people who would
take premium beer and pass it around (sharing the beer). Premium beer did
tend to be in small bottles. [SAB] broke the mould. If Amstel is going to be
purely returnables, then it may place Amstel at a big advantage, Gilmour says.
SOURCE: Adapted from Bleby, M. 2010. Beer war now in premium pass-arounds. Sunday Times
Companies and Market section, 28 March 2010, p. 1
QUESTIONS
1
2
3
Discuss the link between consumer needs and product decisions in this
reader.
What is SABs (Castle Lite) competitive advantage in this beer battle?
What is Brandhouses (Amstel) competitive advantage in this beer battle?
KEY CONCEPTS
Brand: a name, term, symbol, design or combination of these that identifies a
sellers products and differentiates them from competitors products.
Brand equity: the value of company and brand names.
Brand loyalty: a consistent preference for one brand over all others.
Brand mark: the elements of a brand that cannot be verbalised.
Brand name: that part of a brand that can be verbalised, including letters, words
and numbers.
Business product (industrial product): a product used to manufacture other
goods or services, to facilitate a firms operations or to resell to other customers.
Co-branding: placing two or more brand names on a product or its package.
Consumer product: a product bought to satisfy an individuals personal wants.
Copyright: the exclusive legal right to reproduce, publish and sell the matter and
form of a literary, musical or artistic work.
Expressed warranty: a written guarantee.
Family brand: marketing several different products under the same brand
name.
Generic product: a no-frills, no-brand-name, low-cost product that is simply
identified by its product category.
Generic product name: identifies a product by class or type and cannot be
trademarked.
Implied warranty: an unwritten guarantee that a product or service is fit for the
purpose for which it was sold.
Individual branding: using different brand names for different products.
Informational labelling: designed to help consumers make proper product
selections and lower their cognitive dissonance after the purchase.
Kaleidoscopic packaging: where certain components of the packaging are
changed continually.
Manufacturers brand: the brand name of a manufacturer.
Persuasive labelling: focuses on a promotional theme or logo; consumer
information is secondary.
Planned obsolescence: the practice of modifying products so those that have
already been sold become obsolete before they actually need replacement.
Private brand: a brand name owned by a wholesaler or a retailer.
Product: everything, both favourable and unfavourable, that a person receives in
an exchange between two parties.
Product item: a specific version of a product that can be designated as a distinct
offering among a firms products.
Product line: a group of closely related product items.
Product line depth: the variety of sizes, colours and models offered within each
product line.
Product line extension: adding products to an existing product line in order to
compete more broadly in the industry.
Product mix: all the products a firm sells.
Product mix width: the number of product lines a firm offers for sale.
Product modification: changing one or more of a products characteristics or
attributes.
Shopping product: a product that requires comparison shopping, because it is
usually more expensive than a convenience product, and found in fewer shops.
Speciality product: a particular item for which consumers search extensively
and for which they are very reluctant to accept substitutes.
Trademark: the exclusive right to use a brand or part of a brand.
Universal product code (UPC): a series of vertical lines (bar codes), readable by
computerised optical scanners, which represent numbers used to track
products.
Unsought product: a product unknown to the potential buyer or a known
product that the buyer does not actively seek.

Warranty: confirmation of the quality or performance of goods or a service.
REFERENCES
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
This section is based on Kotler, P. 1997. Marketing management: Analysis,

planning and control (9th edition). Upper Saddle River: Prentice Hall, p. 431;
Levitt, T. 1980. Marketing success through differentiation of anything.
Harvard Business Review, JanuaryFebruary 1980, pp. 8391.
http://global.ebay.com (Accessed 30 March 2010).
Harris, L. Point of purchase Special Report. Financial Mail, 26 November, p.
26.
Pick n Pay corporate report, supplement to Financial Mail, 30 May 1997, p.
17.
About Tiger Brands. 2014. Available from
http://www.tigerbrands.co.za/about.php (Accessed July 2014).
Roush, C. 1993. At times theyre positively glowing. Business Week, 12 July
1993, p. 141.
Make it simple. Business Week, 9 September 1996, p. 96.
Food & Beverage Reporter Online no. 43, 10 September 1999.
Payne, T. 2010. Clover: Achieving its goals through resetting. Food & Beverage
Reporter, January/February 2010, p. 12.
Koenderman, T. 2001. A new brand of tiger. Financial Mail, 21 September
2001, p. 8384.
Moodie, G. 2001. Chips are down as Americans gobble up I & J frozen
vegetables. Sunday Times business section, 8 July 2001, p. 4.
Ogilvy & Mather Rightford corporate report, supplement to Financial Mail,
25 September 1998, p. 7.
Benjamin, C. 2010. South Africa has some long-life brands. Business Day, 1
Adapted from Designer diamonds make their mark. Financial Mail, 13
March 1998, p. 58.
Childrens tastebuds easily swayed by advertising, Business Day health news
supplement, 5 September 2007, p. 7.
Its all in the jeans at Jet Stores. Financial Mail, 18 July 1997.
Top Brands, supplement to Sunday Times, 16 August 2013.
Kokbokoane, T. 1999. Survey measures Cokes SA clout. Business Times, 31
January 1999, p. 3.
Brand Finance. 2014. South Africa Top 50: The annual report on South
Africas 50 most valuable brands, July 2104. Available from
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
http://www.brandfinance.com/knowledge_centre/reports/brandfinancesouth-africa-top-50-2014 (Accessed 2 August 2014).

Jacob, R. 1993. Asia where the big brands are blooming. Fortune, 23 August
1993, p. 55.
Heline, H. 1993. Brand loyalty is not dead but youre not off the hook.
Brandweek, 7 June 1993, pp. 1415.
Model: Brand key, European Institute of Brand Management,
http://www.eurib.org (Accessed 30 March 2010).
K-mart accelerates private label push. Brandweek, 29 January 1996, p. 6.
Orwall, B. 1996. Multiple hotel brand[s] puzzle travellers. Wall Street Journal,
17 April 1996, p. B1.
This section is based verbatim on Du Plessis, I. 2005. Name of the game is cobranding. Business Day electronic edition, 12 April 2005.
Perreault, W.D. & McCarthy, E.J. 1996. Basic marketing. Chicago: Irwin, pp.
293294.
This section was written by Dr Hanlie Krger.
PE sweet-maker loses bitter fight. Eastern Province Herald, 27 September
1997.
Cadac attaches Weber trademarks. Bizcommunity online newsletter,
www.bizcommunity.com, 7 November 2007.
Harley-Davidson Motor Company. 20 November 1995. Register the rumble.
McClachlan, T. 2007. Legal battle over proper use of 24. Business Day
electronic edition, 27 March 2007.
Bahls, S.C. & Bahls, J.E. 1996. Fighting fakes. Entrepreneur, February, pp. 73
76.
McCleod, D. 1999. Software pirates could sink ship. Financial Mail, 5
Riddle, J.J. 1993. J & J ready to flip lid on Tylenol. Brandweek, 3 May 1993, p. 3.
Food & Beverage Reporter Online. Corned meat can debate. November 2000,
pp. 2122.
Payne, T. 2010. Thermochromic labels in SA. Food & Beverage Reporter,
January/February 2010, p. 36.
CHAPTER
09
Developing and managing

products
LEARNING OUTCOMES
Explain why developing new products is important to business

firms.
2 Describe the nature of the six categories of new products that
firms can develop to establish and sustain a competitive
advantage.
3 Explain the steps in the new-product development process.
4 Identify potential sources of new-product ideas.
5 Discuss techniques that can be used to generate new-product
ideas.
6 Provide arguments for and against the use of thorough test
marketing of new products.
7 Identify reasons why some products succeed and others fail.
8 Provide guidelines on how firms can organise internally to
facilitate new-product development.
9 Explain the concept of the product life-stage cycle and describe
the prevailing circumstances typical of each stage.
10 Provide a thorough overview of strategies a marketer can use
during each stage of the product life cycle.
11 Explain the diffusion process through which new products are
adopted.
12 Review the product characteristics that influence the rate of
adoption of new products.
above outcomes.

Inside track: Barbie plans to let down
her hair
At 55, she retains her youthful, if somewhat
improbable, appearance. She has had a number of
careers, including astronaut, presidential candidate,
fashion model and surgeon. She has had a close
friendship with Ken for many years, but there is no sign
of marriage or children. If this were your daughter, you
would probably be proud of her achievements. You
might also worry whether she would ever settle down.
But this is Barbie, the worlds most valuable plastic doll,
who seems destined for an unsettled life if she is to
survive. Recently, the Barbie powerhouse has faltered.
Sales of the doll grew steadily during the 1990s, but
sales have declined in recent years. Ten years ago
Barbie accounted for about 30 per cent of the sales of
Mattel, her parent company. Today it is closer to 20 per
cent.
The challenge of keeping Barbie fresh and
interesting has fallen to Adrienne Fontanella. This is no
easy task as Fontella realises that many girls in their
target market spend more and more time using iPods
and cell phones than playing with dolls. Competitors
have also sprung up in international markets and
market more local dolls.
Says Fontanella: You have to be fresh and new this
business is now pretty much like a fashion business
and we are having to produce new products all the
time. We produce between 12 and 20 key dolls each
year. Its a lot. And it is testimony to Barbies enduring
success. Despite her current difficulties, she is still an
exceptional brand in a world where few toys last
beyond two Christmas seasons.
SOURCE: Killgren, L. 2002. Barbie plans to let down her hair. Financial
Times, June 2002, p. 10; Ten things you dont know about Barbie. Evening
Standard, 4 December 2012, p.8
QUESTIONS
1
2
To what would you ascribe Barbies falling sales?

What advice would you give to Adrienne Fontanella?
1. Introduction
In Chapter 8 we referred to the importance of products in
the marketing mix. The product is the physical
manifestation of the firms efforts to satisfy customer needs,
and can be anything that a person receives in an exchange

normally for money. A product may be a tangible, a service,
an idea or any combination of these three. In this chapter,
product management is discussed. The focus is on newproduct development, how products progress through a socalled product life cycle and how firms can utilise a variety
of strategies to manage the growth process of a product from
the introduction stage to its eventual decline.
2. The importance of new products
LO1
How long can a firm survive without introducing new

products? On average only about seven years says Neil
Jacoby, CEO of Futureworld. Business firms do not do
business in a vacuum: forces in the rapidly changing
environment continually compel them to re-evaluate and
reconsider their existing product mix. An evaluation of a
product mix may lead to the removal of some products or
brands or to the introduction of new products or brands.
The following are the typical reasons why new products are
important for firms:
To pursue growth and profitability objectives. A firms

products may be in various phases of their product life
cycle, and consequently contribute in different degrees
to the overall profit and growth objectives of the firm.
When the existing product mix does not meet these
objectives, new products need to be introduced. Figure
9.1 illustrates how a profit gap can emerge in this
instance in years 3 and 4. New products are needed to fill

this gap or the firms long-term profitability will decline.
Coca-Cola realised a long time ago that it cannot depend
on carbonated soft drinks alone to ensure its long-term
profitability and survival. As a result, Coca-Cola
developed new products, such as Iced Tea and, more
recently, a vitamin-enhanced flavoured water under the
Glacau brand. In a similar vein, South African
Breweries (SAB) is now marketing a new flavoured beer
Flying Fish.
To replace declining products. The product life cycle
(PLC) of products tends to become shorter and shorter
and requires new products to replace them. The failure
to replace products, brands or models in a product range
whose sales are declining can have a serious impact on a
firms financial position. Apple has been experiencing a
fall in sales (for the first time since 2003) and they have
not really introduced any new products since the iPhone
in 2008 and the iPad in 2010. They are now considering
developing wearable computing devices and innovative
mobile-payment systems (the eWallet) to stop the
declining trend.1 Examples of products that are gradually
being replaced are BlueRay players and PVR decoders
replacing DVD players. Digitised photography is
replacing traditional film photography. Cloud services
are replacing flash disks and external hard drives as
data-storage devices.
Product obsolescence. The consumer electronics
market changes terribly fast. New gadgets are introduced
almost every week. Marketers have found ways to
convince consumers to buy a new gadget even though
their old gadget is fully or mostly functional. Profit is

their motivation: shorter times between sales equal more
sales. Selling a cellphone to a single customer every
18 months is more profitable than only selling him one
every five years. Therefore, producers are interested in
shortening the time between sales. New technology can
make a firms products obsolete. Word processing on
personal computers made the traditional typewriter
obsolete. New CD-ROM technology has rendered
recording music on vinyl records (and, therefore,
marketing vinyl records) obsolete. The scanning and
emailing of documents have made fax machines
obsolete. Electronic payments such as Internet and
mobile banking are making cheques and cheque books
obsolete. The Post Office realises that a stamp (its most
important source of revenue) is something that, over
time, may become obsolete due to the popularity of
electronic communication media such as emailing and
sms messaging.2
New products have to be developed to remain
competitive. Competitive pressures often shape
marketers new-product strategies. After the first
toothpaste with fluoride was launched, other toothpaste
manufacturers had to follow suit as fluoride quickly
became a standard ingredient in toothpaste. Apple
Computers, after struggling financially for a few years,
introduced the iPod, the Apple iPhone and, lately, the
iPad, which effectively saved the firm from bankruptcy.
Korean firm Samsung spent R400 billion rand in 2012 on
new products, particularly new cellphone chips and
next-generation displays for phones and TVs. Failure to
develop new products have cost firms/brands such as

Nokia, Samsung, Blackberry and Kodak dearly.
Changing consumer needs open up opportunities for
new products. It often happens that a new primary
product leads to new needs and wants for secondary
products. The development of the cellphone has led to
the development of markets for various cellphone
accessories, such as car kits and belt pouches. Knowing
that two out of every five pages printed in an office are
churned out for a single viewing only, Xerox is
developing an erasable paper that will display printed
images for only one day. After 24 hours, the images will
fade and the paper can be reused.3
As illustrated in Figure 9.1, failure to refresh the product mix

from time-to-time can lead to a growing gap between a
firms profit objectives and its actual profits (see the gaps
denoted by the X and Y symbols in years 3 and 4). A good
example of this situation was the Finnish cellular phone
handset manufacturer, Nokia. Up to 2004, it refused to add
new models to its product mix. In particular, Nokia
stubbornly resisted adding foldaway handsets with big
screens to its product mix. But these have become the norm
in Asia, Europe and the United States. Competitors began
beating Nokia to the market with new designs, and the firm
started losing market share. In 2004, Nokias share price
dropped by 20 per cent as the profit gap grew larger and
larger. By the end of 2004, Nokia had realised that its poor
product-management decisions were threatening the future
existence of the firm and announced that it would introduce
30 new models in an attempt to regain lost ground.4
However, it was too late and in 2014 Microsoft took over the
Nokia brand.
Figure 9.1 Profit contribution of individual products over time
3. Categories of new products
LO2
The term new product is somewhat confusing because its

meaning varies widely. A product can be new to the world,
to the market, to the producer or seller, or to some
combination of these. Six distinctive categories of new
products can be identified:5
New-to-the-world products (also called discontinuous

innovations) are new in the sense that there were no
products before them that were even remotely similar.
These products create an entirely new market. The
telephone, television, computer, fax machine,
microwave oven, cellphone and the Internet were once
new-to-the-world products. Today, examples of recent
new-to-the-world products are gadgets that can spot
cable thieves in the dark, solar energy, 3D printing,

electronic cigarettes, fuel cell motor vehicles, electric
motor vehicles, virtual wallets, unmanned cargo ships,
and waterless car washes.
New product lines. These products, which the firm has
not previously offered, allow it to enter an established
but new market. The dairy firm Parmalat adding fruit
juices to its dairy product lines would be an example.
The breakfast cereal manufacturer Jungle has added
Jungle ready-to-eat cereal bars to its product range. An
Internet-based example of a line extension is Amazons
expansion from books into other product categories. The
rationale is to capitalise on an existing strong brand
image in new markets.
Additions to existing product lines. This category
includes new products that supplement a firms
established line. Hallmark recently announced the
addition of 117 new greeting cards for pets. According
to Hallmark research, 75 per cent of pet owners give
Christmas presents to their pets, and 40 per cent
celebrate their pets birthdays. More than 75 per cent of
all new products introduced each year are actually line
extensions new varieties, formulations, sizes and
packaging of existing brands.6 Heineken has made
renewed attempts to woo the elusive female African beer
drinker with its Radler beer a low-alcohol content,
sweeter beer.7 Foschini has added the footwear brand
Charles & Keith and the luxury menswear brand Fabiani
to its product line-up.
Improvements to or revisions of existing products. The
new and improved product may be significantly or
slightly changed. Revlons ColourStay Lipcolour became

the number-one-selling lipstick on the basis of a promise
to last all day without smearing.8 South Korean firm LG
Electronics has taken refrigeration one step further.
Apart from keeping food fresh, its top-end fridge has
been transformed into a family entertainment and
communications centre for the digital age. It allows you
to surf the Internet, send e-mails, shop online, make
video calls, listen to music and watch short videos.
Theres even a diary for anniversaries, birthdays and
other important dates. Its LCD shows the fridges
temperature and provides recipes and tips on nutrition.
And it knows whats inside the fridge.9 Nokia has
introduced the Nokia Lumia cellphone the pinnacle of
its range. It has high-speed 3G capabilities, a five
megapixel camera, built-in GPS and a music player.
Television sets have become bigger, thinner, offering a
cinematic experience. An example is Philipss highdefinition 3D TVs. Cement manufacturer AfriSam has
improved its cement to cure in two days to the same
extent that was previously possible in only seven days
an improvement that speeds up the building process.
Repositioned products. South African Breweries has
very successfully repositioned Castle Lite as a premium
brand. (Repositioning was discussed extensively in
Chapter 7).
Lower-priced products. This category refers to products
that provide performance similar to competing brands
but at a lower price. Hewlett Packard introduced
CopyJet, a combination colour printer and colour copier,
at about one-tenth of the price of most conventional
colour copiers.10 The Taiwanese computer manufacturer

Asus was the first manufacturer to introduce netbooks
relatively small laptops that can do almost everything
that current laptops can do at a much lower price.
Although there are exceptions, the introduction of genuinely
new products (i.e. new-to-the-world products) seldom
occurs by chance. Almost without fail, they will reach the
market as the culmination of a thorough and systematic
new-product development process.
4. The new-product development process LO3

In South Africa, more than 10 000 new product items are
launched in the FMCG market per year. Unfortunately,
many of them are not successful. In the United States, the
failure rate of these new products is 80 per cent. Success
depends on how the new-product development process is
managed.
Not all firms are equally progressive and geared for
developing new products. The firms most likely to succeed
in developing and introducing new products, such as 3M,
are those that take the following actions:11
Make the long-term commitment needed to support

innovation and new-product development
Use a firm-specific approach, driven by the firms
objectives and strategies, with a well-defined newproduct strategy at its core
Capitalise on experience to establish and maintain a

Establish an environment a management style,
organisational structure and degree of top-management
support conducive to realising firm-specific newproduct and corporate objectives.
Most larger firms follow a formal new-product development

process, usually starting with a new-product strategy. The
objective is to avoid costly (and often embarrassing)
mistakes by identifying potential problems as early as
possible and taking corrective action as the process
develops. A new-product strategy links the new-product
development process with the objectives of the marketing
department, the business unit and the firm. A new-product
strategy must be compatible with these objectives, and, in
turn, the objectives of all three marketing department,
business unit and firm must be consistent with one
another.
As a new-product strategy is part of the firms overall
marketing strategy, it sharpens the focus and provides
general guidelines for generating, screening and evaluating
new-product ideas. The new-product strategy specifies the
roles that new products must play in the firms overall plan.
In addition, it describes the characteristics of products that
the firm wants to offer and the markets it wants to serve.
Figure 9.2 illustrates the seven-step process of newproduct development, which is discussed in more detail in
the sections that follow. The illustration in Figure 9.2 is
funnel-shaped to show that each stage acts as a screen. The
purpose is to filter out unworkable ideas and reserve
resources only for those options that have a reasonable

chance of success.
Figure 9.2 the new-product development process
4.1 Idea generation
LO4
The first step in the new-product development process is

generating new ideas. New-product ideas come from many
sources customers, employees, intermediaries,
competitors, research and development and consultants.
Whether new-product ideas are sought deliberately or not,
an atmosphere conducive to new-product development

should always prevail in a firm because of the potential
benefits that new products can bring. In other words, there
ought to be a formal structure to ensure a continuous flow of
new-product ideas that are handled in a systematic manner.
Customers. The marketing concept suggests that

customers needs and wants should be the springboard
for developing new products. Thermos, a vacuum-bottle
manufacturer, provides an interesting example of how
firms tap customers for ideas.12 The firms first step in
developing an innovative braai grill was to send ten
members of its interdisciplinary new-product team into
the field for about a month. Their assignment was to
learn all about peoples braaiing needs and to invent a
product to meet them. In major cities the team
conducted focus groups, visited peoples homes and
even video-taped braais to try to understand the needs of
people who braai regularly. In a similar vein, the
complaints department of a firm and its intermediaries
can also be a very useful source of new-product ideas.
The healthcare firm Johnson & Johnson has what it calls
a customer immersion day, when brand managers
spend time with their customers in order to understand
their customers needs. LOreal has a consumer insights
team that video tapes consumers in their bathrooms
when using shampoos and cosmetics.
Employees. Marketing personnel advertising and
marketing research employees, as well as salespeople
often generate new-product ideas, because they analyse
and interact directly with customers. Firms should
encourage their employees to submit new-product ideas

and reward them if their ideas are adopted. The very
successful introduction of Post-it notes started with an
employees idea. In 1974, the research and development
department of 3Ms commercial tape division developed
and patented the adhesive component of Post-it notes.
However, it was a year before an employee of the
commercial tape division, who sang in a church choir,
identified a use for the adhesive. He had been using
paper clips and slips of paper to mark places in his hymn
book. But the paper clips damaged his books, and the
slips of paper fell out. The solution, as we now all know,
was to apply the adhesive to small pieces of paper and
sell them in packages. The health care firm Johnson &
Johnson has formalised the process of employee
involvement in new-idea generation with a website
which enables employees to post ideas about potential
new products. First National Bank paid out R6m to
employees who contributed new product ideas in 2010
and a further R9 m in 2011. Then-CEO Michael Jordaan
said: We relentlessly drive the message of innovation
throughout the bank. This is not simply and an internal
slogan; it is a primary way of working in the bank. We
challenge new ideas and seek new ways of banking. Our
key driver is to find ideas that are beneficial to our
customers, will attract new customers and will enhance
our overall business.13
Intermediaries. A well-trained sales force routinely asks
intermediaries about customer needs that are not being
met. Because they are closer to end users, intermediaries
are often more aware of customer needs than
manufacturers. Intermediaries such as wholesalers and

retailers also handle the products of many other
manufacturers and are, therefore, fully informed about
the latest trends that may affect a product and its
marketing.
Competitors. No firm relies solely on internallygenerated ideas for new products. A major part of any
firms marketing intelligence system should concern
itself with monitoring the performance of competitors
products. One of the purposes of competitive monitoring
is to determine which, if any, of the competitors
products should be copied. Competitive monitoring may
include tracking products bought by a firms own
customers. For example, Ford Motor Company buys its
competitors new car models as soon as they are released
and strips them down to check for new ideas and
innovations.
Research and development (R & D). R & D is carried
out in four distinct ways. Basic research is scientific
research with the purpose of discovering new
technologies. Applied research takes these new
technologies and attempts to find useful practical
applications for them. Product development goes one
step further by converting applications into marketable
products. Product modification makes cosmetic or
functional changes to existing products. Many newproduct breakthroughs come from R & D activities in the
laboratories of commercial firms.
Consultants. Outside consultants are often available to
examine a business and recommend product ideas.
Traditionally, consultants determine whether a firm has
a balanced portfolio of products and, if not, what newproduct ideas are needed to redress the imbalance.
Sometimes new product ideas emanate from unexpected
sources, such as suppliers or suggestions from members of
the public. For instance, Bull Brands tinned pap and meat
product, Zadza, was developed from an idea supplied by a
vegetable farmer in the Malmesbury district.14
4.2 Creativity
LO5
Creativity is the wellspring of new-product ideas, regardless

of who comes up with them. A variety of approaches and
techniques have been developed to stimulate creative
thinking. The following are some of the more popular and
useful approaches for generating new-product ideas:
Attribute listing. Using this technique, the important

attributes of an existing product are listed. Thereafter,
consideration is given to the possible modification of
each attribute, with the objective of ending up with an
improved product. The classic example is the
screwdriver. The ordinary screwdriver and its attributes
are subjected to such questions as: can it be enlarged?
can it be made smaller? can electrical power be added to
it? can different heads be attached to it? By addressing
these attribute-related questions, ideas emerged that
resulted in developing the electric power-driven
screwdriver with different sizes and shapes of shanks.
Forced relationships. This technique focuses on
different objects that are used in the same environment.

The food processor came about after various kitchen
utensils such as those for cutting, shredding, mincing
and mixing were combined into one appliance.
Brainstorming. The object of brainstorming is to get a
group of people to think of unlimited ways to vary a
product or solve a problem. Group members avoid
criticism of a proposed idea no matter how ridiculous it
may seem. Objective evaluation is postponed at first. The
sheer quantity of ideas is what matters initially.
Focus groups. An objective of focus-group interviews
(see Chapter 5) is to stimulate insightful comments
during group interaction. Focus groups usually comprise
seven to ten people. Sometimes, consumer focus groups
generate excellent new-product ideas. In the industrial
market, machine tools, keyboard designs and aircraft
interiors have evolved from focus-group suggestions.
Some innovative firms use modern technology to generate

new-product ideas. The computer manufacturer Dell invites
visitors to its website to suggest new product ideas using a
blog where customers can submit stories and bookmark
their favourite websites.15
The major objective in the idea-generation phase is to
generate as many new product ideas as possible. The more
ideas generated, the greater the probability of identifying a
profitable idea.
Co-creation: The future of product

development?
The Internet not only impacts on the way we
communicate with one another, but also affects the
way that business is done. It has allowed previously
unfeasible business models to become commercially
viable. For example, when developing new products,
firms would typically start by identifying the needs of
the market and then develop products, which
customers would either embrace or reject. However,
the Internet has allowed businesses to involve
customers in new-product development in a process
known as co-creation. This way, the customer is no
longer a passive participant in the new-product
development process, but co-creates the product. For
example, a motor cycle accessories shop based in Cape
Town, Leather Forever (www.leatherforever.co.za),
allows customers, through the firms website, to
customise their kevlar (an extremely strong material)
jeans ordered online. This value-adding service gives
customers the option of going to the shop in Bellville
and buying a standard pair of jeans, or entering their
personal information and measurements on the
website of Leather Forever and buying a customised
pair of jeans. Nike followed a similar strategy by giving
customers online tools to design their own trainers.
Although many businesses have realised for some
time the important implication that co-creating
products has for the marketing of their business (i.e. it
leads to improved relationships with customers,

customer loyalty and positive word-of-mouth), it was
only with the advent of enterprise social software that
this movement gained momentum. This is because
businesses realised that Internet-based social
communities are a powerful source of innovation
because they allow like-minded communities to share
ideas and innovations for the common good. The
operating system Linux (and the open source software
movement) is a prime example of the power of
consumer-led innovation.
This freewheeling approach to solving business
problems and generating new ideas is not new to
business. For example, Innocentive offers prizes to
people who come up with solutions to problems in
such areas as computer science, engineering and
business. Similarly, Proctor & Gamble, a large
multinational firm, realised that rather than keep the
new-product development process internal, it could
generate new product ideas more economically by
collaborating with suppliers, competitors, scientists
and entrepreneurs. In essence, Proctor & Gamble
believed that, although it had a clear sense of its
customers needs, leveraging outside expertise would
allow the firm to generate new ideas for developing
cheaper and better products. Social network forums are
a means of identifying consumer needs, but also allow
businesses to monitor and harvest ideas directly from
their target market, which is feasible for any business,
irrespective of its size.
SOURCES: Prahalad, C.K. & Ramaswamy, V. 2000. Co-opting customer

competence. Harvard Business Review, January 2000, pp. 7987; Huston, L.
& Sakkab, N. 2006. Connect and develop: Inside Procter & Gambles New
Model for Innovation. Harvard Business Review, March 2006, pp. 5866
4.3 Idea screening

After new ideas have been generated, they pass through the
first filter in the product development process. This stage,
called idea screening, eliminates ideas that are inconsistent
with the firms new-product strategy or are obviously
inappropriate for some other reason.The new-product
committee, the new-product department or some other
formally appointed group performs the screening review.
Most new-product ideas are rejected at the screening stage.
Questions that need to be addressed even at this early stage
are:
What is the consumer need that this product will satisfy?

Will we be able to establish and sustain a competitive
advantage?
Will the product contribute to the realisation of the firms
objectives?
Is it our business?
Do we have the resources to launch the product?
Who and what will we be competing with?
Are there any legal implications associated with the
product?
What are the profitability prospects?
For example, the branded goods firm Unilever had the idea
of developing a weight-loss diet pill based on the hoodia

plant, but dropped the idea at the idea-screening stage
because of safety concerns.16
4.4 Concept development and testing

At this stage, the firm must turn the remaining new-product
ideas into a product concept and subject it to a more
thorough evaluation. The product concept is what results
when the idea is measured against consumer requirements.
Typical questions that could be asked at this stage are:
Who will use the product?

What is the primary benefit of the product?
When will the product be used?
Therefore, a product concept flows from combining unique

product attributes and certain consumer needs and actions.
Concept tests are often used to rate concept (or product)
alternatives. A concept test evaluates a new-product idea,
usually before any prototype has been created. Usually,
researchers get consumer reactions to verbal descriptions
and visual representations (e.g. pictures or computer
images) of a proposed product. Besides consumer feedback,
it is also advisable to solicit the views of intermediaries (such
as retailers and the sales force) at this stage. Intermediaries
not only have a thorough knowledge of the market and
consumer needs, but will also advise on issues such as
packaging and handling.
>>Strategy
A product under concept testing at the moment is cold
(also called ambient) Nescaf in a can that needs to be
shaken and, after a three-minute wait, the cold
beverage can turns into a cup of hot coffee. A few
samples of this intriguing new technology, a selfheating can of liquid, have filtered into South Africa
from a product trial under way in the UK. The product
is called Nescaf Hot When You Want. Each can
contains an internal heat engine, which, when
activated, heats the coffee in three minutes. It creates a
210 ml serving of Nescaf at a temperature of about
60C. The heat engine is activated by pressing a button
on the base of the can. Water then mixes with
quicklime stored in the heat engine to create a reaction,
which, in turn, heats the coffee. The can uses
reinforced materials to protect users lips and fingers
from scalding.
The difficulty has been to make efficient, safe and
cost-effective packaging. Nescafs UK commercial
project manager, Graham White, says the commercial
market for self-heating cans could be huge. If only 0,5
per cent of the hot drinks consumed in the UK were
self-heating cans, sales could be 500 million cans a
year. Nescaf claims the self-heating coffee tastes better
than most coffee made at home, as it does not use
boiling water.17
Concept tests are considered fairly good predictors of
success for line extensions. They have also been relatively

precise predictors of success for new products that are not
copycat items, for products that are not easily classified into
existing product categories and for products that do not
require major changes in consumer behaviour. SABs testing
of the concept of alcoholic fruit beverages before its
introduction of the Brutal Fruit brand is an example.
However, concept tests are often inaccurate in predicting
the success of new products that create completely new
consumption patterns and require major changes in
consumer behaviour such as microwave ovens, video
cassette recorders and computers years ago. Smart phones
and electronic books are more recent examples.
Imagine that we have tested cold Nescaf coffee in a can
on a group of coffee drinkers, and explained to them first
that the canned coffee needed to be shaken in order to turn
into a cup of hot coffee three minutes later. Imagine that
they said that they liked the idea: would that make Nescaf
Hot When You Want a guaranteed success?
4.5 Business analysis

New-product ideas that survive the initial screening process
move to the business analysis stage, in which preliminary,
but detailed, figures for demand, cost, sales and profitability
are calculated. At this stage, for the first time, costs and
revenues are estimated and compared. Depending on the
nature of the product and the firm, this process may be
simple or complex. The newness of the product, the size of
the market and the nature of the competition all affect the
accuracy of revenue projections.18 In an established market,

such as carbonated soft drinks, industry estimates of the
total market size are available. Forecasting market share for
a new entry, such as Nescaf coffee in a can, however, is a
bigger challenge.
Analysing overall economic trends and their impact on
estimated sales are especially important in product
categories that are sensitive to fluctuations in the business
cycle. If consumers view the economy as uncertain and
risky, they will put off buying durable goods, such as major
home appliances, motor vehicles and homes. Likewise,
business buyers postpone major equipment purchases if
they expect a recession.
The following questions are commonly asked during the
business analysis stage:
What is the likely demand for the product?

What impact would the product have on total sales,
profits, market share and return on investment?
How would the introduction of the product affect
existing products?
Would the new product cannibalise existing products?
Would current customers benefit from the product?
Would the product enhance the image of the firms
overall product mix?
Would the new product affect current employees in any
way?
Would it lead to hiring more people or reducing the size
of the workforce?
What new facilities, if any, would be needed?
How might competitors respond?
What is the risk of failure?

Is the firm willing to take the risk?
Answering these and related questions may require studies

of markets, competition, costs (and market prices) and
technical capabilities. When Philips tested the DVDR 1000,
which was expected to replace the VCR as we know it, it
estimated that it would retail at almost R32 000 per unit. The
questions Philips then had to answer were what is the likely
demand for the product? and all the other typical business
analysis stage questions listed above.
EXAMPLE To develop a new vaccine takes about 812 years and

development costs are typically between $500 million and $800 million. A
pharmaceutical firm developing such a vaccine must be sure it can recover its
costs before it launches such a product.19 SAB invested R10 million to develop its
malt-based nutritional supplement, Rhino Malta, and calculated that the product
could be profitable at R3,00 for 250 ml and R9,00 for 1 litre. Potential demand
was estimated at 250 000 hectolitres a year. SAB estimated that at that price
and at that level of demand, it could proceed with the development of the new
product.
The pharmaceutical firm Eli Lilly, on the other hand, terminated development
of its inhaled insulin for diabetes patients (used instead of injecting insulin) after
the firm concluded that the products commercial potential [was] not strong.20
Boeing has similarly dropped plans to build the Boeing 787-3 after Japan Airlines
and All Nippon Airways cancelled their orders and the firm decided that
proceeding with the product would not be profitable.21
Products that are largely information technology-based
have relatively little capital investment requirements (other
than software development and hosting of the website).
Consequently, new projects and innovative products are

easily launched with minimal financial risk. For example,
GoTryItOn (www.GoTryItOn.com) lets users upload digital
snapshots of themselves in various outfits and indicate the
particular occasion or event for which the outfit is intended.
In so doing, users are able to solicit the views of visitors to
the website on the appropriateness of the clothing, but
before visitors can venture an opinion, they need to ask the
wearer where the items making up the outfit can be
purchased.
To summarise, at the end of the business analysis stage,
management should have a good understanding of the
products market potential. This full understanding is
important because costs increase dramatically once a
product idea enters the development stage.
4.6 The development stage

In the early stage of development, the R & D department or
engineering department may develop a prototype of the
product. During this stage, the firm should start compiling a
preliminary marketing strategy. The marketing department
should decide on the products packaging, branding,
labelling, and so forth. In addition, it should map out
preliminary marketing communication, price and
distribution strategies. The technical feasibility of
manufacturing the product at an acceptable cost should also
be thoroughly examined. It is also advisable to assess
consumer feedback on a prototype, if available.
The development stage can last a long time.
Consequently, it can be very expensive. Bull Brands Zadza

brand (tinned pap and mealies) took six years to move from
an idea to a product on the shelves. Crest toothpaste was in
the development stage for ten years. It took 18 years to
develop Minute Rice, 15 years to develop the Xerox
photocopy machine and 55 years to develop television.22
The development process works best when all the
involved areas (R&D, marketing, engineering, production
and even suppliers) work together rather than sequentially,
a process called simultaneous product development
(discussed later in this chapter). Laboratory tests are often
conducted on prototype models during the development
stage (see the photograph below, which shows the testing of
Barbie dolls under water). User safety is an important aspect
of laboratory testing, which actually subjects products to
much more severe treatment than is expected by end users.
At this stage some potentially new products may be
abandoned. A company that tested a vaccine for
tuberculosis (TB) had to discontinue its efforts after trial
tests involving 2 800 babies showed that it made no real
difference to their chances of getting infected with TB.23
Many products that test well in the laboratory are also
tried out in homes or businesses. Examples of product
categories well suited for testing include human and pet
food products, household cleaning products, medicines and
industrial chemicals and supplies. These products are all
relatively inexpensive, and their performance characteristics
are apparent to users. Most products require some
refinement on the basis of the results of laboratory and use
tests. A second stage of development often takes place
before test marketing commences.
4.7 Test marketing
LO6
After products and marketing strategies have been

developed, products are usually tested in the real world
the marketplace. Test marketing is the limited introduction
of a product and a marketing strategy to assess the reactions
of potential customers in a market situation. Test marketing
allows management to evaluate alternative strategies and
assess how well the various aspects of the marketing mix fit
together.
The cities chosen as test sites should reflect market
conditions in the new products projected market area.
However, no magic city exists that can universally
represent market conditions, and a products success in one
city doesnt guarantee that it will be a nationwide hit. When
selecting test market cities, researchers should, therefore,
find locations where the demographics and purchasing

habits mirror the overall market.
EXAMPLE >> In South Africa, the Johannesburg-Pretoria area and Cape

Town are often used as test marketing cities. When Woolworths tested the
concept of an in-store pharmacy, the retailer chose its Kloof Street branch in
Cape Town and its Athol Square branch in Johannesburg for the tests. When Virgin
Active opened its first Classic health club as an experiment, it used Melrose Arch
in Johannesburg as a test case. The upmarket club, which offers more features
than other Virgin Active clubs, restricts membership numbers and the fees are
higher. If the Melrose Classic club is successful, Virgin Active would roll it out in
the rest of South Africa and even globally.
READER 46 >> Philips tests a device that could prevent

heart attacks
Although it may not make the headline news very often, heart failure is a
serious, chronic disease that affects more than 22 million people worldwide.
And the prognosis is frightening: nearly half of all heart failure patients die
within four years. One reason is common, and sometimes fatal a
complication called decompensation. But new techniques from Philips
Research may help find a way to predict decompensation before it reaches a
critical level.
Decompensation causes a persons body and lungs to fill with excess fluid,
sometimes so severely that they can hardly move or breathe. It often results in
long hospital stays for recovery. And although many heart failure patients use
home telemonitoring systems which transmit patient-recorded health
measurements to healthcare providers for review, the current systems cannot
yet predict a potential decompensation event. This is unfortunate because
decompensation, if caught early enough, can be treated with medication
instead of hospitalisation.
Heart failure patients often experience a gradual deterioration in health

status over weeks before ultimately requiring hospitalisation, notes Sarwat
Chaudhry, professor of medicine at Yale University in the United States. A
system of frequent monitoring may help clinicians to intervene early and
thereby avoid the need for hospitalisation.
New techniques developed by Philips Research help resolve this issue by
predicting decompensation days in advance through home telemonitoring
systems, such as Philips Healthcares Motiva and TeleHealth. Using highly
sensitive textile sensors, patients would be able to measure their breathing
patterns, body movement and even electrocardiogram (ECG or EKG) readings
at home. Currently, the new techniques are being refined in an observational
telemonitoring study with six European university clinics. Results are expected
in mid-2010, so it may be a few years before the technology is widely
available, but the potential of an early decompensation warning will be worth
the wait.
SOURCE: www.research.philips.com/newscenter/topics/20100316-myheart.html (Accessed 23 July
2010)
When choosing a test market, many criteria need to be

considered, especially the following:
Similarity to planned distribution outlets

Relative isolation from other cities
Availability of advertising media that will co-operate
Diversified cross-section of ages, religions, culturalsocietal preferences, etc.
No atypical purchasing habits
Representative population size
Typical per capita income
Good record as a test city, but not overused
Not easily jammed by competitors
Stability of year-round sales

No dominant television or radio station; presence of
several newspapers, magazines and radio stations
Availability of retailers that will co-operate
Availability of research and audit services
Freedom from unusual influences, such as one
industrys dominance, or heavy tourism.
In the online world, marketers can evaluate various product

offerings by conducting online marketing experiments. For
example, if three different products are under consideration,
the firms server can randomly present different visitors with
these different offerings, then gauge their reactions to the
products by tracking the visitors click stream. The objective
is to be able to draw definitive cause-and-effect insights to
determine the potential performance of a new product.
These insights become more valuable through careful
planning, control and measurement throughout the testing
process.
4.7.1 The high costs of test marketing

In the United States test marketing normally covers 13 per
cent of the country and typically takes about 12 to
18 months.24 Some products remain in test markets even
longer. McDonalds spent 12 years developing and testing
salads before introducing them. Despite the cost, many
firms believe it is a lot better to fail in a test market than in a
national introduction.
Because test marketing is so expensive, some firms do not
test line extensions of well-known brands. For example,
because the Folgers brand of coffee is so well known in the

United States, Procter & Gamble faced little risk introducing
its instant decaffeinated version nationally. Consolidated
Foods Kitchen of Sara Lee followed the same approach with
its frozen croissants.
Products that are frequently revised are usually not test
marketed. For example, personal computer manufacturers
did not test market new processors before introducing them.
Many software firms and manufacturers of electronic
devices such as cell phones are simply introduced without
any test marketing because they were so similar to their
predecessors. When Namibian Breweries introduced Amstel
Lite there was no need to test market. They knew there was
adequate demand for lite beers in South Africa and they
have enough knowledge and experience of the beer market
to proceed without test marketing data. Marketing
experience with earlier versions provides the information
that would have been collected during a test-marketing
exercise.
The high cost of test marketing is not only purely
financial. One unavoidable problem is that test marketing
exposes the new product and its marketing mix to
competitors before its introduction. So the element of
surprise is lost. The risk with no or very limited test
marketing is that potential problems may go undetected.
The signal reception problems experienced with Apples
iPhone4 are, for instance, attributed to inadequate product
testing before its launch.
Competitors can also sabotage or jam a testing
programme by introducing their own sales promotion,
pricing or advertising campaign. The purpose is to hide or

distort the normal conditions that the testing firm might
expect in the market. When PepsiCo tested its Mountain
Dew sports drink in the United States, Quaker Oats counterattacked furiously with coupons and advertising for its
cooldrink, Gatorade, which seriously compromised the
validity of PepsiCos test marketing.
The time that a product should be subjected to test
marketing will vary from product to product and will largely
depend on what the manufacturer wishes to achieve with
the test marketing. In cases such as medicine, for instance,
the type and duration of the testing are prescribed by a
regulating body to ensure that certain minimum standards
are met.
4.8 Commercialisation
The final stage in the new-product development process is
known as commercialisation the decision to market a
product. The decision to commercialise the product sets
several tasks in motion: ordering production materials and
equipment; starting production; building up inventories;
shipping the product to field distribution points, such as
wholesalers and retailers; training the sales force;
announcing the new product to the retail trade; and
advertising to potential customers.
The time from the initial commercialisation decision to
the products actual introduction varies. It can range from a
few weeks for simple products that use existing equipment
to several years for technical products that require
customised manufacturing equipment.

The total cost of development and initial introduction can
be staggering. US firms spend more than $125 billion each
year on research and development, manufacturing and
marketing to introduce around 4 250 new brands.25 Gillette
alone spent more than $200 million to develop and start
manufacturing the Sensor razor, and another $110 million
for first-year advertising.
A product currently in the commercialisation phase is a
new, self-cooling can recently launched in the UK. The
chiller uses a vacuum to chill beer instantly. The
temperature of the drink drops 16,7C in three minutes and
stays cold for up to an hour. It works on the cooling power of
evaporation. The beer is surrounded by a watery gel which
drains off when the bottom of the can is twisted. The can
bottom also contains an insulated heat-absorbing device.
This makes the temperature of the beer drop and creates a
vacuum which should keep it cold for an hour. The chiller
will increase the price of a can of beer by two rand.26
5. Why some new products succeed and

others fail
LO7
Associations, trade publications, consultants and statistical

bureaus estimate that the new-product failure rate in the
United States is in the range of 80 to 90 per cent and costs
more than $100 billion each year. Many products fail simply
because their manufacturers lack a well-developed
marketing strategy. Moreover, they do not realise the

importance of creating a product to meet the consumers
need (referred to as a consumer orientation in Chapter 1),
and instead produce what we know best (referred to as a
product orientation in Chapter 1).
Failure can be a matter of degree. Absolute failure occurs
when a firm cannot recoup its development, marketing and
production costs. In other words, the product actually
causes the firm to lose money. A relative product failure
results when the product returns a profit but does not meet
its profit or market share objectives. Relative failures can
sometimes be repositioned or improved to become a viable
part of a product line. For instance, SAB at one stage
considered removing Hansa Pilsener from the product line.
But SAB succeeded in increasing its market share from 0,7
per cent in the mid-1990s to 12,9 per cent in 1998, to about
15 per cent in 2003. Four years later, Hansa is SABs thirdlargest brand after Black Label and Castle. The premature
removal of Hansa would have been a costly mistake! Avusa,
the publisher of the Sowetan, wanted to close the newspaper
when sales fell below 100 000 newspapers per day after
posting sales of more than 250 000 at one stage.
Repositioning the newspaper has led to a recovery of sales.27
Despite the high cost and other risks of developing and
testing new products, many firms continue to develop and
introduce new products. Some new products succeed and
some fail. The most important factor in successful newproduct introduction is a good match between the product
and market needs as the marketing concept would predict.
The most important factor in product failures is a poor
match between product characteristics and customer needs.

New products that fail to offer unique, superior value are
often ignored in the market. Other reasons why products fail
include overestimation of market size and demand,
incorrect positioning, a price that is too high or too low,
strong competition, poor planning, slow introduction to the
market, inadequate distribution, poor advertising or simply
the fact that it is an inferior product compared with those of
competitors. Successful new products offer a meaningful
and perceptible benefit to a sizeable number of people or
firms, and are different in some meaningful way from their
intended substitutes.
Firms that are successful in new-product introductions
tend to share the following characteristics:
A history of carefully listening to customers

An obsession with producing the best product possible
A vision of what the market will be like in the future
Strong leadership
A commitment to new-product development
A team approach to new-product development.
6. Organising for new-product

development
LO8
To cultivate a steady stream of new products in a methodical

fashion, an organised structure is essential. Yet in many
firms, top managers tend to receive new-product ideas
passively instead of actively soliciting them. Moreover,

managers often poorly process the ideas they do receive,
and luck determines whether or not these ideas are fully
considered.
One of the most important requirements for generating
new-product ideas and successfully introducing new
products is support from top management. In addition,
several kinds of groups or structures within a firm can
facilitate the development of new products. These include
new-product committees and departments, venture teams
and intrapreneurs, and simultaneous product
development.
6.1 New-product committees and departments

A new-product committee is an ad hoc group of employees
whose members manage the new-product development
process. The members usually represent functional
interests, such as manufacturing, research and
development, finance and marketing. Many firms use newproduct committees to screen ideas.
A variation on a new-product committee is a newproduct department, which performs the same functions as
a new-product committee, but on a full-time basis. Newproduct departments typically recommend new-product
objectives and programmes, plan exploratory studies,
evaluate concepts and ideas for new products, co-ordinate
testing and direct interdepartmental teams. People in the
product-development
department
should
ideally
communicate regularly with their peers in other functional
departments such as manufacturing, research and

development, finance and marketing.
Setting up a formal department helps ensure that
authority and responsibilities are well-defined and
delegated to specific individuals. A separate department
with the authority to develop new products can be freed
from the undue influence of production, marketing and
other groups. A separate department also has the authority
to accomplish its tasks. Therefore, the new-product
development manager can rely less on people outside his or
her sphere of influence to get things done.
WEBSITE
Visit the Product Development and
Management Associations site at
www.pdma.org. What innovations are
happening today in new-product
development? Which firms are the key
innovators?
6.2 Venture teams and intrapreneurs

A venture team is a market-orientated group staffed by a
small number of representatives from different disciplines.
Team members from marketing, research and development,
finance and other areas focus on a single objective: planning
the firms profitable entry into new markets with new
products. Venture teams are most often used to handle
important business and product tasks that do not fit neatly
into the existing structure of the firm. They demand more
financial resources and longer times to mature than other
organisational units can provide, and require creativity that
is neither sheltered nor inhibited by the larger firm. Unlike

new-product committees, venture teams require a full-time
commitment. In contrast to new-product departments,
venture teams form and disband as needed instead of being
stable departments within the overall organisational
structure.
The term intrapreneur refers to an entrepreneur
working inside a large firm. Many firms eager to foster
innovation among employees even have intrapreneurship
programmes, and some universities offer corporate
entrepreneurship courses to develop those skills.
6.3 Simultaneous product development

The earlier a product is brought to market, the greater the
chance that it will be profitable. Delays inevitably lead to lost
sales. Xerox learnt that lesson the hard way: its executives
were stunned to discover that Japanese competitors were
developing new copier models twice as fast as Xerox and at
half the cost. Many US firms, including the big three car
makers (General Motors, Ford and Chrysler) are trying to
find new ways to shorten their development cycles and be
the first to market new products such as Hybrids. As a result,
a new team-orientated approach to new-product
development, called simultaneous product development,
emerged. This approach enables firms to shorten the
development process and reduce its cost. With
simultaneous product development, all relevant functional
areas and outside suppliers participate in all stages of the
development process. Group members, whom General
Electric calls one coffee pot product development teams,

perform development tasks together. In this way they avoid,
for example, the need for designers to make changes when
engineers or manufacturers are unable to meet design
specifications.28 Involving key suppliers early in the process
enables them to design and develop critical component
parts. The Toyota Prius is a good example of a successful
hybrid car, but the development process has already taken
20 years.
7. The product life cycle
LO9
The product life cycle concept provides a means to trace the

stages of a products market acceptance and growth from its
introduction (birth) to its decline (death). As Figure 9.3
shows, a product typically progresses through four major
stages: introduction, growth, maturity and decline. During
these stages many variables change, including consumer
needs, the marketing mix and strategies, sales, profitability
and competitive activity. Note that the product life cycle
illustrated in Figure 9.3 does not refer to any one brand: it
refers to the life cycle for a product category, or product
class. A product category includes all brands that satisfy a
particular type of need. Product categories include, for
example, passenger cars, cigarettes, soft drinks and coffee.
Figure 9.3 illustrates the typical life cycle of a consumer
durable product, such as a washing machine or dryer.
The time a product spends in any one stage of the life
cycle may vary dramatically. Some products, such as fad
items (remember the Tamagotchi toy?), move through the
entire cycle in weeks. Others, such as washing machines and

dryers, stay in the maturity stage for decades. For instance,
womans magazines have been in the maturity phase for
more than 50 years.
WEBSITE
To see Toyotas Fuel Cell Sedan in motion
please go to this YouTube link:
http://www.youtube.com/watch?
v=98CidXDLuH8 or read more on
http://www.toyota.com/fuelcell/
Changes in a product and its uses, image or positioning

may extend a products life cycle (see Chapter 7). The
product life cycle of motor vehicles and soft drinks, for
instance, has been extended over many years thanks to
marketing actions such as introducing new flavours and new
models. The product life cycle concept does not tell
managers the length of a products life cycle or its duration
in any stage. Nor does it dictate marketing strategy. It is
simply a tool to help marketers forecast future events and
suggest appropriate strategies given a certain set of
circumstances prevailing at the time.
It is important to realise that the extent to which a
product is differentiated (i.e. has a competitive advantage)
will, to a large degree, determine the length of the entire
product life cycle (as well as its individual stages) and the
strategies that are appropriate during the different stages.
Products or brands with a sustainable competitive
advantage remain in the growth and maturity stages for very
long periods of time. Coca-Cola is a classic example of a firm
that has succeeded in extending the profitable growth and
maturity phases of its products life cycle.
7.1 Stages of the product life cycle

7.1.1 Introductory stage
The introductory stage of the product life cycle represents
the full-scale launch of a new product. Book-sized portable
cinemas; time-release skin patch medicines; 3D printing,
voice over Internet protocol (VoIP); solar energy (see Reader
47 The power of little suns), electronic cigarettes these
are all product categories that have recently entered the
product life cycle.
WEBSITE
In what stage of the product life cycle is
the Mini? How is the Mini marketed and
positioned? Who is the target market?
Visit www.mini.co.uk.
Sales are slow during this stage (and losses heavy), as

consumers are often reluctant to change their old buying
and consumption habits. It is estimated that only 20 per cent
of consumers are prepared to try new products. Often
production and distribution problems are experienced. In
the early phases of the introduction stage, profits are
negative because of slow sales and high costs (such as
production and advertising costs), but normally no direct
competition is experienced (if it is a genuinely new-to-the
world product). Marketing costs in the introductory stage
are normally high for several reasons. High retailer margins
are often needed to obtain adequate distribution at retail

level and incentives (such as coupons and samples) are
needed to get consumers to try the new product. When the
health product Spirulina was first placed on the market,
customers were offered a R5 discount to try the new
product. Advertising expenses are high because of the need
to educate consumers about the new products benefits and
how to use it (see the Nashua advertisement). Production
costs are also often high in this stage, as product and
manufacturing flaws are identified and corrected, and
efforts are undertaken to develop mass-production
economies.
READER 47 >> The power of little suns

Frederik Ottesen has a plan to light up Africa with the sun. Ottesen is the
founder of Little Sun, a company which produces solar lamps called Little
Sun. The lamps, which were designed and developed by Ottesen, a
mechanical engineer, and Danish artist Olafur Eliasson, use cutting edge
technology to provide an evening of light with just five hours of solar charging.
The product was initially developed for the Ethiopian market but Ottesen is
now taking it global, with a specific focus on people who are not connected to
the power grid. There are 1,6bn people with no access to electricity, and a
further 1bn with limited or unreliable electricity. Few companies address this
problem. Power companies and governments talk about megawatts but a lot
of the customers we are talking to are happy if they can charge their
cellphone, get reliable light or power a small radio or television. Their demand
is much closer to 10W. Can we deliver 10W at a good price? Yes, in the future
we will be able to do so. Right now we can deliver a reliable half watt with this
product. Little Sun is working on proving itself to the market as a dependable
and inexpensive energy provider. The intention is later to offer additional
inexpensive power sources.
SOURCE: Gebbhart, M. 2013. The power of little suns, Financial Mail, May 31 Jun 5, pp. 29
As Figure 9.3 illustrates, sales normally increase slowly

during the introductory stage of the product life cycle.
Profits are usually negative because of high non-marketing
costs, such as research and development costs, testmarketing costs, new factory tooling and high introduction
costs. The length of the introductory stage is largely
determined by the products characteristics, such as its
competitive advantages over substitute products; the
benefits of the product and how these are communicated;
the educational effort required to make the product known;
and managements commitment of resources to the new
product.
Figure 9.3 The four stages of the product life cycle
7.1.2 Growth stage

If a product category survives the introductory stage, it
advances to the growth stage of the product life cycle. Solar
energy is in the early growth phase of the product life cycle.
It can now stand on its own two feet without government
subsidies as it can compete on price alone.29 In the growth
stage, sales usually grow at an increasing rate, and modest
profits in the early phases grow significantly towards the end
of this stage despite many new competitors entering the
market. This is so because the benefits of economies of scale
begin to kick in and advertising expenditure per product
sold starts to decline. Often the competitors who enter the
market offer only copycat products that are not
significantly differentiated. Similarly, the Internet search
engine business has been in the growth phase for a number
of years, allowing high profits for businesses such as Google.
The good financial returns in this market have attracted a
number of new entrants, such as Zhift.com, Instafound.com
and Inkmesh.com, which offer new and original ways of
finding information on the World Wide Web.
WEBSITE
Consider how companies can use SMM
(Social Media Monitoring) to track their
competitors:
http://socialmediamonitors.co.za/
http://www.zasocialmedia.com/socialmedia-tools/ (for a list of social media
tools to use)
During this stage of the product life cycle, the advertising

emphasis switches from promoting primary demand (for
example, promoting BlueRay DVD players and HD PVRs in
general) to aggressive brand advertising and
communicating the differences between brands (for
example, promoting Sony versus Panasonic and Samsung).
Initially prices are stable, but may start to decline slightly
towards the end of the stage if competition intensifies.
Towards the end of the growth stage the rate of industry
sales growth starts to decline as the market begins to reach
saturation. The cellphone industry in South Africa is
reaching the end of the growth phase, as demonstrated by
Cell Cs inability to grow its market share. Similarly, the
micro-lending industry in South Africa initially grew rapidly
and incumbent firms were rewarded with huge profits. The
returns in this sector attracted the attention of some of the
major banks (such as Absa and Nedbank), and consequently
profits margins have fallen as the industry approaches
maturity.
The surf-ski is another good example of a product
category in the growth phase of the product life cycle. (A
surf-ski is similar to a canoe or kayak, but the paddler sits on
top of the boat rather than inside it, allowing the paddler to
remount when in deep water.) The surf-ski industry is

driven largely by the consumer trend towards a healthier
lifestyle, and a number of manufacturers in South Africa
such as Fenn Kayaks, Red 7 and Epic have been able to
generate good financial returns. This growth has resulted in
a number of new entrants to the surf-ski market, such as The
Kayak Centre, Knysna Racing Kayaks and Nelo. These
manufacturers all produce traditional canoes as well, which
are used in rivers as opposed to the surf-ski which is used
primarily to surf the wind-generated waves in the ocean.
However, the canoe industry is approaching the maturity
stage of its life cycle and consequently has limited growth
opportunities for the incumbent manufacturers.
7.1.3 Maturity stage

A period during which sales increase at a slowing rate
signals the beginning of the maturity stage of the product life
cycle. During this period industry sales bottom out because
new users cannot be added indefinitely, and sooner or later
the market approaches saturation. Normally, this is the
longest stage of the product life cycle. Many copycat
competitors begin to drop out of the market as competitive
activity often leads to price wars mainly because many
firms competitive advantage has been eroded. Many
common household appliances are in the maturity stage of
their life cycles. In the United States, for example, more than
half of the purchases of washers, dryers and refrigerators are
replacements for worn-out products rather than purchases
by new users. Microwave ovens, personal computers and
coffee and Barbie are examples of other products in the
maturity stage.
The maturity stage can be subdivided into three phases:
growth maturity, stable maturity and decaying maturity.30
During growth maturity the rate of sales growth declines and
there are no new channels of distribution that can be used to
expand market coverage. In South Africa the cellphone
industry is now in its early stage of maturity growth
maturity. Only a few laggards now enter the market (e.g.
those consumers who finally buy a cellphone). During the
stable maturity phase, the market is now completely
saturated (represented by the top of the curve in Figure 9.3,
which is almost horizontal). Most consumers who want the
product have bought it by this stage, and sales are now
mainly of a replacement nature (replacing an old TV, for
example) or driven by population growth. During the
decaying maturity phase, absolute sales start to decline as
people increasingly start to switch to other products and
substitutes. Switching from the use of fax machines to using
e-mail is an example, as is the switch from floppy disks to
stiffy disks to flash disks to the cloud storage of data.
7.1.4 Decline stage

Most products and brands eventually decline some slowly,
others more quickly. A long-run drop in sales signals the
beginning of the decline stage as more and more consumers
switch to new, innovative products. Increasing competition
from new communication technology, such as SMS and email, has pushed postage stamps into the decline stage of
their product life cycle. The rate of decline is governed by
how rapidly consumer tastes and usage patterns change or
substitute products are adopted. Only the strongest brands

now survive (appealing to the most loyal customers), with
most competitors dropping out of the market as new,
innovative products enter the market.
Many convenience products and fad items, like citizen
band (CB) radios and certain fashion items, lose their
market overnight, leaving large inventories of unsold items.
Others die more slowly, such as black-and-white console
televisions, pianos and non-electronic watches.
The rate of decline is influenced by technological
advances, shifts in consumer tastes and increased
competition, both domestic and foreign. All these factors
lead to over-capacity in an industry, which again results in
price cutting and profit erosion.31 Technological
developments have meant almost instant death for products
such as the electric typewriter, old-fashioned shop cash
registers, film-based cameras, cassette tapes and vinyl
records. New PVR technology is doing the same to DVD
players. Changes in consumer tastes may have forced butter
into the decline stage of its product life cycle, and changes in
consumer values have forced fur clothing into the decline
stage of its product life cycle. Similarly, there is a backlash
against the environmental costs of bottling water and this
may well force this product into the decline stage of its
product life cycle in years to come.
8. Strategies during the product life

cycle
LO1
The value of the product life cycle lies in its ability to suggest
(not prescribe) appropriate marketing strategies for each
stage in the cycle. The product life cycle concept encourages
marketing managers to plan so that they can take the
initiative as various products move through the product life
cycle, instead of reacting to past events that influenced the
product. The product life cycle is especially useful as a
forecasting tool. Because products pass through fairly
distinct stages, it is often possible to estimate their location
on the curve using historical data. Profits, like sales, tend to
follow a predictable path over a products life cycle. A
products movement through the different stages can help
the marketing manager plan different strategies, given the
prevailing competitive situation.
8.1 Strategies during the introductory stage

During the introductory stage, the marketer of a genuinely
innovative, new product experiences a monopoly market
situation. The near absence of direct competition implies a
fair amount of price discretion. The objective during this
stage is to encourage trial that is persuading consumers to
try the new product.
Price and advertising are particularly useful strategies
during the introductory stage.32 The advertising focuses on
the advantages and benefits of the new product and its
need-satisfaction properties. See, for example, the SASKO
advertisement where the new SASKOplus+ range is
introduced, and the fact that the new bread is soft, delicious
and lighter is emphasised. By combining price and
advertising, marketing managers can consider four different

strategy options:
A rapid-skimming strategy is a strategy option to

launch the product at a high price, but supported by high
levels of advertising expenditure. The objective is to
recover research and development (R & D) costs as soon
as possible and for the product to become profitable as
soon as possible. (Skimming off as much profit as
possible as quickly as possible is, therefore, the
objective.) High levels of advertising expenditure are
required to convince the market of the benefits of the
product (accelerate market penetration) and its value
despite the relatively high price. A rapid-skimming
strategy works well under the following circumstances:
the potential market is largely unaware of the product;
those who become aware can afford the price and are
likely to purchase it; and competitive entry is imminent
and the establishment of a brand preference is essential.
When Vodacom first launched its cellphones it made use
of a rapid-skimming strategy. Neptune Pine, a company
that introduced a smart wrist watch that has all the
functionality of a smart phone and that allows users to
make and receive calls, shoot videos, take photos, check
emails, browse the web and listen to music will cost
more than R4 000 each should it follow a price-skimming
strategy.33 When GlaxoSmithKline introduced its cervical
cancer vaccine the price was described as hefty R2 100
for three injections. But given the cost of developing new
vaccines, the firm had to recover its development cost a s
soon as possible.34
A slow-skimming strategy is employed to launch the

new product at a high price, but with limited advertising
expenditure. The purpose of the high price is to recover
R & D costs as soon as possible and making the product
profitable as soon as possible, but advertising
expenditure is limited to contain costs. A slow-skimming
strategy works well when the market is relatively small
and well-aware of the product, consumers are willing to
pay the relatively high price and are likely to purchase it

and the chances of competitive entry are not particularly
high. Prestigious property developments (often sold off
plan), such as those at Steyn City or golf estates, are
suitable for using this strategy.
A rapid-penetration strategy involves a low launch
price accompanied by heavy advertising. The objective
of this strategy is to quickly penetrate the market and to
establish a dominant market share. Short-term cash flow
and profitability are thus not immediate concerns. A
rapid-penetration strategy is likely to be successful in a
large market that is unaware of the product, when
potential buyers are price-sensitive, when there is strong
potential competition and when the firm is likely to
benefit from economies of scale implications. Auto &
General employed a rapid-penetration strategy when it
introduced selling car insurance over the phone by
keeping its rates well below those of more traditional
insurance firms.
A slow-penetration strategy involves a low price level
accompanied by a low level of advertising expenditure.
The low price attempts to encourage market acceptance,
whereas the low advertising expenditure is likely to keep
costs down and profits up. A slow-penetration strategy is
used when marketers believe that the market is very
price-sensitive, but not sensitive to advertising. It works
well in a large market that is well aware of the product
and when some competition is present. Producers of
ordinary consumer products, such as processed meat,
milk and margarine, use this strategy.
The way in which the marketers of new products

communicate the benefits of their products will determine,
to a large extent, the success of products during the
introductory stage of the product life cycle. Marketers of
voice-over-Internet protocol (VoIP), for instance, will have
to point out that VoIP is more cost-effective than traditional
voice and fax services because it reduces line rental and
servicing costs. They will also have to point out benefits such
as the fact that long-distance call costs are reduced because
these calls bypass the public-switched telephone network.35
During the introductory stage, distribution is normally
selective only the retailers that will provide the product
with adequate support are allowed to carry the product.
Advertising, on the other hand, is primarily aimed at
building primary demand (see the B Cure advertisement on
the right).
8.2 Strategies during the growth stage

During the growth stage, the market conditions can turn to
monopolistic competition or an oligopoly as a few direct
competitors enter the market. The objectives are to get those
who tried the product first to repurchase and to attract new
buyers.
During the initial phases of the growth phase, early
market entrants cash in as sales and profits grow. Towards
the end of this stage, many competitors are drawn in. To
ward off competition, the following strategies may be
considered:
Slightly lowering prices to raise the barriers to entry

for potential new competitors. It will be interesting to
see what Telkom does with its pricing when it faces
competition from other suppliers of fixed-line telephone
services in the future. The same applies to Vodacom,
MTN and Cell C when Telkom enters the mobile phone
market.
Improvements to the products quality by adding new
features or new styles. Cellphone, laptop computer and
tablet manufacturers are constantly trying to make their
products smaller, lighter and increasingly multifunctional.
Change package sizes. Many personal-care products,
such as shampoos, are also marketed in small travel
sizes. Many grocery products, such as soups Royco, for
example are available in single-serving sizes.
Product line extensions. This strategy was used by Nike
when it started marketing Nike sports glasses and Nike
watches. Cadac no longer markets only gas; you can now
also buy Cadac tents and sleeping bags.
Selectively expand the distribution network. Some of
the products that Verimark markets by direct marketing
are also available in its retail outlets.
Shift the advertising objective from product awareness
to brand insistence. Assuming that all potential
consumers are now aware of the product or brand, the
emphasis of advertising now shifts to encouraging
consumers to insist on a specific brand and to stay loyal
to it.
During the growth phase, distribution is still largely

selective, but is gradually expanded. Advertising is directed

slowly away from building primary demand by emphasising
the products competitive advantage. The pricing strategy
can be described as meet the competition.
8.3 Strategies during the maturity stage

The objective now is to find new users (new market

segments) or new buyers for the product. The competitive
situation is now pure competition, and many competitors
concentrate on niche markets. Demand becomes elastic and
consumer needs may begin to change, making product
modifications a key strategy.
It is important to realise, however, that products and
brands in the maturity stage of the product life cycle do not
necessarily slip directly into decline and then elimination.
Several strategies are available to marketing managers to
sustain, and even grow, sales of product categories or
brands in the maturity stage of the product life cycle (some
of these may already have been introduced during the late
growth stage). Some of the strategies that can considered
are:
Promote more frequent use of the product by current

customers. In the United States, The Florida Orange
Growers Association successfully used this strategy in its
Orange Juice Is Not Just for Breakfast campaign. Overall
juice consumption rose following TV advertisements
which reminded consumers that orange juice is a
healthy, refreshing beverage suitable for any time of the
day. Because up to 75 per cent of diamond sales are for
engagement rings, the South African diamond producer
De Beers tries to encourage sales for occasions other
than engagements, such as Christmas, wedding
anniversaries (10th and 25th), birthdays (particularly the
16th birthday) and the birth of a child.36 Bata Toughees
shoes, initially marketed as school shoes, have been
repositioned as stylish shoes that can be worn at all
times, not only for school.

Find new target markets for the product. Johnsons
baby shampoo was remarkably successful in adding
mothers, sisters and, subsequently, fathers and brothers
to the original target market of infants. The new theme
(Its mild enough to use every day) was the only change
in the products marketing strategy, yet this was enough
to expand the target markets size by several hundred per
cent. Clicks have started to use cell phone health care
vouchers that can be redeemed at its pharmacies in
attempt to reach low and middle income workers who
have not patronised its business previously.37
Find new uses for the product. After decades of level
sales in the United States, Arm & Hammer baking soda
was promoted as a refrigerator freshener, plumbingsystem cleaner, litter-bin freshener and even a
toothpaste. In South Africa, the marketers of Rooibos tea
point out that Rooibos is not only a healthy beverage, but
can also be used as a cure for insomnia and allergies, to
treat colicky babies and as a flavouring agent in baking,
cooking and even cocktails.38 Oxo spread is promoted as
a product that can be used as a sandwich spread, in
cooking and as a hot drink.
Price the product below the market to attract more
price-sensitive buyers. Bic pens and Timex watches
revolutionised their industries by offering pens and
watches at prices below prevailing market prices at the
time. Their competitors had not successfully introduced
brands of acceptable quality at low prices. Introducing
these two brands substantially changed the shape of the
product life cycle for ballpoint pens and wristwatches.
When Apples iPad entered the electronic book market

in the United States the makers of the Kindle dropped its
price from $259 to $189 and their sales tripled.
Develop new distribution channels. For years, Woolite
fabric cleaner was sold only in department stores. When
American Home Products introduced the brand in
supermarkets and grocery stores without changing the
product, the price or the advertising appeal, sales tripled
in the first year. Coca-Cola and Sasko have also
developed creative strategies to deliver directly to the
spaza shops found in the predominantly black
townships. Service providers such as airlines and hotels
have successfully utilised the Internet as a new channel
of distribution.
Add new ingredients or eliminate old ingredients. The
laundry detergent industry has relied on this strategy to
extend the life cycles of brands, adding whiteners,
brighteners, bleaches, scents and various other
ingredients and attributes to products. The most recent
arrival on the washing powder scene is the microgranular version of washing powder (Omo and Surf are
popular examples). The marketers of toothpaste added
fluoride and triclene.
Make a dramatic (new) guarantee. The marketers of
Snowflake flour say it is too fresh to flop.
Improve quality or add new product features. Duracell
batteries are now marketed with a power-testing facility
on every battery. Nashua has turned what was only a
photocopier into a multi-functional business machine
that can also fax, scan, print and store records
electronically. Some of Nashaus business machines
targeted at medical clinics not only store patient records

electronically, but can also be programmed to remind
patients via SMS to their cellphones to take their
medicine. Motor vehicle manufacturers and software
manufacturers, such as Microsoft, also regularly add new
features to their products compare the Toyota Corolla
of the 1980s with todays models, for example. SA
Breweries has added lite to its Castle brand. The
artificial sweetener Canderel, initially marketed in tablet
form alone, is now available in granular form in sachets.
Backjoy has re-invented the modest pillow by adding
memory foam support and a patented layering system to
align head, neck and back to provide a perfect sleep.
Reposition the product (see Chapter 7 for a detailed
discussion). Arguably, the most successful repositioning
of a product in the maturity phase of its life cycle was the
Citi Golf. Launched in 1978 to replace the Beetle, the Citi
Golf was never really positioned on price. Instead, VW
developed a lifestyle brand. To keep the brand fresh, the
Citi Golf underwent many minor design changes and
facelifts, but the basic design remained the same. The
red-yellow-blue concept conveyed the brands funloving nature and sustained it through the early 1980s.
Initially, only 1,3-litre engines were used; then the 1,6
Sport and, two years later, 1,8-litre versions were added.
In 1989, the Golf CTI was introduced. In the 1990s, the
appeal of the Citi Golf was broadened to appeal to an
older age group by emphasising values such as reliability
and endurance. In 1995, the Citi Chico was added the
cheapest car in its class. Facing strong competition in
2003, the Citi Golf had new life breathed into it with a
host of fresh innovations, including a new dashboard,

doors and rear hatch, among other things. Although
initially available only in red, yellow and blue, the Citi
Golf became available in a variety of colours. The Citi
Golf was then positioned on the proposition Forever
young.39 (Volkswagen has subsequently decided to
terminate the production of the Citi Golf).
During the maturity stage, distribution is extensive and
almost any retailer prepared to stock the product is allowed
to do so. The advertising emphasis shifts to brand insistence
and customer loyalty. Many of the strategies described
above are in response to over-capacity in the industry
brought on by intense competitive activity. The response is
often to find niche markets (see Chapter 6) that can be
profitably exploited. The (originally) odourless deodorant,
Mitchum, is an example of a product targeted at a niche
market. Other deodorants are mostly available in various
scents. Price wars often occur during the maturity stage, or
manufacturers enter into deals with retailers to market
private brands.
8.4 Strategies during the decline stage

The objective during the decline stage is to reduce
marketing expenditure to the absolute minimum or to invest
resources (such as advertising expenditure) re-establish the
products market position. During the decline stage, many
firms abandon their unprofitable products and shift their
resources to the more profitable ones. This is an option that
must be considered carefully, however, because some old
products can and have been successfully revived. The

example has already been cited of Hansa Pilsener, which
was almost dropped from the South African Breweries
product mix when it commanded only 0,7 per cent of the
market. Hansa has now been able to improve its market
share to about 15 per cent.
Kodak. Used with permission
The position of some unprofitable products have to reconsidered when they contribute to the profitability of other
products. A regional airline service may be unprofitable on
its own, but because it feeds in passengers for the profitable
national or international flights, it may be wise to retain it.
Sometimes a weak product is retained because managers
believe its prospects will improve if the economy improves,
or because it is important for the firm, from an image point
of view, to be seen as a full line firm of which MTN is an
example.
One disadvantage of retaining unprofitable products is
that they often consume a disproportionate amount of
resources in the form of management time and expensive
inventory, or necessitate costly sales force attention, short
(and thus expensive) production runs and expensive set-up
times. Another disadvantage is that they may retard efforts
to search for and introduce new products to take their
place.40
When faced with a product unable to maintain or
increase sales in a declining market, a marketing manager
has three basic options: to hang in, to withdraw or to

harvest. A decision to hang in implies that management
believes that the products prospects can be improved for
instance, by improved marketing. Marketing expenditure
and effort is at least maintained or additional resources
may even be committed to try to dominate the market. The
second option is to withdraw completely by stopping all
marketing and disposing of all assets. The third option is
harvesting or milking. The milking decision is taken when
there are still pockets of demand that can be profitably
exploited. Resources and marketing efforts are gradually
and selectively withdrawn (up to a point) to cut costs and
ensure profitability. Advertising, for instance, may be
reduced to target only the most loyal customers, or even
halted. Only selected regions or retailers may be supplied
and no new-product development or R & D expenditure is
undertaken. Pricing is sharply reduced to encourage
demand but high enough to still generate profits.
Although some people may think that black-and-white
film is not used any more, the Kodak advertisement shows
that black-and-white film is still used. Advertising, however,
is targeted at professional photographers and serious
hobbyists and will appear only in specialist photography
magazines such as Camera and Image.
Another product which is in the decline stage of the
product life cycle is safety razor blades. Nevertheless, they
are still popular among consumers who do not have access
to running water. They are preferred by this market segment
because twin blades clog up if not rinsed regularly a
problem not encountered when using single safety blades.
In fact, the old-fashioned Minora safety razor blades still

constitute about a third of the blades sold by Shoprite
Checkers.41
Product modification is a strategy that is often used by
marketers as a product moves through the various stages of
the product life cycle. The modifications can be classified as
quality improvements, functional improvements (improving
the features of a product by improving its reliability,
durability or other important dimension) or style
improvements (improving its appearance). Medco SA has
made a functional improvement to its bottled water. It is
now marketing oxygen-enriched water (350 per cent more
oxygen than other brands of water), which replaces oxygen
that is lost owing to external factors, such as stress, poor diet,
smoking or lack of exercise.42 South African Breweries, on
the other hand, made an aesthetic modification when it
replaced the old dumpy bottle with a new-shaped handi
bottle. SAB also make continuous aesthetic changes to both
its bottles and its labelling (see Spot the differences).
If a firm is unable to revive the prospects of a product or
brand it may have no other choice than to withdraw it. After
years of struggling to stay afloat, one of South Africas oldest
magazines targeting the female market, Femina, has closed
shop. The publisher Avusa stopped printing three
magazines in 2010, namely Top Huis (an Afrikaans decor
magazine), Pursuit (a fashion title) and Computing SA.43 In
addition, the publisher closed down the weekend
newspaper, The Weekender due to financial difficulties
although some seem to suggest it was due to poor
marketing. At the same time, the SABC terminated its
international service, Sani, owing to the failure to deliver on

projected audiences in line with levels of investments.44
Table 9.1 briefly summarises some typical marketing
strategies used during each stage of the product life cycle.
Table 9.1 Typical marketing strategies during the product life cycle
9. Evaluating the product life cycle concept

There is no doubt that the product life cycle is an interesting
and useful concept for marketers. It provides a good
framework for product planning and anticipating changing
market situations. When using the product life cycle
concept, however, the following key points should be kept in
mind:45
1
The stages of the life cycle, the time span of the entire life
cycle and the shape of the cycle (e.g. flat, erratic or
sharply inclined) vary by product category and by
industry
External factors, such as the economy, the rate of
inflation and consumer lifestyles may have a major
impact on the performance of a product and shorten or
lengthen its life cycle
An individual firm may do better or worse than average

for its industry at any stage in the product life cycle.
Consequently, if the industry is in the growth stage of the
life cycle this does not assure the success of every firm in
the market, nor does an industry in the decline stage of
the life cycle necessarily imply falling sales for every firm
A firm may be able to manage the life cycle of a product
category or industry, but on the other hand, it may be
unable to extend it or reverse a decline. Effective
marketing may attract a new market segment, find a new
use for the product or generate increased channelmember support
Some firms may engage in a self-fulfilling prophecy,
whereby they predict that sales will decline and then
ensure that this will occur by reducing or removing
marketing support. With adequate support, these
products might not fail.
10. The market acceptance of new

products
LO11
Marketing and product managers have a better chance of

guiding a product successfully through its life cycle if they
understand how consumers become aware of and adopt
new products. The product life cycle and the adoption
process go hand-in-hand. A person who buys a new product
that has never been on the market before (a new-to-theworld product) becomes an adopter a consumer who was
happy enough with his or her trial experience with a product

to buy it regularly afterwards.
10.1 Diffusion of innovation

An innovation is a product perceived as new by a potential
adopter. It makes no difference whether the product is newto-the-world or simply new to the individual. Diffusion is
the process by which the adoption of an innovation spreads
among consumers. Cellphones and tablets, for instance,
were adopted very rapidly by South African consumers. Five
categories of adopters participate in the diffusion process:
Innovators: The first 2,5 per cent of all those who adopt
the product. Innovators are eager to try new ideas and
products, almost as an obsession. In addition to having
higher incomes, they are typically more worldly and
more active outside their community than noninnovators. They rely less on group norms and are more
self-confident. Because they are well educated, they are
more likely to get their information from scientific
sources and experts. Innovators are characterised as
being adventurous. They are the target market during
the introductory stage of the product life cycle. Within
days of its launch, thousands of people (innovators) had
tried Hunters Dry, the new dry alternative to Hunters
Gold, according to the manufacturer.46 Another example
is Smirnoff Triple Spin: 57 800 cases were sold during the
first week after its launch to innovators who wanted to
try the new product.47
Early adopters: The next 13,5 per cent to adopt the

product. Although early adopters are not the very first,
they do adopt early in the products life cycle. Compared
to innovators, they rely much more on group norms and
values. They are also more orientated to the local
community, in contrast to the innovators worldly
outlook. Therefore, they are more reliant on personal
sources of information, such as salespeople. Early
adopters are more likely than innovators to be opinion
leaders because of their closer affiliation with local
groups. The respect of others is a dominant
characteristic of early adopters. They are the target
market during the early stage of the growth phase of the
product life cycle.
Early majority: The next 34 per cent to adopt a new
product. The early majority carefully weighs the pros and
cons before adopting a new product. This group is likely
to collect more information and evaluate more brands
than early adopters. They rely on the group for
information (often influenced by the mass media) but
are unlikely to be opinion leaders themselves. Instead,
they tend to be the friends, team mates, colleagues and
neighbours of opinion leaders. The early majority is an
important link in the process of diffusing new products,
because they influence the late majority via word-ofmouth. A dominant characteristic of the early majority is
planned deliberateness as opposed to the impulsiveness
of earlier adopters. They are the target market during the
later stages of the growth phase of the product life cycle.
Late majority: the next 34 per cent to adopt, the late
majority adopts a new product because most of their
friends have already adopted it. Because they also rely on

group norms, their adoption stems from pressure to
conform (peer pressure). This group tends to be older
and below average in income and education. They
depend mainly on word-of-mouth communication
rather than on the mass media. The dominant
characteristic of the late majority is skepticism. They are
the target market during the late stage of the maturity
phase of the product life cycle.
Laggards: the final 16 per cent to adopt. Like innovators,
laggards do not rely on group norms. Their
independence is rooted in their ties to tradition.
Therefore, the past heavily influences their decisions. By
the time laggards adopt a new innovative product (late in
the maturity phase), it has probably been outmoded and
replaced by something else. For example, they may have
bought their first cellphone when it was already widely
diffused. Laggards have the longest adoption time and
the lowest socio-economic status. They tend to be
suspicious of new products and alienated from a rapidly
advancing society. The dominant value of laggards is
tradition. Marketers often ignore laggards, who do not
seem to be influenced by advertising or personal selling.
Figure 9.4 shows the relationship between the adopter

categories and stages of the product life cycle. Note that the
various categories of adopters first buy products in different
stages of the product life cycle. Almost all sales in the late
maturity and decline stages represent repeat purchasing.
10.1.1 Product characteristics and the

rate of adoption (diffusion)
LO12
Five product characteristics can be used to predict and

explain the rate of acceptance and diffusion of a new
product:
Complexity: The degree of difficulty involved in

understanding and using a new product. The more
complex the product, the slower its diffusion. For
instance, before many of their functions were
automated, 35 mm cameras were used primarily by
hobbyists and professionals. They were just too complex
for most people to learn to use, which hampered the rate
of adoption. Internet banking adoption among older
consumers in particular is slow because of the perceived
difficulty in using the service. Complexity thus reduces
the rate of adoption.
Compatibility: The degree to which the new product is
consistent with existing values and product knowledge,
past experiences and current needs. Incompatible
products diffuse more slowly than compatible products.
For example, the introduction of contraceptives is
incompatible in societies in which religious beliefs
discourage the use of birth-control techniques. Software
manufacturers such as Microsoft go to great lengths to
ensure that new versions of products such as Microsoft
Word are not only compatible with their own existing
products, but also with the products of competitors, such
as WordPerfect. Compatibility enhances the adoption of
new products.
Relative advantage: The degree to which a product is
perceived as superior to existing substitutes. For
example, because it reduces cooking time, the
microwave oven has a clear relative advantage over a
conventional oven and this advantage has enhanced the
rate of adoption. Fax machines were a clear
improvement over telex machines, and today e-mail has
advantages over fax machines. New products with a clear
usage advantage are adopted relatively quickly.
Observability: The degree to which the benefits or other
results of using the product can be observed by others
and communicated to target customers. For instance,
fashion items and motor vehicles are highly visible and
more observable than personal-care items. This
observability speeds up their rate of adoption.
Trialability: The degree to which a product can be tried
on a limited basis. It is much easier to try a new
toothpaste or breakfast cereal than an overseas holiday
or a haircut. Demonstrations in showrooms and test
drives are different from in-home trial use. To accelerate
the rate of adoption, marketers use free samples, tasting
displays in shops, small package sizes and coupons. New
products with visible trialability are adopted far more
quickly than those that cannot be tried before purchase.
Figure 9.4 The relationship between the diffusion process and the product life
cycle
10.1.2 The marketing implications of the adoption process

Two types of communication can speed up the diffusion
process: word-of-mouth communication among consumers
(particularly involving those who have already tried the
product) and communication from marketers to consumers.
Word-of-mouth communication within and across groups
(early adopters and potential adopters) speeds up diffusion.
Opinion leaders discuss new products with their followers
and with other opinion leaders. Marketers must, therefore,
ensure that opinion leaders have the types of information
desired in the media that they use (through advertising, for
instance). Suppliers of some products, such as professional
service providers (architects and attorneys) and healthcare
services (medical doctors and dentists), rely almost solely on
word-of-mouth communication for new business.
The second type of communication aiding the diffusion
process is communication directly from the marketer to
potential adopters. Messages directed towards early
adopters would normally use different appeals from
messages directed at the early majority, the late majority
and the laggards. Early adopters are more important than

innovators because they make up a larger group, are more
socially active and are usually opinion leaders.
As the focus of a promotional campaign shifts from early
adopters to the early majority and the late majority,
marketers should study the dominant characteristics,
buying behaviour and media characteristics of these target
markets. They should then revise messages and media
strategies to fit the target market. The diffusion model helps
guide marketers in the development and implementation of
their marketing communication strategy.
<<< LOOKING BACK

Developing new products is important to firms to maintain
growth and realise profitability objectives because new
technology and competitors new products can make a
firms products obsolete. Product obsolescence leads to a
loss of income and market share. This happens because
competitive pressure demands new products and because
new opportunities to satisfy customer needs sometimes
emerge.
Barbie is in the maturity stage of the product life cycle. A
number of potential strategies are available to the marketers
of products in the maturity stage of the product life cycle.
The marketing manager of the Barbie brand, Adrienne
Fontanella, must first decide, however, whether the product
should be revitalised or whether the brand should be
discontinued.
Most firms, including the owners of the most powerful
brands in the world, have to continually renew and refresh

their range of products to remain competitive in a changing
environment. Coca-Cola, arguably the strongest and most
valuable brand in the world, has moved from Coke the
real thing (in the 1970s), to You cant beat the feeling, to
Always Coca-Cola to its recent Coca-Cola Real as part of
its continual effort to avoid staleness.
SUMMARY
1
The importance of new products to firms. Developing

new products is important to firms: (1) to realise growth
and profitability objectives; (2) because new technology
can make a firms products obsolete; (3) because
competition pressure demands new products; and (4)
because new opportunities to satisfy customer needs
sometimes emerge.
The six categories of new products and the importance
of developing new products. New products can be
classified as (1) new-to-the-world products; (2) new
product lines; (3) additions to existing product lines; (4)
improvements or revisions of existing products; (5)
repositioned products; or (6) lower-cost products. To
sustain or increase profits, a firm must introduce at least
one new successful product before a previous product
advances to the maturity stage and profit levels begin to
drop.
The steps in the new-product-development process.
First, a firm develops a new-product strategy by outlining
the characteristics and roles of future products. Then
new-product ideas are generated by customers,

employees, intermediaries, competitors or internal R &
D personnel. Once a product idea has survived initial
screening by an appointed screening group, it undergoes
a business analysis to assess its potential profitability. If a
product concept seems viable, it progresses into the
development phase, in which the technical and
economic feasibility of the manufacturing process is
evaluated. The development phase also includes
laboratory and use testing of a product for performance
and safety. Following initial testing and refinement, most
products are introduced in a test market to evaluate
consumer response and marketing strategies. Finally,
test market successes are propelled into full
commercialisation. The commercialisation process
means beginning production, building inventories,
shipping to intermediaries, training a sales force,
announcing the product to the trade and advertising to
consumers.
Potential sources of new-product ideas. The following
are potential sources of new ideas: customers,
employees, intermediaries, competitors and consultants.
Techniques for generating new ideas include:
Attribute listing. Using this technique, the important
attributes of an existing product are listed.
Thereafter, consideration is given to the possible
modification of each attribute, with the purpose of
ending up with an improved product.
Forced relationships. This technique focuses on
different objects that are used in the same
environment.
Brainstorming. The objective of brainstorming is to
get a group to think of unlimited ways to vary a
product or solve a problem. Group members avoid
criticism of a proposed idea, no matter how
ridiculous it may seem. Objective evaluation is
postponed. The sheer quantity of ideas is what
matters.
Focus groups. The objective of focus-group
interviews is to stimulate insightful comments
through group interaction.
Arguments in favour of/against test marketing of a
new product. Test marketing allows management to
evaluate alternative strategies and assess how well the
various aspects of the marketing mix fit together. The
disadvantages are that it is very expensive and it may
reveal plans to competitors.
Reasons why some products succeed and others fail.
The most important factor in determining the success of
a new product is the extent to which the product
matches the needs of the market. Good matches are
frequently successful. Poor matches are not.
Organising for new-product development. Firms
facilitate the development of new products with newproduct committees and departments, and venture
teams. New-product committees are composed of
representatives of various departments of a firm and play
mainly an advisory role. A new-product department may
be a separate department, a high-level staff function, a
part of marketing or a part of R & D. Venture team
members are recruited from within a firm to work full

time on specific projects and are encouraged to take an
intrapreneurial approach to new-product
development.
9 The concept of product life cycles. All product
categories undergo a life cycle with four stages:
introduction, growth, maturity and decline. The rate at
which products move through these stages varies
dramatically. Marketing managers use the product life
cycle (PLC) concept as an analytical tool to forecast a
products future and devise effective marketing
strategies.
10 Strategies during the PLC. The PLC concept provides a
way of tracing the stages of a products acceptance, from
its introduction (birth) to its decline (death). During
these stages, many variables change, including
consumer needs, the marketing mix and strategies, sales,
profitability and competitive activity.
11 The diffusion process through which new products are
adopted. The diffusion process is the spread of a new
product from its producer to the ultimate adopters.
Adopters in the diffusion process belong to five
categories: (1) innovators; (2) early adopters; (3) the
early majority; (4) the late majority; and (5) laggards.
12 The influence of product characteristics on the
adoption of new products. Five product characteristics
can be used to predict and explain the rate of acceptance
and diffusion of a new product:
Complexity: The degree of difficulty involved in
understanding and using a new product. The more
complex the product, the slower its diffusion.

Compatibility: The degree to which the new product
is consistent with existing values and product
knowledge, past experiences and current needs.
Incompatible products diffuse more slowly than
compatible products.
Relative advantage: The degree to which a product is
perceived as superior to existing substitutes. Superior
products diffuse more quickly.
Observability: The degree to which the benefits or
other results of using the product can be observed by
others and communicated to target customers. More
prominent or observable products diffuse more
quickly.
Trialability: The degree to which a product can be
tried on a limited basis. Products that can be tried
easily diffuse more quickly.
The diffusion process is facilitated by word-of-mouth
communication, and communication from
marketers to consumers.

1
2
3
What is the difference between new-product committees

and venture teams?
What are the advantages of simultaneous product
development.
In small groups, brainstorm ideas for a new wet-weather
clothing line. What type of product would potential
customers want and need? Prepare and deliver a brief
presentation to your class.

4 You are a marketing manager for Nike. Your department
has come up with the idea of manufacturing an
aluminium cricket bat for children. Assuming you are in
the business analysis stage, write a brief analysis based
on the questions in the Business analysis section of this
chapter.
5 What are the major disadvantages of test marketing and
how might they be avoided?
6 Describe some products whose adoption rates have been
affected by complexity, compatibility, relative advantage,
observability and/or trialability.
7 What type of adopter behaviour do you typically follow?
Explain your answer.
8 Place the personal computer on the product life cycle
curve, and provide reasons for placing it where you did.
9 How could information from customer orders at the
following website help the firms marketers plan newproduct developments? http://www.pizzahut.com
10 Explain what is meant by the following statement: The
extent to which a product is differentiated (has a
competitive advantage) will to a large extent determine
the length of the entire product life cycle (as well as its
individual stages) and the strategies that are appropriate
during the individual stages.
STRATEGY READER >> Apple shares show need for new

products
Apples roster of devices is hitting a sales ceiling, underscoring why it is crucial

for CEO Tim Cook to deliver the companys first new products since 2010 to
revive growth. Apple projected that revenue in this period may fall from a year
earlier, in what would be the first quarterly sales decline since 2003. Last
year, Apple posted its first profit drop in more than a decade. The figures
indicate that demand may be ebbing for Apples devices which were once
reliable growth engines as competitors flood in with their own smartphones
and tablets. Mr Cook said sales in North America were weaker than the
company expected, partly because the less expensive iPhone 5c released last
year was not as popular as the higher-end iPhone 5s. The stagnating growth is
adding pressure for the firm to release new hit products, be it a wearable
computer or a way for paying for things with an iPhone or a television. What
we have gotten over the last year or so is impressive products, but they are
really enhancements of current products and not necessarily the next new
thing, said Jack Ablin, chief investment officer with BMO Private Bank. Apple
has not introduced an entirely new product since the iPads debut in 2010.
The iPhone was released in 2007. Besides that, the company has been
counting on updates to those existing product lines to fuel demand.
SOURCE: Apple shares show need for new products, Business Day, 29 January 2014, p. 13 (sourced
from Bloomberg).
QUESTIONS
1
2
Why is there a need for Apple to expand its product range?

Why is Apple struggling to grow its sales?
KEY CONCEPTS
Adopter: a consumer who was happy enough with his or her
trial experience with a product to use it again.
Attribute listing: a technique that considers all the major
attributes of an existing product for modification, with the
purpose of identifying an improved new product.

Brainstorming: getting a group to think of unlimited ways
to vary a product or solve a problem.
Business analysis: the second stage of the screening
process, during which preliminary figures for demand, cost,
sales and profitability are calculated.
Commercialisation: the decision to market a product.
Concept test: a test to evaluate a new-product idea, usually
before a prototype has been created.
Decline stage: a long-run drop in sales.
Development stage: the stage in the product development
process in which a prototype is developed and a marketing
strategy outlined.
Diffusion: the process by which the adoption of an
innovation spreads.
Forced relationships: a technique that considers several
objects that are related to one another in a specific context
with the intention of combining the objects into a new
product.
Growth stage: the second stage of the product life cycle,
when sales usually grow at an increasing rate, many
competitors enter the market, large firms may start
acquiring small pioneering firms and profits are healthy.
Innovation: a product perceived as new by a potential
adopter.
Introductory stage: the full-scale launch of a new product
into the marketplace.
Maturity stage: a period during which sales increase at a
decreasing rate.
New product: a product that is new to the world, the market,
the producer, the seller or a combination of these.

New-product committee: an ad hoc group whose members
manage the new-product development process.
New-product department: performs the same functions as a
new-product committee, but on a full-time basis.
New-product strategy: linking the new-product
development process with the objectives of the marketing
department, the business unit and the firm.
Product category: all brands that satisfy a particular type of
need.
Product development: a marketing strategy that entails the
creation of new products for present markets; the process of
converting applications for new technologies into
marketable products.
Screening: the first filter in the product-development
process that eliminates ideas that are inconsistent with the
firms new-product strategy or are obviously inappropriate
for some other reason.
Simulated (laboratory) market testing: the presentation of
advertising and other promotion materials for several
products, including a test product, to members of the
products target market.
Simultaneous product development: a new teamorientated approach to new-product development.
Test marketing: the limited introduction of a product and a
marketing strategy to determine the reactions of potential
customers in a market situation.
Venture team: a market-orientated group staffed by a small
number of representatives from different disciplines.
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Satariano, A. 2014. Apple shares show need for new products. Business Day,
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Stamps taking a licking. Financial Mail, 9 October 2009, p. 45.
Xerox plans paper that eats its word. Business Day, 15 February 2007, p. 12.
Groom, B. 2004. Nokias turn to eat humble pie. Business Day electronic
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New product management in the 1980s. 1982. New York: Booz, Allen &
Hamilton, p. 8.
Bradley, S. 1996. Hallmark enters $20 billion pet category. Brandweek, 1
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Sulaiman, T. 2013. New bid to whet African womens appetite for Beer.
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Ono, Y. 1995. Non-smearing lipstick makes a vivid imprint on Revlon. Wall
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Bidoli, M. 2001. Now this is truly cool. Financial Mail, 16 November 2001.
Clark, D. 1995. HP unveils lower-priced color copier. Wall Street Journal, 2
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New product management in the 1980s. 1982. New York: Booz, Allen &
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Dumaine, B. 1993. Payoff from the new management. Fortune, 13 December
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Kamhunga, S. 2010. FNB looks to staff for new ideas in innovation. Business
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about customer need. Business Day, 27 March 2012, p. 12.
Brand, N. 2004. Boer druk toe pap en vleis in n blikkie. Sake Burger, 21 April
2004, p. S16.
www.dellideastorm.com (Accessed 23 July 2010).
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December 2008, p. 3.
Mathews, C. 2001. New technology brings hot coffee in a trice. Business Day
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Eli Lilly drops inhaled insulin program. Available,
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Ling, C.S. 2010. Boeing to scrap planned 787-3 jet. Business Day electronic
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
edition, 3 February 2010.

Kerwin, K. 1995. The shape of the new machine. Business Week, 24 July 1995,
pp. 6066.
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Power op cit
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Kotler, P. 1997. Marketing management: Analysis planning and control (9th
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Ibid., p. 359.
This section is based on Kotler, P. 1997. Marketing management: Analysis,
planning and control (9th edition). New York: Prentice Hall, p. 351.
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46 Food & Beverage Reporter Online, MarchApril 1999, p. 79.
47 Bubbling success for Brandhouse. Business Day electronic edition, 19
October 2004.
CHAPTER
10
Marketing channels and the role

of intermediaries
LEARNING OUTCOMES
Explain what a marketing channel is and why intermediaries are

required to facilitate distribution and marketing.
2 Describe the functions and activities of marketing channel
members.
3 Distinguish between alternative channel structures used in
marketing.
4 Explain the reasons why marketers make use of the various
channel arrangements.
5 Identify the factors that influence channel strategy and justify
their importance in the management of channels of distribution.
6 Distinguish between the different levels of distribution intensity. 7
Identify the sources and types of conflict often prevalent among
channel members.
8 Describe how channel members deal with channel conflict using
various sources of power.
9 Describe the various types of channel leadership.
10 Appreciate the importance of physical distribution in marketing.
11 Link the various subsystems to physical distribution effectiveness.
12 Briefly summarise the nature of the dimensions by which retailers
13
14
15
16
can be classified and provide examples of each classification.

Differentiate between the major types of ownership of retail
operations.
Describe franchising in terms of its salient characteristics and its
advantages for both franchisor and franchisee.
Evaluate why some retailers use non-shop retailing techniques.
Summarise the salient features of different types of firms that
perform wholesaling activities, and describe their functions.
Pick n Pay opens distribution hub
Pick n Pay opened its second of four planned
distribution centres yesterday, this time in Philippi,
Cape Town following the opening of its Longmeadow
distribution centre in Johannesbreaderurg in 2010. Pick
n Pay divisional director of supply chain, Cobus
Barnard said the new distribution centre would allow
the company to operate more cost-effectively. Benefits
from centralised distribution include better on-shelf
availability while at the same time holding lower overall
inventory levels in stores. This means less congestion at
our stores receiving centres and importantly lower
transport costs in our supply chain, Mr Barnard said.
The fast-moving consumer goods section of the centre
will be fully operational by October, by which time we
will be distributing 400 000 cases a week. Currently,
Longmeadow Groceries moves 1-million cases a week
out to our stores, Pick n Pay Deputy CEO Richard van
Rensburg said. Pick n Pay has made significant

investment to the tune of R2bn in upgrading and
building distribution centres which should be
completed by 2017.
SOURCE: Adapted from Vallie, A. 2012. Pick n Pay opens distribution hub,
Business Day, 8 August, p. 8
QUESTIONS
1
2
Can effective distribution be a competitive advantage?

What are the benefits of centralised distribution?
1. Introduction
The integrated nature of marketing was alluded to in
Chapter 1. The marketing concept dictates that every
department and every staff member must contribute to the
firms attempts to ensure the satisfaction of its customers
needs. Integration implies that no marketing decision can
be made in isolation. Nor can any marketing strategy be
executed without due consideration of the influence of other
variables. For instance, no matter how good ones physical
product is (product strategy), if it is not within reach of
people who want to buy it (distribution strategy), it will not
be sold. The role of distribution channel members such as
retailers and wholesalers is, therefore, to overcome the
spatial separation gap (see Chapter 1) by providing
customers with time and place utility.
Distribution strategy is very important to all firms if one
considers that a study by the marketing research firm AC

Nielsen has shown that up to 50 per cent of consumers will
switch brands if their preferred brand is not immediately
available when they are ready to buy. Therefore, brand
loyalty can be jeopardised by poor and inefficient
distribution. This is particularly true in product categories
such as snacks, confectionery, soft drinks, canned and
packaged food and household products.1 Firms such as
Transnet have lost sales and market share because of
inadequacies in their distribution networks. Maize farmers
complain because they cannot export more than 2,3 Mt of
maize a year because the transport infrastructure is
inadequate. Another example is the Post Office, which has
the widest distribution network of any organisation in South
Africa, but has been unable to convert this asset into a
The importance of distribution in a firms marketing
efforts is illustrated by the extent of expenditure on this
activity. On average, South African firms distribution costs
vary between 14 and 16 per cent of their operational
expenditure. Distribution can be very important in sectors
and industries where it is difficult to differentiate a brand.
For instance, fuel companies, often struggling to convince
consumers that their petrol is truly unique, have to make
sure that their fuel is available in convenient locations. It is
for this reason that Sasol is spending R1 billion to erect 300
new Sasol branded service stations and 270 Exel (a
subsidiary of Sasol) service stations to effectively compete
with the likes of Caltex, Shell, Total and BP.2
Similarly, Nedbank identified its distribution network as a
weakness and is also spending R1 billion to add 110 new

branches to its current 472 and will increase the number of
ATMs to 1 800 a 50 per cent increase.3 Absa wants to
service customers in traditionally under-serviced areas, and
has expanded its distribution network to 882 outlets by
adding an additional 115 in these areas.4
Efficient distribution and logistics have a direct influence
on a firms profitability. Clothing retailers, facing strong
competition from international competitors such as Zara
have worked hard to shorten their lead times and thus
ensuring that new products are on the shelves more
regularly. The availability of such new products increases
sales.
This chapter considers the various methods of providing
consumer access to need- satisfying products by getting
products within easy reach of potential buyers. The focus of
the chapter is on marketing channels and the role of
intermediaries in this distribution process.
2. The benefits of marketing channels
LO1
A marketing channel can be viewed as a large pipeline

through which products, their ownership, communication,
financing and payment, and accompanying risks flow to the
consumer. To use the formal definition, a marketing
channel (also called a channel of distribution) is a business
structure of independent but interdependent firms, which
reaches from the point of product origin (or production) to
the final consumer. Products move through marketing
channels by way of physical distribution. Physical

distribution (i.e. the physical movement of products) has
five distinct subsystems:
Warehousing
Materials handling and packaging
Inventory control
Order processing
Transportation.
The initial discussion is devoted to the three important

needs fulfilled by marketing channels: providing
specialisation and division of labour, overcoming
discrepancies and providing contact efficiency.
2.1 Providing specialisation and division of

labour
According to the concept of specialisation and division of
labour, breaking down a complex task into smaller, simpler
ones and allocating them to specialists creates greater
efficiency and lower average production costs.
Manufacturers realise economies of scale benefits through
the use of efficient equipment capable of producing large
quantities of a single product. Likewise, marketing channels
can ensure economies of scale through specialisation and
division of labour, by aiding producers who lack the
motivation, financing, or expertise to market directly to end
users or final consumers. In some cases, as with most
consumer convenience products, such as soft drinks, the
cost of marketing directly to millions of consumers taking

and shipping individual orders is prohibitive. For this
reason, producers contract other channel members (such as
wholesalers and retailers) to do what the producers are not
equipped to do or what channel members are more
prepared to do. Channel members can do certain things
more efficiently than producers (manufacturers) simply
because they have developed specialised skills and expertise
over time and have developed good relationships with their
customers. Therefore, their specialised expertise enhances
the overall performance of the entire distribution channel.
2.2 Overcoming discrepancies

Marketing channels also play a role in overcoming
discrepancies of quantity, assortment, time and place (see
Chapter 1) created by economies of scale in production. For
example, assume that a manufacturer of ready-made pizzas
can efficiently produce them at a rate of 5 000 units in a
typical day. Not even the most enthusiastic pizza eater could
consume that amount in a year, never mind a day. The
amount produced by manufacturers to lower unit costs
(economies of scale) creates a discrepancy of quantity, which
is the difference between the amount of product produced
and the amount an end user wants to buy. By storing the
product and distributing the appropriate amounts as
demanded, marketing channels overcome quantity
discrepancies by making products available in the quantities
that consumers desire.
Mass production creates not only discrepancies of
quantity, but also discrepancies of assortment. A discrepancy

of assortment occurs when a consumer does not have all of
the items needed to ensure full satisfaction from a product.
For pizzas to yield maximum satisfaction, several other
products are required to complete the assortment. At the
very least, most people would want a knife, fork, plate, black
pepper and origanum. Others might add a glass of wine, a
salad and good music. Therefore, the pizzeria manager buys
this assortment from a variety of suppliers to satisfy the
customers needs. Similarly, for tennis players to be properly
equipped they need a racquet, shorts, a shirt, socks, tennis
shoes, a sweat band and tennis balls. Sports shops offer all
these under one roof, although they may be manufactured
by many different suppliers.
A temporal discrepancy is created when a product is
produced at a time when a consumer is not ready to buy it.
Marketing channels overcome temporal discrepancies by
maintaining inventories in anticipation of future demand.
For example, manufacturers of seasonal merchandise, such
as Christmas decorations, are in operation all year even
though consumer demand is concentrated during only one
month of the year.
Figure 10.1 How intermediaries reduce the number of required transactions
Furthermore, because mass production requires many

potential buyers, markets are usually scattered over large
geographical areas, creating a spatial discrepancy.
Frequently, national and sometimes global markets are
needed to absorb the production output of mass producers.
Marketing channels overcome spatial discrepancies by
making products available in locations convenient to
consumers. For example, motor vehicle manufacturers
(mainly based in the Eastern Cape, Pretoria and Durban)
overcome spatial discrepancies by franchising dealerships
close to consumers.
2.3 Providing contact efficiency

The third need fulfilled by marketing channels is a way to
overcome contact inefficiency. Consider consumers extra
costs if supermarkets, department stores and shopping
centres did not exist. Suppose you had to buy milk at a dairy
and meat at an abattoir. Imagine buying eggs and chicken at
a hatchery and fruits and vegetables at various farms. You
would spend a great deal of time, money and energy
shopping for a few groceries. Channels of distribution
simplify distribution by reducing the number of transactions
required to get products from manufacturers to consumers,
and making an assortment of goods available in one
location.
Consider another example, which is illustrated in Figure
10.1. Four students in your class each want to buy a
calculator. Without a retail intermediary like CNA,
calculator manufacturers Hewlett Packard, Sharp, Texas
Instruments, Citizen and Toshiba would each have to make
four contacts to reach the four buyers who are in the target
market, totalling 20 transactions. However, each producer
has to make only one contact when a retailer such as CNA
acts as an intermediary between the producer and
consumers by stocking all four brands of calculators,
reducing the number of transactions to nine. Each producer
sells to one retailer rather than to four consumers. In turn,
your classmates buy from one retailer instead of from five
producers.
This simple example illustrates the concept of contact
efficiency. South African manufacturers sell to millions of
individuals and families. Using channel intermediaries
significantly reduces the number of required contacts. As a
result, producers are able to offer their products costeffectively and efficiently to consumers.
3. The functions of a marketing channel
LO2
Intermediaries in marketing channels perform several

essential functions that enable the flow of goods between
manufacturer and buyer. The three basic functions that
intermediaries perform are summarised in Table 10.1.
Transactional functions involve contacting and
communicating with prospective buyers to make them
aware of existing products and explain their features,
advantages and benefits. Logistical functions include sorting
out, accumulating, allocating and sorting products into
either homogeneous or heterogeneous collections. Grading
agricultural products (first grade, second grade, etc.) typifies
the sorting-out process. Consolidating many batches of
grade-A eggs from different farmers into one batch
illustrates the accumulation process. Supermarkets and
other retailers perform the sorting function by assembling
thousands of different items that match their customers
needs. The third basic channel function, facilitating,
includes research and financing. Research provides
information about channel members and consumers by
getting answers to questions such as: who are the buyers?
Where are they located, and why do they buy? Financing
ensures that channel members have the money to keep
products moving through the channel to the final consumer.
Table 10.1 Marketing channel functions performed by intermediaries
Types of
functions
Transactional
functions
Description
Logistical
functions
Facilitating
functions
Contacting and promoting: contacting potential

customers, promoting products and soliciting orders.
Negotiating: determining how many goods or services to
buy and sell, type of transportation to use, when to
deliver, and method and timing of payment.
Risk-taking: assuming the risk of owning inventory.
Physically distributing: transporting and storing goods to
overcome temporal and spatial discrepancies.
Sorting: overcoming discrepancies of quantity and
assortment by:
> Sorting: breaking down a heterogeneous supply
into separate homogeneous stock.
> Accumulation: combining similar stocks into a
larger homogeneous supply.
> Allocation: breaking a homogeneous supply into
smaller and smaller lots (bulk breaking).
> Assortment: combining products into collections
that buyers want available at one place.
Researching: collecting information about other channel
members and consumers.
Financing: extending credit and other financial services
to facilitate the flow of goods through the channel to
the final consumer.
EXAMPLE A single firm may provide one, two or all three functions. CocaCola, for instance, performs transactional, logistical and facilitating channel
functions. Coca-Colas sales representatives visit local shops and restaurants to

negotiate the terms of the sale, possibly giving the customer a discount for large
purchases, and make arrangements for delivering the range of beverages that
Coca-Cola markets. At the same time, Coca-Cola provides a facilitating function
by extending credit to intermediaries, such as retailers. Coca-Cola representatives
also help promote the brands on a local level by displaying Coca-Cola
promotional material such as logos, signs and posters. Coca-Cola also performs
logistical functions by accumulating the many brands of Coca-Cola from the
various bottlers and storing them in its refrigerated warehouses. When an order
needs to be filled, Coca-Cola then sorts the products or brands into
heterogeneous collections for each particular customer. For example, the local
spaza shop may order ten cases of Coke, five cases of Sprite, five cases of Fanta
and two cases of Powerade. The order will then be loaded onto a refrigerated
truck and transported to the spaza shop (a logistical function).
Although individual members may be added to or dropped
from a distribution channel, someone must still perform
these essential functions. They can be performed by
manufacturers, end users or consumers, channel
intermediaries, such as wholesalers and retailers, and
sometimes non-member channel participants. For example,
if a manufacturer decides to eliminate its private fleet of
trucks, it must still have a way of moving the goods to the
wholesaler. This task may be accomplished by the
wholesaler, which may have its own fleet of trucks, or by a
non-member channel participant, such as an independent
trucking firm. The latter example is referred to as
outsourcing. Non-members also provide many other
essential functions that may at one time have been provided
by a channel member. For example, research firms may
perform the research function; advertising agencies, the
marketing communication function; transportation and

storage firms may perform the physical distribution
(logistical) function; and banks, the financing function.
4. Marketing channel structures
LO3
There are many routes a product can take to reach its final
consumer. Marketers search for the most efficient channel
from the various alternatives available. Marketing a
convenience product, such as chewing gum or chocolate,
differs from marketing a speciality product, such as a
Mercedes-Benz. The two products require substantially
different distribution channels. Likewise, the appropriate
channel for a major equipment supplier, like Otis (which
sells lifts to building contractors), would be unsuitable for an
accessory equipment producer like Black & Decker selling
electric drills and screwdrivers to do-it-yourself retailers,
such as Builders Warehouse, Buildit and Hardware Centres.
Figure 10.2 illustrates the four ways that manufacturers
can transfer products to consumers. At one end of the
marketing channel route, manufacturers can use the direct
channel to sell directly to consumers. Direct marketing
activities including telemarketing, mail order and
catalogue shopping, and forms of electronic retailing, such
as online shopping and shop-at-home television networks
are a good example of this type of channel structure.
OUTsurance is a South African firm that uses the directmarketing approach (with no intermediaries). International
firms such as Avon (cosmetics) and Tupperware (plastic
containers) also use the direct-marketing approach to target

South African consumers. Avusa, the media firm that owns
publications such as the Sunday Times and Business Day,
now sells its advertising space online by means of an
auctioning process.
At the other end of the spectrum (see Figure 10.2), an
agent or broker channel is quite a complicated process.
Agent or broker channels are usually used in markets with
many small manufacturers and many retailers, who lack the
resources to come into direct contact with each other.
Agents or brokers bring manufacturers and wholesalers
together for negotiations, but do not take title to (in other
words, do not own) merchandise. Ownership passes directly
to one or more wholesalers and then to retailers. Finally,
retailers sell to the final consumer of the product. For
example, a food broker represents buyers and sellers of
grocery products. The broker acts on behalf of many
different manufacturers and negotiates the sale of their
products to wholesalers that specialise in foodstuffs. These
wholesalers, in turn, sell these products to grocery shops
and convenience stores.
WEBSITE
Consider the Avon app for your cell phone,

following the link on
http://www.avon.co.za/PRSuite/howtobuy_landing.page
Avon head of digital shares secrets to
online success
A big lesson for the Avon beauty brand has been to put
customer experiences first, rather than the technology
and digital platforms. Speaking at the Forrester Summit
for Marketing and Strategy Professionals in Sydney,
Carl Mogridge took the audience through the beauty
retailers three-year digital transformation to date, and
the launch of its first direct ecommerce offering earlier
this year. Describing the journey as the shift from ding
dong to dot com, Mogridge said digital represented a
game-changing opportunity for the company. But he
noted the significant difference between Avons longstanding representative sales force model, and the
real-time, instant gratification consumers it is trying to
target today. The company has 6 million
representatives worldwide. Each representative is given
a personal website URL. Avon teamed up with PayPal
on an NFC project to arm Avon sales reps with the
ability to transact with customers using mobile devices.
In addition, sales reps were provided with and trained
on free digital assets around Avon products. Arguably,
however, the biggest transformation in Avons 127-year
history has been creating a direct ecommerce platform.
We started with a print brochure and then went to a
mobile app, but customer didnt like interacting with
that particular app on that platform, so we built a
responsively designed ecommerce site so they had
more opportunity to ingest all the digital content,
Mogridge explained. As the saying goes, good
companies listen, but great companies act. Before you

could only purchase through an Avon representative
now you can connect with the company directly or
physically, have products posted or delivered directly
by your Avon representative. Theres Google Maps
integration and all the functionality digital consumers
are accustomed to, it looks very social and its a nice UX
experience, even on mobile. One big lesson learnt by
Avon so far has been to put customer experiences,
rather than the technology and digital platforms, first.
We were pushing technology on customers, such as a
new app, and expecting them to react and buy from us,
Mogridge said. What we realised was that we had to
ask what do you want in order to come and purchase
from Avon? Now, customer experience is the starting
point and technology is built around those demands.
SOURCE: Cameron, N. 14 August 2014. Avon head of digital shares secrets

to
online
success.
Available
from
http://www.cmo.com.au/article/552303/avon_head_digital_shares_secrets_online
(Accessed 15 August 2014)
Figure 10.2 Typical marketing channels for consumer products
WEBSITE
Visit the computer manufacturer
Dells website at www.dell.co.za and read
the Terms and Conditions to determine
how they approach delivery of
products/software, once order. Would you
describe Dells distribution strategy as
successful?
Most consumer products, however, are sold through

distribution channels similar to the other two alternatives:
the retailer and wholesale channels. A retailer channel is
most common when the retailer is large and can buy in large
quantities directly from the manufacturer. If a wholesaler
channel is used, the volume must justify the extra expense of
using a wholesaler.
Car dealers and computer retailers are examples of
retailers that often bypass a wholesaler. A wholesaler is used
for low-cost items that are frequently purchased, such as
sweets, cigarettes and magazines. For example, Cadbury
sells chocolate to wholesalers in large quantities. The
wholesalers then break these quantities into smaller
quantities to satisfy individual retailer orders.
The introduction of the Internet as a channel of
distribution has forced many firms to develop a strategy with
an appropriate balance between the number of
intermediaries. Two concepts are of importance in this
balancing act:
Disintermediation refers to the elimination of a channel

intermediary. For example, one hallmark of the new
economy is a move away from traditional manufacturer"****** DEMO - www.ebook-converter.com*******"
retailer-consumer channels to direct online channels

that eliminate the retailer. However, the functions that
were carried out by the retailer are not eradicated, but
instead shifted to the manufacturer. Traditional retailer
functions, such as monitoring competitive brands,
attracting customers to the website (instead of the retail
location), merchandising, order fulfilment, credit
checks, and so forth, become the responsibility of the
manufacturer. The Internet has become a driving force
for disintermediation in many industries because it
enables firms to interact at a much lower cost and higher
speed than ever before. A good example of
disintermediation is the websites of airlines, such as
Kulula.com, Mango, South African Airways and British
Airways, where one can buy tickets directly from the
airline (manufacturer), without using the service of a
travel agent (retailer).
Reintermediation, the opposite of disintermediation,
refers to the reintroduction of channel members. The
motivation for this strategy is the added value offered to
the customer. Although the distribution channel (e.g.
buying airline tickets) becomes longer when using a
travel agent (retailer), the retailer can provide added
benefits (e.g. advice on accomodation and additional
support, like arranging visa applications and airport
shuttles).
5. Utilising alternative marketing channel

LO4
arrangements
Rarely does a manufacturer use just one type of channel to
move its product from manufacturer to final consumer. It
usually employs several different or alternative channel
arrangements, such as:
Multiple channels. When a producer selects two or

more channels to distribute the same product to target
markets, this arrangement is called dual distribution (or
multiple distribution). For example, in the United States,
Whirlpool sells its washers, dryers and refrigerators
directly to the developers of large housing projects, but it
also sells these same appliances to retail stores that sell
to consumers. Verimark, which has traditionally used
direct-mail channels, has now opened its own retail
stores. Glomail also sells its products through retailer
Game.
>>Strategy
While in South Africa we are not yet at the stage of more
advanced markets such as Europe or the United States,
consumers in South Africa are increasingly shopping
across a number of retail channels such as TakeALot. A
retailers ability to capitalise on the full benefits of
multichannel retailing involves much more than simply
replicating a traditional in-store product assortment
within a digital format and assuming that consumers

will click and buy. Understanding the relationship
between the consumer, technology and factors that
influence the purchasing decision has become
paramount. Retailers need to be ready for the shift
towards online. Currently in South Africa, multichannel
retail is primarily focused on food, music, books and
banking, but we are beginning to see an increasing
number of younger customers doing more research
using online and digital platforms in relation to fashion,
even if they dont shop online.5
Non-traditional channels. Often non-traditional

channel arrangements help differentiate a firms product
from the competitions. For example, manufacturers
may decide to use non-traditional channels, such as the
Internet, mail order or farmers markets to sell their
products instead of going through traditional retailer
channels. Although non-traditional channels may limit a
product or brands coverage, they can provide a
manufacturer serving a niche market with a means of
gaining market access and customer attention without
having to establish channel intermediaries. Nontraditional channels can also provide another avenue of
sales for larger firms. For example, McDonalds is
experimenting with selling burgers and chips through
kiosks inside some retail outlets, free-standing
restaurants at petrol stations, catering services and home
delivery. Kelloggs is exploring vending machines to
expand the distribution of its snack-style brands and the
motor vehicle manufacturer Daewoo is experimenting

with alternative channels of distribution by buying space
in bicycle shops. First National Bank has developed
portable branches (stand-alone, semi-mobile units built
from containers, as well as banks-on-wheels) to serve
remote rural areas. Unilevers distribution strategy in
Tanzania using bicycles is a classical example of a nontraditional channel (see Reader 48 Unilevers bicycle
distribution).
Strategic channel alliances. More recently,
manufacturers have formed strategic channel alliances,
which use another manufacturers already-established
channel. Alliances are used most often when the
creation of marketing channel relationships may be too
expensive and time-consuming. Strategic channel
alliances are also developing in less traditional outlets,
such as electronic banking. Microsoft Corporation and
Visa International have created a system that will enable
consumers to pay accounts and utilise other banking
functions using a computer network of Visas member
banks.6
Reverse channels. Reverse channel distribution refers to
when products move in the opposite direction to
traditional channels from consumer back to
manufacturer. This type of channel is important for
products that require repairs or recycling. For example,
motor vehicle dealers generally have a service
department to which consumers can bring their cars
when they need repairs. A number of producers of hightech products, like Sony, have established a national
network of service centres that will repair the
manufacturers brands of electronic entertainment

equipment. Soft-drink bottlers and breweries use reverse
channels to collect and recycle glass bottles. They have
also been big promoters of aluminium can recycling,
mostly because it makes economic sense. Reverse
channels for recycling have become more prevalent as
manufacturers realise the importance of limiting the
solid waste that is normally dumped in landfills. In the
United States, Procter & Gamble has redesigned its
plastic bottles and containers to use recycled instead of
new plastics. To do this, P & G devised a reverse channel
to get discarded plastic containers back for recycling.
Now PP & G works with channel intermediaries that
collect, sort, shred, clean and pelletise discarded plastic
containers. The plastic pellets are then shipped back to P
& G to become an ingredient in new plastic bottles and
containers. Similarly, South Africas largest brewer,
South African Breweries, sells more than 80 per cent of
its beer in returnable bottles, and consequently utilises a
reverse channel to collect, clean and then reuse these
containers.
WEBSITE
Visit the website of the toy manufacturer
Toys R Us at www.toysrus.com.
What channel arrangement does it use?
6. Factors that influence marketing

channel strategies
LO5
Devising a marketing channel strategy requires several

critical decisions. Marketing managers must decide what
role distribution will play in their overall marketing strategy.
In addition, they must be sure that the channel strategy
chosen is consistent with product, advertising and pricing
strategies. In making these decisions, marketing managers
must analyse which factors will influence the choice of
channel and what level of distribution intensity will be
appropriate. The final choice depends on an analysis of
several factors, which often have an impact on each other.
These factors can be grouped as market factors, product
factors and producer factors.
6.1 Market factors

Among the most important market factors affecting the
choice of a distribution channel are target customer
considerations. Specifically, marketing managers should
answer the following questions:
Who are the potential customers?

What do they buy?
Where do they buy?
When do they buy?
How do they buy?
Additionally, the choice of channel depends on whether the

manufacturer is selling to consumers or to industrial

customers (business-to-business). Industrial customers
buying habits are very different from those of consumers.
Industrial customers tend to buy in larger quantities and
require more customer service. Consumers usually buy in
very small quantities and sometimes do not mind if they get
no service at all, as in the case of a discount store such as
Game.
The geographic location and size of the market are also
important when it comes to channel selection. As a rule, if
the target market is concentrated in specific areas, then
direct selling using a sales force is appropriate.
When markets are geographically more widely dispersed,
intermediaries are the less expensive option. The size of the
market also influences channel choice. Generally, a very
large market requires more intermediaries. For instance,
firms such as Tiger Brands and Unilever have to reach
millions of consumers with their many brands of food and
household goods. To make this possible, they need many
intermediaries, including wholesalers and retailers. For
large clients, such as Pick n Pay or Shoprite, Unilever will
appoint a dedicated key account manager to manage the
relationship with that retailer. However, this option is not
feasible in areas such as the rural Eastern Cape, where
agents are appointed to manage the distribution of their
products to the myriad of small trading stores and spaza
shops.
READER 48 >> Unilevers bicycle distribution

Unilever is bypassing traditional distribution routes to bring its goods to

Tanzanian villages, according to a report in the UKs Financial Times. The
report describes a typical Unilever salesman wearing an Omo T-shirt, who
cycles to tiny outlets to merchandise, and delivers small amounts of Unilevers
products to shopkeepers. The salesman also urges the shopkeepers to give
more shelf prominence to the Unilever products.
The report quotes Rajendra Aneja, Unilever Tanzanias managing director,
as saying: The moment you do this, the vendor respects your product because
you respect your product. It says the new approach is allowing Unilever
Tanzania to make impressive inroads into a market where distribution has
been dominated by wholesalers. Aneja says the system improved sales fivefold
over five months. Some of Unilevers products have also overtaken other
products into market leadership positions.
Having gained experience with Unilever in India and South America, Aneja
decided to bypass traditional routes and go direct to the outlets. When
markets are left to the mercy of the wholesale trade, availability becomes
patchy, brands lose their franchise and price indiscipline reigns, he says.
Tanzania has 100 000 retail outlets in 9 000 villages. Consumers buy rice,
maize and flour in tiny quantities every day from mini-kiosks in lanes that are
too narrow for vehicles. Unilever delivers goods by van to large shops in towns,
but had to find an alternative form of distribution for outlets in inaccessible
villages. Salesmen are given bicycles with large boxes welded on to the back
to transport small packs. Each visits about 20 to 30 shops, following a fixed
itinerary.
SOURCE: Adapted from Turner, M. 2000. Unilevers bicycle distribution. Financial Times, 17 August, p.
8
6.2 Product factors

Products that are more complex, customised and expensive,
such as jewellery, tend to benefit from shorter and more
direct distribution channels. These types of products sell

better through a direct sales force. Other examples include
pharmaceuticals, scientific instruments, aeroplanes and
computer servers. On the other hand, the more standardised
a product, the longer its distribution channel can be, and the
greater the number of intermediaries that can be involved.
For example, the formula for chewing gum is more or less
the same from manufacturer to manufacturer, with the
exception of flavour and shape. Chewing gum is also
inexpensive. As a result, the distribution channel for
chewing gum tends to involve many wholesalers and
retailers.
The products life cycle is also an important factor in
choosing a distribution channel. In fact, the choice of
channel may change over the life of the product. When
photocopiers were first available, they were usually sold by a
direct sales force. Now, however, photocopiers can be found
in several types of outlets, including mass merchandisers,
such as Incredible Connection. As products become more
common and less intimidating to potential users, producers
tend to consider using alternative distribution channels. The
energy drink Energade was originally distributed through
gyms and fitness clubs only. As the drink became more
popular, mainstream supermarket channels were added,
followed by convenience stores. Now Energade can be
found in cafs and vending machines and even in some fastfood restaurants. Another example is the computer
manufacturer Dell, which, as the market matured and a
local source of support (from the supplier) became less
important, was able to use direct marketing via the Internet
to sell computers to consumers.
Another factor in the choice of a distribution channel is

the delicacy of the product. Perishable products, such as
vegetables, strawberries and milk, have a relatively short
lifespan. Fragile products, such as china and crystal, require
a minimum of handling. Therefore, a fairly short distribution
channel would suit both.
6.3 Producer factors

Several factors pertaining to the producer itself are
important to the selection of a distribution channel. In
general, producers with substantial financial, managerial
and marketing resources are better able to use more direct
channels. These manufacturers have the ability to hire and
train their own sales force, warehouse their own goods and
extend credit to their customers. Smaller or weaker firms, on
the other hand, must rely on intermediaries to provide these
services for them. Most dairy farmers are not able to afford
transportation of their fresh milk to dairies. As a result, they
have to rely on firms such as Clover to perform the logistical
function for them. Clover is able to drive down unit costs
because they have vehicles that can transport up to 34 000
litres of milk at a time which yields economies of scale
benefits to both farmer and Clover an eventually the
consumer.
Compared with producers who only have one or two
product lines (such as firm selling only tractors to farmers),
producers that sell several products in a related area (a
farmer selling dairy product such as yoghurt, cheese and
cream in Bloemfontein) are able to choose channels that are
more direct. Sales expenses can then be spread over more
products.
A manufacturers desire to control pricing, positioning,
brand image and customer support also tends to influence
channel selection.
EXAMPLE Firms that sell products with exclusive brand images, such as
designer perfumes (Opium and Chanel No. 5, for example) and clothing (such as
Calvin Klein and Jenni Button), usually avoid channels in which discount retailers
are present. Manufacturers of upmarket products, such as Gucci handbags and
Apple computers, may sell their wares only in expensive shops in order to
maintain an image of exclusivity. The Swiss watch manufacturer TAG Heuer has
found that it had too many dealers in Europe and Japan, which led to price
competition and discounting. A luxury watch should not be discounted, said the
CEO of the firm, Jean-Christophe Babin.7 Consequently, the number of dealers
was reduced, as was the case in South Africa.
7. Levels of distribution intensity
LO6
Marketers have three basic distribution options to choose

from: intensive distribution, selective distribution and
exclusive distribution.
7.1 Intensive distribution

The purpose of intensive distribution is maximum market
coverage. The marketer attempts to have the product
available in every retail outlet where potential customers
may want to buy it. If buyers are unwilling to search for a
product (as is true of most convenience products, such as
cooldrinks and milk), the product ought to be easily

accessible to buyers. Therefore, a low-value product that is
purchased frequently may require a lengthy channel of
distribution (intensive distribution).
EXAMPLE Chocolate is found in almost every type of retail store

imaginable. It is typically sold to retailers in small quantities by a food or sweets
wholesaler. Cadbury, for instance, could not afford to sell its different chocolate
brands directly to every spaza shop, service station, cafe, supermarket, cafeteria,
sports club and discount store. The cost would be too high. Therefore, mass
marketers (such as Cadbury) that pursue an intensive distribution strategy sell to
a large percentage of the wholesalers willing to stock their products. Retailers
willingness (or unwillingness) to handle items tends to determine the firms ability
to ensure intensive distribution. For example, a retailer that already carries ten
brands of chewing gum may show little enthusiasm for another brand.
>>Strategy
One of the best illustrations of intensive distribution in
South Africa is South African Breweries distribution.
One can imagine how complex its distribution system
must be. Given that SAB has more than 500 trucks,
more than a thousand trailers, more than 56
distribution depots and thousands of customers (the
customers referred to here are the intermediaries,
such as retailers, liquor stores and restaurants to which
SAB supplies its products), the complexity of
maintaining an efficient distribution service is
immense. According to SAB, the firm focuses on
organisational systems and processes, and in particular
the leveraging of technology to ensure that SAB is

comparable with the most efficient and customerfocused fast-moving consumer goods (FMCG) firms
globally. SAB believes that in order to run efficiently, it
has to understand the needs and circumstances of each
customer, and to tailor specific packages for them.
One of the uses of advanced technology relates to
the routing and scheduling of deliveries to SABs
customers. Right from order placement to the
preparation of loads in the warehouse, allocation of
vehicles and crew, through to the actual delivery,
computer-sourced information enables optimum cost
and time efficiency. Managing distribution costs is
critical to everything SAB does. When a driver checks in
for work each morning, he finds more than a simple list
of deliveries for the day. The computer-generated
schedule will tell him in which sequence to make his
deliveries, which roads to take, the time he should
arrive at each outlet, and even, to the minute, what
time he should finish unloading. The information also
takes into account traffic conditions.
The current system also indicates how much fuel the
driver should use if he sticks to schedule, tyre wear and
countless other cost-measuring criteria. One of the key
criteria is the seconds-per-case measure: the amount of
time it should take to unload a case of beer. The
computer even takes account of delivery circumstances
at individual customer sites. For example, if a site has a
lift that delays offloading, the information is recorded
and stored for future reference.8
7.2 Selective distribution

Selective distribution is based on thorough screening of all
potential retailers to eliminate all but a few in any single
geographical area. Because only a few retailers are chosen to
stock the product, the consumer is expected to actively
search for the product. Shopping products and some
speciality products are distributed selectively. Maytag, for
instance, uses a selective distribution system by choosing a
select handful of appliance dealers in a geographic area to
sell its line of washers and dryers and other appliances.
Likewise, DKNY clothing is sold only in a few carefully
selected retail outlets.
Several screening criteria are used to identify the
appropriate dealers. An accessory equipment manufacturer,
such as Pineware, will select only dealers that are able to
service its products properly. A television manufacturer,
such as Samsung, may insist on service ability and a quality
dealer image. If the manufacturer expects to move a large
volume of merchandise through each dealer, it will choose
only those dealers that are able to handle such volumes and
as a result many smaller retailers may not be considered.
WEBSITE
Selective distribution system may prevent

retailers from reselling their products via
Internet channels if selling the products in
this way could be said to harm the image
of their brand. Read more at
http://www.eversheds.com/global/en/what/articles/ind
ArticleID=en/Competition_EU_and_Regulatory/Selective
practice_Internet_Sales
7.3 Exclusive distribution

The most restrictive form of market coverage is exclusive
distribution, which entails only one or a few dealers within a
given area. Because buyers may have to search or travel
extensively to buy the product, exclusive distribution is
usually confined to consumer speciality goods, a few
shopping goods and major industrial equipment.
Products such as Rolls Royce vehicles and Caterpillar
earthmoving equipment are distributed under exclusive
arrangements. Sometimes exclusive territories are granted
by new firms such as franchisors to ensure adequate market
coverage in a particular area. Limited distribution may also
serve to project an exclusive image for the product. It is for
this reason that you will not find a Magnum ice cream in
every cafe in South Africa. Rolex, for instance, uses only
eight retail agents to sell its watches in the whole of South
Africa.
Retailers and wholesalers may be unwilling to commit the
time and money required to promote and service a product
unless the manufacturer guarantees them an exclusive
territory. This arrangement shields the dealer from direct
competition and enables it to be the main beneficiary of the
manufacturers promotion efforts in that geographic area.
With exclusive distribution, channels of communication are
usually well established because the manufacturer works
with a limited number of dealers only.
Although exclusivity has its advantages, it can also have
its pitfalls. An exclusive network may not be large enough,
for instance, if demand is strong. In addition, the
manufacturers insistence on exclusivity might put the

channel in financial jeopardy during times of weak demand.
>>Strategy
Hondas Acura division in the United States uses an
exclusive distribution strategy to create a distinctive
image for its high-priced cars. Acura dealers struggled
initially because of the cars small niche market, low
resale demand and, ironically, infrequent need for
follow-up service and repair. But after several years,
Acura dealerships have become very strong
competitors by promoting quality and service. All new
motor vehicle sales in South Africa are undertaken by
way of exclusive distribution arrangements between
the manufacturer and selected car dealers.
Table 10.2 summarises the differences in the three types of
distribution-intensity options available to firms.
As one moves from one end of the continuum (exclusive
distribution) to the other end (intensive distribution), the
profit margin per unit sold decreases, as well as the extent to
which the manufacturer can exercise control over the instore treatment of its product or brand by the retailer. Table
10.2 also shows that what consumers expect of the different
types of retail outlets differs (e.g. personal attention and
service), as well as the importance of price in the buying
decision.
8. Potential channel conflict
LO7
In a channel of distribution there are a variety of different

concerns that can lead to conflict between members of the
channel. Inequitable channel relationships and channel
members pursuit of conflicting objectives are often the
source of channel conflicts. For instance, a manufacturer
may want special treatment for its product and brand or to
protect its image as an exclusive brand. The retailer,
however, may not be concerned about the brands image
and may be keen to put the product or brand on promotion
or on sale, as long as the product sells. However, neither
action is conducive to building an image of exclusivity and
will not please the manufacturer. (This was the case with the
TAG Heuer example highlighted earlier.)
Distribution channels must be organised and regarded as
systematic, co-operative efforts if operating efficiencies are
to be realised. Yet channel members often perform as
separate, independent, and even competing, forces a
recipe for disagreement and conflict. Two types of conflict
may often occur horizontal and vertical conflict. Both are
hindrances to the effective functioning of distribution
channels.
Table 10.2 Distribution-intensity strategies
SOURCE: Adapted from Evans, J.R. & Berman, B. 1994.

Marketing (6th edition). New York: Macmillan
Publishing, p. 48
8.1 Horizontal conflict

Horizontal conflict may develop among channel members at
the same level, such as two or more wholesalers or two or
more retailers, or among marketing intermediaries of the
same type, such as two competing discount shops or several
retail florists. More often, however, horizontal conflict
occurs among different types of marketing intermediaries
that handle similar products. In other words, this type of
channel conflict occurs most often when manufacturers use
dual or multiple distribution strategies. Considerable
horizontal conflict occurred among petrol stations in the
1990s when Pick n Pay started selling petrol at discount
prices. Another example is the conflict between South
African Airways on the one hand and British Airways on the
other. British Airways claimed that South African Airways
uses uncompetitive means to persuade travel agents to
favour them when booking air travel for their customers,
and have complained to the Competition Board.
8.2 Vertical conflict

Vertical conflict can occur between channel members at
different levels, for example between manufacturers and
wholesalers or between wholesalers and retailers (see
Reader 49 Fuel wars). Vertical conflict occurs frequently
and is often the more severe form of conflict in the channel.
Conflict may occur between manufacturers and retailers
when retailers develop private brands to compete with the
manufacturers brands, or when manufacturers establish
their own retail outlets or create mail-order operations that
compete with retailers. Another example of vertical conflict
is when manufacturers (such as furniture makers) attempt
to bypass wholesalers and retailers and sell directly to final
consumers. When airlines, such as South African Airways,
first started marketing airline seats via the Internet it led to
considerable conflict between the airlines and travel agents.
Some travel agents threatened not to sell SAA tickets any
more. In other instances, wholesalers or retailers may
promote competing products to the detriment of other
products or brands. If a sports goods retailer, such as
Sportmans Warehouse, promotes Adidas to the detriment
of Nike, the latter will certainly not be satisfied.
READER 49 >> Fuel wars: Engine trouble

Hundreds of BP and Caltex petrol retailers are up in arms over the oil giants
implementation in December 2013 of the department of energys new
Regulatory Accounting System, which is meant to provide greater transparency

in the pricing of petrol. The retailers dispute the way the oil companies have
chosen to implement the new revenue formula, and accuse them of unethical
behaviour and strong-arm tactics. If the disputes are not resolved soon, the
disagreement over revised franchise agreements may lead to retailers
forfeiting their investments, with potential job losses amounting to hundreds.
Fuel Retailers Association CEO Reggie Sibiya says the conduct of the oil
companies is against the spirit of the amended Petroleum Products Act, on
which the new calculation of fuel margins is based. He says one of the
benefits of the new system is to give retailers an opportunity to make better
margins. The behaviour of BP and Caltex means their retailers are being
deprived of what is due to them. The revised franchise agreements they are
being forced to accept are unfair and do nothing to increase their
sustainability, says Sibiya.
Arbitration is just one way this can be resolved but we are exploring other
legal avenues as well. A decision will be made shortly, says Sibiya. Meanwhile,
BP dealers continue to face pressure from the company to commit to new
agreements despite the impending litigation. A BP dealer based in
Johannesburg, who declined to be named for fear of victimisation, said the
company had informed him that it wanted to increase the forecourt rental fee
to a rate he believes amounts to an over-recovery.
Contacted for comment, BP SA spokesman Karen Byamugisha said: BP SA
is in negotiations with its dealer network on a number of commercial terms
governing the contractual relationship. BPs retailers dispute that negotiations
are taking place, and instead claim they have been issued with letters warning
them that if they do not sign new agreements on BPs terms their rental and
franchise agreements could be cancelled and they may be replaced by new
retailers. Fearing huge financial losses, some retailers have signed new
agreements despite their deep misgivings.
What can we do? BP is threatening to terminate our franchise
agreements, and many of us have bank loans to repay, so we have no choice
but to accept their terms, says another dealer.
SOURCE: Zibi, Z. 2014. Fuel wars: Engine trouble, Financial Mail, 13 February, p. 26
EXAMPLE Mittal Steel (formerly ISCOR) seems to be a powerful channel

member in the steel industry by virtue of its size (it supplies more than two-thirds
of South Africas steel). In 2006, it increased the price of its steel products three
times in four months, yet imposed harsh payment terms on its suppliers. Without
any warning, Mittal Steel decided to reduce payments to suppliers from 30 days
after delivery to 90 days after delivery. These decisions obviously created conflict
(vertical conflict) in the distribution channel. How do you sustain jobs if there is
no income for 90 days? asked one supplier.9
Channel conflict is something that regularly occurs in distribution channels.
When DaimlerChrysler South Africa wanted to rationalise its dealership network a
few years ago it created conflict with its dealership network. In a move
unprecedented in South Africa, the strategy was for a single dealer group to be
reallocated to each main metropolitan region. DaimlerChrysler created five main
metropolitan sales regions: one each for Durban and Cape Town, and three for
Johannesburg and Pretoria. The purpose was to improve customer service and
create separate brand images for the groups growing product range. The affected
dealers complained bitterly about the one-sided relationship with the
manufacturer, DaimlerChrysler South Africa.10
British American Tobacco (who dominates the South African cigarette market)
has been accused of trying to squeeze small cigarette distributors out of the
market another example of vertical channel conflict.11 How the conflict is dealt
with will be strongly influenced by the power wielded by some members in the
distribution channel.
9. Power in the distribution channel
12
LO8
For a variety of reasons, including actual or potential

channel conflict, some marketing institutions or members of

the channel of distribution must exercise leadership to
ensure that it functions efficiently. However, channel
leadership is a function of a members channel power (i.e.
its capacity to control or influence the behaviour of other
channel members) within the distribution channel. The
extent to which any participant can exercise leadership will
be determined by its access to five bases of power (often
determined by size and financial muscle) within the
distribution channel: reward power, coercive power,
legitimate power, referent power and expert power. All of
these power bases can be used to establish a position of
channel leadership.
9.1 Reward power

If channel members can offer some type of reward to
another member, they possess reward power. The reward is
used to encourage desirable behavior (usually what is in the
interest of the entire distribution channel). Examples are
granting an exclusive sales territory or franchise, or offering
incentives, such as lower wholesale prices or higher
discounts. For example, for many years South African
Airways has been offering travel agents financial incentives
to book travellers on its flights.
9.2 Coercive power

The threat of economic punishment is known as coercive
power.
EXAMPLE For instance, a manufacturer may threaten an unco-operative

retailer with loss of its custom. Car manufacturers such as Toyota and MercedesBenz often threaten car dealerships by threatening to cancel their dealership
agreements unless they toe the line. Another example is large retailers strength
with their suppliers (examples are Spar and Pick n Pay). A large retailers market
size is a significant base of power in its distribution channel and that may allow it
to punish manufacturers in a variety of ways (e.g. by not stocking its products)
should it wish to. It is alleged that in 2006, Checkers pressurised wineries in the
Western Cape to increase their own cellar prices to the same level that Checkers
sold the wines for so that Checkers could rightfully claim to sell wines at cellar
prices. When approached by the media, the wineries did not wish to have their
names mentioned out of fear that their business with Checkers would be
threatened.13
9.3 Legitimate power

Distribution channels that are linked contractually is an
example of legitimate power. For example, a franchise might
be contractually required to perform such activities as
maintaining a common type of outlet, contributing to
general advertising and remaining open during specified
times as in the case of McDonalds and other fast food
restaurants.
EXAMPLE Many independent financial intermediaries (agents and

brokers) complain that when they owe money to large insurance firms, such as
Old Mutual, Sanlam, Liberty Life and others, they are charged interest on those
outstanding balances. However, when the insurance firms owe them money, they
(the independent intermediaries) cannot, in turn, charge interest.14 Why do these
large insurance firms get away with it? Its simple: the large insurance companies
have more power in the distribution channel than the intermediaries. In this case,
the large insurance firms have both coercive power and legitimate power if you
do not pay our interest, we will cancel your licence to sell our financial products,
they say.
In the case of DaimlerChrysler referred to earlier, a legal adviser to a dealer
group says dealer-manufacturer contracts in South Africa offer little protection to
dealerships. I dont know why were out of line with the rest of the world, said a
legal adviser. To cancel a dealers franchise in the UK, a manufacturer must give
two years notice and pay compensation and goodwill. There must also be just
cause. In South Africa, the legal adviser says, manufacturers may unilaterally
cancel franchises without compensation with as little as 30 days notice, and
have done so on at least two occasions. Manufacturers like to keep [franchise
termination clauses] hanging over dealers heads, says the adviser. He says there
have also been cases of manufacturers fining dealers up to R100 000 for minor
misdemeanours, such as selling a vehicle outside the franchise area, and cases
where manufacturers have insisted that particular sales managers be fired,
regardless of their record.15
9.4 Referent power

Agreement among channel members as to what is in their
mutual best interests is known as referent power. To
illustrate referent power, many manufacturers maintain
dealer councils (the motor industry is an example) to help
resolve potential problems in distributing a product or
service. Both parties have a mutual interest in maintaining
effective channel relationships.
9.5 Expert power

Knowledge and expertise are the determinants of expert
power. An example is the retail chain, Spar, which conducts
a detailed feasibility study for a potential franchise

purchaser and assists with all aspects of setting up a new
shop, including site selection, shop layout, merchandising
and logistics. Spars expertise and knowledge of the retail
market make it a powerful player in the grocery distribution
channel.
10. Channel leadership
LO9
The dominant and controlling member of a channel is

called a channel captain. Historically, the channel
leadership role was performed by the manufacturer or
wholesaler, since retailers tended to be both small and
localised. However, large retailers have become very
powerful and are increasingly taking on the role of channel
captain as these large chains assume traditional wholesaling
functions and even dictate product design specifications to
manufacturers. The ability of large retailers, such as Pick n
Pay, Shoprite Checkers and Spar, to dictate to their suppliers
such as grocery manufacturers (for instance) cannot be
underestimated.
10.1 Manufacturers as channel captains

Because manufacturers typically create new product and
service offerings and enjoy the benefits of large-scale
operations, they fill the role of channel captains in many
marketing channels owing to their size and consequent
economic power. Examples of such manufacturers include
Coca-Cola, Mittal Steel and Huletts Sugar. In the dairy
industry milk processors such as Clover and Nestl are the

channel captains due to their size and particularly their
extensive fleet of milk collecting tankers.
10.2 Retailers as channel captains

Retailers are often powerful enough to serve as channel
captains in many industries. Large chain operations may
bypass independent wholesalers and utilise manufacturers
as suppliers of their own private brands at quality levels
specified by the retail chains. Major retailers, such as Pick n
Pay and Shoprite Checkers, serve as leaders in many of the
marketing channels with which they are associated.
10.3 Wholesalers as channel captains

Although their relative influence has declined, wholesalers
continue to serve as vital members of many marketing
channels. Large-scale wholesalers often serve as channel
captains because they assist independent retailers to
compete with chain outlets. The Spar chain the holding
company, not the franchised retailers is an example of a
wholesaler with considerable power in the grocery channel
of distribution.
Table 10.3 summarises the potential causes of conflict
that can flare up between the manufacturer of a product or
brand on the one hand and an intermediary, such as a
retailer, on the other. It shows that there is a whole host of
potential sources of conflict, ranging from pricing, to
advertising support to conflict about branding issues.
In order to deal with channel conflict (in addition to using

channel captains) some firms try to gain more control in the
channel by means of two strategies known as forward
integration and backward integration. These strategies can
also be used to take advantage of opportunities that may
emerge over time or to overcome a potential threat. Forward
integration occurs when a producer or manufacturer buys or
establishes its own wholesalers and/or retailers. MercedesBenz taking ownership of its dealership network and
Vodacom buying independent service providers, Teljoy
Holdings and GSM Direct, would be examples of forward
integration.
Backward integration is when a retailer buys or
establishes a wholesaler, or when an intermediary buys or
establishes a production facility. Another possibility is a
producer buying out one of its suppliers of raw materials. If
Woolworths were to buy a fruit-canning factory or South
African Breweries a hops farm, these would be examples of
backward integration. The fast food outlet Burger King has
bought a meat processor to ensure a constant supply of
meat patties for its burgers another example of backward
integration.
Table 10.3 Potential causes of channel conflict
Factor
Pricing
Manufacturers objective
To establish final price

consistent with the
products image
Distribution intermediarys
objective
To establish final price
consistent with the
intermediarys image
Purchase
terms
To ensure prompt, accurate

payments and minimise
discounts
To defer payments as long as

possible and secure discounts
Shelf
space
To obtain plentiful shelf

space with good visibility in
order to maximise brand
sales
To allocate shelf space among

multiple brands in order to
maximise total product sales
Exclusivity
To hold down the number of

competing brands each
intermediary stocks while
selling through many
intermediaries
To hold down the number of

competing intermediaries
carrying the same brands while
the intermediary sells different
brands
Delivery
To receive adequate notice

before deliveries are
required
To obtain quick service
Advertising
support
To secure advertising
support from intermediaries
To secure advertising support

from manufacturers or service
providers
Profitability
To maintain adequate profit

margins
To maintain adequate profit

margins
Continuity
To receive orders on a
regular basis
To receive shipments on a
regular basis
Order size
To maximise order size
To have order size conform

with consumer demand to
minimise inventory investment
Assortment
To offer a limited variety
To secure a full variety
Risk
To have intermediaries
assume risks
To have manufacturers or
service providers assume risks
Branding
To sell products under the

manufacturer or service
providers name
To sell products under private

brands, as well as
manufacturers or service
providers brands
Channel
access
To be able to distribute
products wherever desirable
by the manufacturer or
service provider
To carry only those items

desired by intermediaries
Importance
of account
Not to allow any single

intermediary to dominate
Not to allow any single

manufacturer or service
provider to dominate
Consumer
loyalty
To have consumers loyal to

the manufacturer or service
provider
To have consumers loyal to the

intermediary
Channel
control
To make the key channel

decisions
To make the key channel

decisions
SOURCE: Evans, J.R. & Berman, B. 1994. Marketing (6th edition). New York: Macmillan Publishing, p. 492
>>Strategy
Some firms do both backward and forward integration.
The furniture manufacturer Steinhoff has not only

bought its own forests to supply its timber, but also has
its own retail chains (Pennypinchers and Timber City)
to sell its finished products. Steinhoff began as a
furniture intermediary in 1964 and currently employs
50 000 people, owning 70 factories in 25 countries.
Much of Steinhoffs expansion can be explained by the
firms backward integration into warehousing, sawmills
and forestry businesses, although its recent focus has
been on forward integration by means of the
acquisition of retail businesses.
One Steinhoff subsidiary, PG Bison, describes its
strategy as follows: From seedling to lifestyle
encapsulates the vertical integration philosophy of our
company. We own and manage our value chain from
the seedlings in the nurseries, through to the forest
plantations and on through the timber beneficiation
processes and sawmills to the board and decorative
laminate plants, through to cutting components and a
host of end products. 16
11. The importance of physical

distribution
LO10
Physical distribution is the element of the marketing mix

that enables products to be moved and stored. Physical
distribution are those business activities concerned with
stocking and transporting materials, parts and finished
inventory so they arrive at the right place when needed and

in usable condition and, increasingly, so that consumer
needs can be accommodated. Volkswagen, for instance,
builds the Polo using modular production. That means it
builds a base car in Uitenhage, but the firms logistics system
allows customers to choose a wide range of specifications,
from the front headlights to details on the tail of the vehicle.
A broader term that encompasses physical distribution is
logistics, which also includes procuring and managing raw
materials and component parts for production. Logistics
and physical distribution management include activities
such as:
Managing the movement and storage of raw materials

and parts from their sources to the production site
Managing the movement of raw materials, semimanufactured products and finished products within
and among factories, warehouses and distribution
centres
Planning and co-ordinating the physical distribution of
finished products to intermediaries and final buyers.
In summary, logistics managers are responsible for directing

raw materials and parts to the production department and
the finished or semi-finished product through warehouses
and eventually, as final products, to the intermediary (i.e.
wholesaler or retailer) or end user.
12. The nature of physical distribution

subsystems
LO11
The physical distribution system consists of five distinct

subsystems. These play several key roles within physicaldistribution management: deciding on warehouse location,
number, size and type; setting up a materials-handling and
packaging system; maintaining an inventory-control system;
setting up procedures for processing orders; and selecting
modes of transportation. These five subsystems are shown
in Figure 10.3. Although discussed separately in the sections
that follow, these five subsystems are, of course, highly inter
dependent.

Marketing and technology: More than
just websites
The impact of technology on marketing goes beyond
the use of websites to sell goods and services to
consumers. An equally important aspect of marketing,
and one where information technology has had a
profound impact, is ensuring that products arrive at the
desired destination timeously (to avoid stock-outs), but
not too early, which incurs unnecessary inventoryholding costs. Delivering products to the ultimate
consumer efficiently and expeditiously reduces the cost
of the product and consequently allows businesses to

reduce their price, which, in turn, stimulates demand.
For example, Chevron Oil introduced SAP (systems,
applications and products) logistics software in 1992 at
a cost of $160 million; by 1997, the firm had succeeded
in reducing purchasing-related costs by 15 per cent.
The Internet has also been used as an interface
between businesses to improve efficiency and reduce
costs. For example, two truck drivers from Sweden,
noticing that a number of trucks had part or empty
loads, started a business known as Delego, which
allowed trucking businesses to match trucks with spare
capacity with cargo that needed to be transported. The
transactions were facilitated by entering the details of
the cargo that needed to be transported into a website,
allowing Delego to match the consignment with empty
or unfilled trucks. Similarly, in the United States, CocaCola uses an Internet-based system to link the sellers of
Coke to the bottlers so that orders are processed
instantly and sales are not lost because retailers do not
have stock. This information system also allows
managers to track sales in the market, so they can
ensure that where promotions are held the retailers
have sufficient stock to meet demand.
SOURCE: Blythe, J. 2009. Principles and practice of marketing (2nd
edition). South Western Cengage Learning, p. 663; www.ecr-sa.co.za
(accessed 29 June 2010)
12.1 Warehousing
Distribution managers oversee the constant flow of goods

from the manufacturer to the final consumer. However, the
final user may not need or want the goods at the same time
that the manufacturer chooses to produce and sell them.
Products such as grain and canned peaches are produced
seasonally, but consumers demand them all year. Other
products, such as Christmas cards and swimwear, are
produced all year, but consumers do not want them until
November or December. Therefore, management must have
a storage system to hold these products until they are
shipped.
Storage is what helps manufacturers manage supply and
demand, or production and consumption. It provides time
utility to buyers and sellers, which means that the seller
stores the product until the buyer wants or needs it. Even
when products are used regularly, as opposed to seasonally,
many manufacturers store excess products in case the
demand surpasses the amount produced at a given time.
Storing additional products does have disadvantages,
however, including the costs of insurance on the stored
products, taxes, obsolescence, spoilage, theft and
warehouse-operating costs. Another disadvantage is
opportunity costs, which means the lost opportunity of
using the money that is tied up in stored products for
something else that could have been more productive or
profitable.
Figure 10.3 The subsystems of physical distribution
12.2 Materials handling

A materials-handling system moves inventory into, within
and out of the warehouse. Materials handling includes the
following functions:
Receiving goods into the warehouse or distribution

centre
Identifying, sorting and labelling the goods
Dispatching the goods to a temporary storage area
Recalling, selecting or picking the goods for shipment
(may include packaging the product in a protective
container for shipping).
The objective of the materials-handling system is to move

items quickly and with minimal handling. With a manual,
non-automated materials-handling system, a product may
be handled more than a dozen times. Each time it is
handled, the cost and risk of damaging it increases. Each

time a product is lifted, its packaging is stressed. With
automated materials handling, many of these functions are
combined and handled by a computerised system.
>>Strategy
Pick n Pay utilises a sophisticated computerised
materials-handling system to reduce product handling
and keep costs to a minimum. This automated system
gives Pick n Pay a high degree of control over how
orders are handled, placed, picked and sequenced for
shipping. Another example is that of Woolworths, who
operates a centralised distribution model using three
large distribution centres in the Western Cape, Gauteng
and KwaZulu-Natal, with a smaller one in the Eastern
Cape. This model supports the firms retail strategy in
terms of scalability and flexibility. The distribution
model and infrastructure enables the cost-efficient
movement of a wide range of products from a number
of sources around the world to a number of different
shop formats.
12.2.1 Packaging
Packaging the product for shipment is a major function of
materials management. Packaging protects transported
materials against breakage, spoilage, insects and dirt. Welldesigned packaging restricts the materials movement. For
instance, Waterford/Wedgwood, the distributor of Irelands
famed Waterford crystal, uses an adhesive-coated bubble

wrap that sticks to the glass to cut down handling time and
reduce product damage. Larger products, such as furniture
or computer equipment, may be shipped in vehicles that are
themselves padded for protection.
12.2.2 Automatic identification and bar-coding

Materials handling, like many other subsystems that are part
of physical distribution, is driven by the need for fast,
accurate information. Automatic identification (known as
auto ID), is the use of identification technology to mark and
read products as they enter and leave the warehouse or as
they are received by a manufacturer or retailer. Auto ID may
employ voice identification, radio frequencies or magnetic
strips, although bar-coding is the most common method.
12.2.3 Unitisation and containerisation

Two important elements of modern materials-handling are
unitisation and containerisation. Unitisation, or unitising, is
a technique for handling small packages more efficiently. It
means grouping boxes on a pallet or skid, which is then
moved mechanically by a forklift or conveyor system.
Containerisation is the process of putting large quantities of
goods in sturdy containers that can be moved from ship to
truck to aeroplane to train without repacking. The
containers are sealed until delivery, thereby reducing
damage and theft. They are essentially miniature mobile
warehouses that travel from manufacturing plant to
receiving dock. A container, often a special form of truck
trailer body, can be reused repeatedly. The average
container lasts ten years and can be repaired if damaged.
12.2.4 Inventory control

Another important function of physical distribution is
establishing an inventory-control system. An inventorycontrol system develops and maintains an adequate
assortment of products to meet customers demands.
Inventory decisions have a big impact on physicaldistribution costs and the level of physical-distribution
service provided. If too many products are kept in inventory,
costs increase as do risks of obsolescence, theft and
damage. If too few products are stocked in the warehouse,
the firm risks product shortages, angry customers and lost
sales. Therefore, the objective of inventory management is
to keep inventory levels as low as possible while maintaining
an adequate supply of goods to meet customer demand.
12.2.5 Just-in-time inventory management

Originally a Japanese management approach, just-in-time
(JIT) inventory management was conceived to redesign and
simplify manufacturing and to reduce warehousing costs.
For the manufacturer, JIT means that raw materials arrive at
the assembly line in guaranteed working order just-in-time
to be installed or processed, and finished products are
generally shipped to the customer immediately after
completion. For the supplier, JIT means supplying
customers with products (in other words, raw materials to
be used in the production process) in just a few days before
needed, or even a few hours, rather than weeks. More and
more manufacturing firms are using JIT inventory"****** DEMO - www.ebook-converter.com*******"
management systems, and more than half of all shipments

in the United States are now sent just in time.
The basic assumption of JIT is that carrying excessive
inventory is costly because it ties up capital that can be used
more productively elsewhere thus an opportunity cost.
With JIT, the purchasing firm can reduce the amount of raw
materials and parts it keeps in stock by ordering more often
and in smaller amounts. General Motors and other motor
vehicle manufacturers, for example, generally maintain just
an eight-hour supply of parts. Packard Electric consolidates
and distributes car wiring harnesses to several motor vehicle
manufacturers. Because the wiring harnesses are scheduled
to arrive on the assembly line as they are needed, shipment
accuracy is crucial for Packard Electric.
JIT inventory management is not without its risks,
however. The risks associated with JIT are: implementing JIT
principles too quickly, cutting inventory without
implementing other JIT principles, increased delivery costs,
supplier shock, employee stress and potential bottlenecks
caused by supplier delays. The benefits of JIT inventory
management include reduced inventory levels, shorter lead
times, improved supplier relations, lower production and
storeroom costs, better-quality supplies and reduced
paperwork.
EXAMPLE The implementation of JIT is a process of continuous

improvement characterised by many small gains in efficiency over a long period.
Because of the lower inventory levels, JIT also demands smaller, more frequent,
precisely-timed deliveries from suppliers. At Saturn, a US train-manufacturing
plant, as many as 850 deliveries may be made by suppliers in a 24-hour period.
Deliveries must be made within a five-minute window to be counted as on time.

Tardy suppliers that cause a production delay face being fined $500 a minute.17
Every BMW 3-series manufactured at the BMW Rosslyn plant near Pretoria is
customised according to a consumers need. Producing hundreds of different
customised cars every day places additional demands on assembly-line suppliers
and supply systems, which between them bring more than 60 per cent of the
components of each car to the line. JIT supply processes ensure that certain
parts of the vehicle arrive on the assembly line just in time to be fitted to the
particular vehicle they were made for. The seat supply conveyer, the handling
system and the bumper supply area have been upgraded as a result. New JIT
supply systems bringing door panels, exhaust systems and front and rear axles to
the right point on the assembly line have been added. Using a JIT supply system
saves space by minimising stock on the premises. Normally, there is only one and
a half hours worth of stock on the line at any given time. JIT prevents damage to
stock and saves on storage and transport costs.18
Couriers and overnight delivery firms are a critical
component in the success of JIT channel strategies. These
firms have made possible quick, efficient and dependable
distribution of many products. The advantages of overnight
delivery include reduced inventory and carrying costs, lower
capital investment in warehousing and improved tracking of
shipments.
12.3 Order processing

Another key activity of physical distribution is order
processing. The importance of the role that proper order
processing plays in providing good service cannot be
overemphasised.
12.3.1 The flow of goods and information

As an order enters the system, management must monitor
two flows: the flow of goods and the flow of information (see
Figure 10.4). Often marketers best-laid plans can become
entangled in the order-processing system. Obviously, good
communication among sales representatives, office staff and
warehouse and shipping staff is essential to ensure correct
order processing. Shipping incorrect merchandise or
partially filled orders can create just as much dissatisfaction
among customers as out-of-stock situations or slow
deliveries. The flow of goods and information must be
continually monitored so that mistakes can be corrected
before an invoice is prepared and the merchandise is
shipped out.
One technology that assists businesses in monitoring the
flow of goods is Radio Frequency Identification (RFID)
which uses radio waves to communicate between a passive
tag (usually put on specific goods or batches of goods) and
an active tag. The two tags communicate with each other
allowing managers to know exactly where a product is
located, at any given time, in the supply chain.19
Figure 10.4 The logistics process
12.3.2 Benefits of automation

Like inventory management, order processing is becoming
more automated through the use of computer technology
known as electronic data interchange (EDI). The basic idea
behind EDI is to replace the paper documents that usually
accompany business transactions, such as purchase orders
and invoices, with electronic transmission of the required
information. Firms that use EDI can reduce inventory levels,
improve cash flow, streamline operations and increase the
speed and accuracy of information transmission. EDI is also
believed to facilitate a closer relationship between buyers
and sellers.
It should not be surprising that retailers have become
major users of EDI. For large retailers, such as Pick n Pay,
Shoprite Checkers, Spar and others, the speed and accuracy
of their logistics systems are crucial competitive tools in a
highly competitive retail environment. Many big retailers
now insist that their suppliers acquire EDI technology. EDI
assists retailers in their efforts to have the right products on

the shelf and in the right styles and colours due to improved
inventory, ordering and distribution techniques.20
EXAMPLE An exciting new automation system has been developed by Kiva

Systems where hundreds of mobile robots can plug themselves into various
shelves and move them around a warehouse. Kivas technology tracks incoming
orders and co-ordinates robots to sort shelves of inventory items in the time that
an order is made. By the time the order has finished being placed, the items are
in the shipping department and ready to be sent to the customer, without
requiring any human intervention.
Companies already using the technology have reported that the efficiency of
the robots allows their shipping departments to ship up to four times as many
goods within an hour. Kiva has also been adapting the robots to handle other
tasks such as moving items to waste compactors and to help with packaging. But
at $7 million (about R90 million) per customer, the technology is not cheap and
for any business smaller than Kivas current large corporate customers (such as
Amazon, Toys R Us and Timberland) it is probably not a feasible option.21
12.4 Transportation
Physical-distribution managers also need to decide which
mode of transportation to use to move products from
producer to buyer. This decision is, of course, related to all
other physical-distribution decisions. The five major modes
of transportation are railways, road haulage, pipelines, water
transportation and airways. Distribution managers generally
choose a mode of transportation on the basis of several
criteria (see Table 10.4):
Cost: The total amount a specific carrier charges to move
the product from the point of origin to the destination

Transit time: The total time a carrier has possession of
goods, including the time required for pickup and
delivery, handling and movement between the point of
origin and the destination
Reliability: The consistency with which the carrier
delivers goods on time and in an acceptable condition
Table 10.4 Criteria for ranking modes of transportation
Capability: The ability of the carrier to provide the

appropriate equipment and conditions for moving
specific kinds of goods, such as those that must be
transported in a controlled environment (for example,
seafood under refrigeration)
Accessibility: The carriers ability to move goods over a
specific route or network
Traceability: The relative ease with which a shipment
can be located and transferred.
The modes of transportation used depend on the needs of

the shipper in terms of the six criteria described above.
Generally, air transport is the fastest and most reliable
mode, but also the most expensive. Water transport is the
slowest and is often unreliable in terms of scheduling, but it
is certainly the cheapest form of transport.
The construction of a poor physical-distribution system
has serious cost implications for firms. Table 10.5

summarises the symptoms that are often evident in a suboptimal distribution system and indicates what the cost
implications may be. For example, poor customer service
could be a symptom of warehouses that are poorly located
or inventory levels that are not aligned with customer needs.
Frequent emergency orders could be due to poor
communication or inadequate demand forecasting.
Regardless of the symptom, a poorly designed physicaldistribution system will add unnecessary costs that, over the
long term, will compromise the firms competitive position,
and may even lead to its demise.
Table 10.5 Selected symptoms of a poor physical distribution system
Symptom
Cost implications
Slowturning
and/or too
high
inventory
Excessive capital is tied up in inventory. The firm must bear

high insurance costs, interest expenses and high risks of
pilferage and product obsolescence. Merchandise may not be
fresh.
Poor
customer
service
Costs are high compared with the value of shipments;

warehouses are poorly situated; inventory levels are not tied
to customer demand.
A large
number of
interwarehouse
shipments
Merchandise transfers increase physical-distribution costs

because items must be handled (packed, unpacked, stored
and verified) at each warehouse.
Frequent
use of
emergency
shipments
Extra charges add significantly to physical-distribution costs.
Peripheral
hauls
and/or
limited
backhauling
The firm uses its own trucking facilities; however, many hauls
are too spread out and trucks may be full only one way.
A large
number of
small
orders
Small orders are often unprofitable. Many distribution costs

are fixed.
SOURCE: Evans, J.R. & Berman, B. 1992. Marketing (6th edition). New York: Macmillan Publishing, p. 492
13. Retailing and wholesaling

intermediaries
LO12
Retailers and wholesalers are the two most prominent

intermediaries in a typical channel of distribution for a
physical product. Retailing all the activities directly related
to the sale of goods and services to the ultimate consumer
for personal or non-business use enhances the quality of
our daily lives. When we shop for groceries, hair styling,
clothes, books and many other products and services, we are
involved in retailing. The millions of goods and services
provided by retailers mirror the needs, wants and lifestyles
of our society.
13.1 The classification of retail operations22

A retail establishment can be classified according to a
number of characteristics. The following characteristics are
normally used to describe and classify different retailers:
Ownership
Merchandise sold
Location
Market area
Type of service rendered
Relationship with other businesses.
13.1.1 Types of ownership of retail shops
LO13
Retail shops may be owned in different ways. The most

common is the independent ownership of a single retail

shop or outlet like a cafe, toy shop, butchery or spaza shop
by a single owner or co-owners. By definition, an
independent retailer owns only one shop.
Other forms of retail ownership are:
Multiple outlets, such as chain stores, franchising and
branches of enterprises. Well-known examples of these
are Pick n Pay supermarkets, CNA bookshops, and
Markham mens clothing shops
Retail shops that are owned by manufacturers, such as
Queenspark, owned by Rex Trueform, and Pep Stores,
owned by the Pepkor group
Shops owned by the state, such as the SANDF shops in
military bases.
There are also examples of retail shops that are owned by
groups of farmers, groups of consumers or utility
companies. Most of the retail establishments in South Africa
are independently owned. They do not, however, account
for a large part of retail sales. The large chain groups that are
widely represented account for most of the retail sales.
Independent retail establishments are characterised by ease
of entry into the market, limited capital requirements and
the relatively minor licensing requirements that have to be
met (low barriers to entry). A chain retailer is any retail firm
that owns, controls and operates several outlets that sell
similar merchandise. The scope of activities undertaken by
chain shops gives them some definite advantages over other
types of retailers.
13.1.2 Types of merchandise sold

Retailers may also be classified according to the
merchandise sold. For purposes of classification, a
distinction is drawn between shops selling a variety of
merchandise, a single product line or speciality products. A
department store, such as Stuttafords, is an example of a
retail store selling a variety of merchandise. Stuttafords sells
clothing, food, electrical appliances, toiletries and a variety
of other exclusive products. Other shops that offer a variety
of merchandise are supermarkets, such as Shoprite
Checkers and Woolworths shops that sell both food and
non-food items.
Foschini and Russells, who sell womens clothing and
furniture respectively, are typical single-product-line shops.
PG Glass and Italtile are examples of shops that sell a small
variety of speciality products. PG Glass sells glass products;
Italtile sells mainly tiles and related products.
Table 10.6 Types of shops and their characteristics
Essentially, this classification distinguishes between shops

that sell a wide variety of merchandise and those that sell a
limited line of merchandise. Retailers that fit into these
categories are listed in Table 10.7.
Table 10.7 Classification of retailers according to variety of merchandise
Wide variety of merchandise
Limited variety of merchandise
Department stores
Speciality stores
Superstores
Fast-food outlets
Hypermarkets
Convenience food stores
Full-line discount stores
Another widely-applied classification according to the type

of merchandise sold is one that distinguishes between foodrelated and general merchandise shops. Typical retailers
that can be classified on this basis are shown in Table 10.8.
Table 10.8 Classification of food-related and general merchandise retailers
Food-related merchandise
General merchandise
Convenience store
Speciality stores
Supermarkets
Department shops
Superstores
Discount stores
Hypermarkets
Catalogue showrooms
Warehouse shops
Factory shops
Box shops
Food-related retailers
A convenience store is a food-orientated shop that sells a
limited variety of groceries and impulse goods. It focuses on
convenience for the local community. One of the major
advantages of convenience shops is the way consumers use
them to top up when they run out of much-needed
products (emergency goods) and do not want to travel to or
spend time at a supermarket. To serve their customers
effectively these shops are located in easily accessible, hightraffic areas and are open for seven days a week from early in
the morning till late at night. The layout of these shops also
contributes to ease and speed of shopping. The current
trend is for convenience shops to expand their merchandise
selection to include meat and bakery items and delicatessen
counters. Consumers are prepared to pay for the
convenience offered by these shops, and their prices are,
therefore, higher than supermarkets, for instance. A further
characteristic of convenience shops is the high frequency
with which they receive deliveries, owing to their small size
and high turnover.
EXAMPLE Well-known convenience shops in South Africa are Kwikspar

(smaller version of a Spar supermarket) and 7-Eleven. Recent years have also
seen many petrol stations being converted to include a convenience shop. Engen
and BP, for instance, have successfully combined petrol stations with
convenience shops, and it can be expected that the conventional convenience
shopping groups will lose some of their business to shops at petrol stations
because of their accessibility and convenience. Woolworths was the first South
African retailer entering the convenience retail market by launching its first
Woolworths Food Stop on an Engen forecourt in September 2000 (at Cape Towns
Orange Convenience Centre). Capitalising on the changing lifestyles of consumers,
Woolworths is able to reach new and different consumers than previously. In

terms of creating value to consumers, Woolworths Food Stops are open 24 hours
a day (time utility), in safe and convenient locations (place utility), selling
products at the same prices as those in all the other Woolworths Food stores
(possession utility) and offering healthy snacks and ready-made meals for
consumers on the run (form utility).
A supermarket is a large shop that sells a wide range of food
products as well as a limited number of non-food items. It is
operated on a self-service, low-price and low-margin basis.
The typical products offered by a supermarket are dry
groceries, fresh meat and fish, fruit and vegetables, dairy
products and toiletries. Initially, supermarkets concentrated
on food products, but the low profit margins forced them to
add more and more non-food items to their product mix.
Today, basic food lines are supplemented by a variety of
prepared food items offered at delicatessen counters, and
non-food items, such as videos, batteries and cigarettes.
Because supermarkets are low-margin retailers, they
have to generate high sales volumes to make worthwhile
profits. To enhance consumer support, supermarkets
provide ample parking at convenient locations. The typical
shop layout mostly follows a gridiron pattern, and is
designed with shoppers ease and speed of movement as a
priority. Scanning equipment has become standard in
supermarkets, and together with bagging and acceptance of
all major credit cards, contributes to satisfying consumers
demand for speed and efficiency in supermarket shopping.
Major supermarket retailers in South Africa are Pick n Pay
and Shoprite Checkers. The supermarket is also a good
example of how retailing responded (by changing product
mix and retailing formats) to forces in the marketing

environment (such as the need for speed and convenience).
The superstore is bigger than the supermarket. It carries
merchandise similar to that of the supermarket, as well as
personal-care items, garden supplies, houseware,
appliances, wines, bakery products, clothing and other
items. Its focus, however, remains on food, although it is
more diversified than a supermarket. Most superstores are
owned by large retail firms that also own supermarkets. The
superstore is an attempt to make one-stop shopping a
reality. Pick n Pay owns several superstores in South Africa.
The hypermarket is a retail institution of French origin.
The first hypermarket, owned by Carrefour, opened in Paris
in the early 1960s. This retail format is very successful in
Europe, but has failed to make any inroads in US retailing.
Pick n Pay opened South Africas first hypermarket in
Boksburg in 1975. Hypermarkets are in excess of 20 000
square metres in floor area and offer a wide variety of food
and an extensive range of non-food items, such as clothing,
hardware, sports equipment, appliances, toys and audio
equipment. The design and location of hypermarkets are
geared towards limiting costs. The design of hypermarket
buildings has been described as faceless shoe boxes.
Hypermarkets are situated in highly accessible,
decentralised areas where land prices are cheaper than
inner-city locations. The parking requirements for
hypermarkets are huge: six parking bays totalling 150 square
metres are required for every 100 square metres of shopping
space.
A warehouse shop can be described as a no-frills shop
with spartan fixtures and displays, and limited availability of

sales staff. The usual product lines include a wide variety of
foodstuffs and hardware in limited assortments. The layout
of the shop reflects the warehouse concept very well, and the
stock and display areas are the same. Boxes containing
products are cut open and left for customers to help
themselves. The shops location is normally in a low-rent
area that is easily accessible. Almost no service is offered,
but customers are prepared to accept limited shopping
assistance in exchange for very low prices. This retailing
concept was tried by the then Checkers group in South
Africa, but it proved to be unsuccessful.
The box shop is yet another attempt to cut costs in grocery
retailing. It offers a limited line of private and national
brands. Less than 1 000 items are carried and the shop is
open for only a limited number of hours per day. All
transactions are cash and customers must do their bagging
themselves. This retailing format is not in operation in South
Africa yet, but it can be expected to enter the retailing scene
at some stage. It will be suitable for locating in black
townships, which are often under-supplied in respect of
retailing outlets.
General merchandise retailers
A speciality shop carries a well-defined, narrow merchandise
line. These shops are also known as limited-line or singleline retailers. A high level of service accompanies the
merchandise offered. The products in which these retailers
specialise include just about every type available: clothing
(Foschini), jewellery (American Swiss), books (Exclusive
Books), furniture (Morkels), shoes (Cuthberts), toys (Toys
R Us) and music (Musica) are some of the more popular

products in which speciality retailers specialise. These shops
focus on a product mix that is narrow but with a deep
assortment. In doing so, they appeal to a narrow market or
even a niche one at times. Customers are offered a good
selection of products and sales expertise by the sales staff.
One finds a broad spectrum of shop designs and layouts
of speciality shops. Upmarket clothing shops will offer
luxurious and convenient layouts, whereas furniture and
sports equipment shops may provide a more spartan
warehouse atmosphere. Customer service is crucial for most
speciality shops because many of the products offered often
require usage instructions and, in some instances,
adjustments to meet customers demands. Various
speciality shops are found in South Africa (see Table 10.9).
Department stores are big retail outlets that offer
consumers a product mix of a wide variety and deep
assortment. Stuttafords is an example of a department store.
Department stores have also been described as a selection
of speciality shops. It is divided into departments for
purposes of merchandising and customer control. Typical
departments are mens clothing, womens clothing, toys,
furniture, sound and video equipment, kitchenware and
small appliances. Each department has a specific selling
space allocated to it. Such a department also has its own
sales staff and cash register. The latest trend in department
stores is to lease parts of the shop to independent firms that
offer highly specialised products and services, something
that might extend the maturity phase of the life cycle of
department stores. Cosmetics departments are examples of
this trend. These leased departments are discussed in a later

section of this chapter.
Department stores were once the main drawcard in
retailing and were extensively used as anchor tenants in
large shopping centres. Their roles have undergone major
changes in recent years as a number of developments have
seen them decline in popularity. Most department stores are
unable to compete effectively against other retailing formats
such as speciality and discount shops. The following are
some of the reasons why department stores are unable to
compete effectively:
Many consumers are price-conscious so discount

retailers appeal to them
Speciality shops cluster in shopping centres and
consequently offer the same opportunity for shopping
that once made department stores attractive
Some speciality retailers now offer wider assortments a
combination that was formerly the domain of
department stores
Department stores no longer offer brands exclusively. All
of the once highly exclusive brands are now available at
speciality shops as well
The stock size and variety inherent in department stores
make them slow or even unable to react quickly to
changes in consumer needs
The inventory levels of department stores are high and
costly, which prohibits them from competing on price
The vast selling space required by department stores is
costly
The number, quality and cost of sales staff result in high
salary costs.
Table 10.9 Speciality retailers in South Africa
A discount shop is a general merchandiser that offers wellknown brand name products for sale at low prices. Retailers
such as Dions and Game are examples of discount shops.
These shops strive for high sales volumes and quick
inventory turnover by pricing their products low. Their
target market is the economy-minded consumer. They offer
a wide variety of merchandise, such as clothing, toys, sports
equipment, linen and appliances. Initially, they offered only
hardware (such as DIY equipment and electrical
appliances), but today soft goods (clothing and shoes) are
part of their product mix. A well-known strategy of discount
shops is to draw in customers by offering low prices on hard
goods in the hope that they will also purchase soft goods. In
an effort to reduce costs, limited services are offered. Sales
staff are only available in departments where customers are
in need of assistance, such as computers, cellphones and
audio/video equipment. Initially, discount shops were not
successful in South Africa, but this is gradually changing.
Catalogue showrooms are retail outlets where customers
can select merchandise from a catalogue in a warehouse
environment. Catalogue showrooms compete on price. Low
prices are the result of low operating costs, which are
derived from the following:
The use of products are not explained or demonstrated

by sales staff
Only a few salespeople are required
A delivery service is not offered, which lowers costs
Spending on decor is minimal
Shrinkage, especially that attributable to shoplifting, is
relatively low.
Catalogue showrooms function as follows: customers write

down their orders. The order forms are then handed to
clerks at a designated check-out area. The merchandise is
accumulated in the warehouse section, after which the
customer collects it at a delivery point in the shop. The
largest part of the shop is devoted to warehousing. This
concept in its purest form is not found in South Africa.
However, retailers dealing in tiles and bathroom
accessories, such as Italtile, apply some of the principles of
catalogue showrooms in their shops.
The term factory shop is one that has been misused to
some extent in South Africa. The true factory shop is a
manufacturer-owned shop located on or adjacent to the
manufacturers production facility, and sells goods such as
samples, cancelled orders, factory overruns and out-ofseason merchandise. Many retailers, however, have added
the words factory shop to their names with the intention of
creating a low-price image. Manufacturers establish factory
shops for the following reasons:23
They are profitable because very low operating costs are

incurred. Few services (if any), limited displays and shop
fixtures and low rent are characteristics of such shops
They are an effective way of selling merchandise that is

discontinued
They provide manufacturers with an additional outlet.
The increase in the number of retailers private (reseller)
brands reduces the opportunities for manufacturer
brands. The income from factory outlets, to a certain
extent, makes up for this lost revenue.
The scale of factory shop operations has increased to such

an extent in the United States that they are often grouped
together to form shopping centres. Because of their ability to
contain input costs (and consequently prices), factory shops
are very popular with the public during periods of high
inflation and recession.
13.1.3 Shop location

Retail stores are located mainly in shopping areas or
shopping centres. Shopping areas are sites that have
developed spontaneously over a period of time. The bestknown shopping areas are the central and suburban
business areas of towns and cities. Ribbon developments
occur along busy streets, like Cape Towns Voortrekker Road
in Parow, which is known for its (unplanned) concentration
of motor-vehicle dealers. Shopping centres, on the other
hand, are planned, developed and managed as a unit to
enhance shopping efficiency. The best-known types of
shopping centres are:
Regional shopping centres, such as Eastgate near

Johannesburg, Menlyn in Pretoria and Cavendish Square
in Claremont
Community centres, such as Bayside Centre in Table

View (Cape Town), Zebediela Plaza (Roedtan in
Limpopo), Jabulani Mall and the Protea Glen Mall (both
in Soweto, Gauteng)
Neighbourhood centres, such as Nobel Park in Bellville,
Silverwater Crossing (in Meyerspark, Gauteng) and the
Bryanston Shopping Centre (in Bryanston, Gauteng)
Local centres a typical combination of, for instance,
convenience store, caf, post office, greengrocer and
butchery found in most residential areas.
A regional shopping centre is the largest of all the shopping

centres. These centres are in excess of 20 000 square metres
of gross leasable area in size and serve, as the name
indicates, the regional population resident within 30
minutes driving time from the centre. A regional shopping
centre is built around a department store that serves as the
major drawcard for shoppers. The department store serves
as the anchor tenant and is supported by a supermarket and
a wide range of other speciality shops. The speciality shops
sell clothing, furniture, toys, books, kitchenware and music.
A variety of fast-food outlets, restaurants and coffee shops
are often also present.
The recreational component of regional shopping centres
such as cinemas, exhibitions and shows has grown
substantially in recent years as a result of consumer demand
for entertainment although this may be changing (see
Reader 50 Shopping malls adapt to customers changing
wants). Several other services, including dentists, medical
practitioners, opticians, hairdressers, childcare and beauty
parlours are also provided in regional shopping centres. In a
certain sense, the regional shopping centre is a smaller-scale

re-creation of shopping opportunities traditionally found in
city centres. Regional shopping centres appeal to shoppers
because they are easily accessible and provide ample
parking. Many regional shopping centres undergo
refurbishment from time to time to accommodate changes
in consumer preferences. Some of these centres for
example, Sandton City and Eastgate have been enlarged to
the point that they then become mega-malls, in excess of
100 000 square metres of gross leasable area.
READER 50 >> Shopping malls adapt to customers

changing wants
Clothing and gadgets are winning while cinemas and music shops lose as
online purchases grow. The landscape of shopping centres in SA is adapting to
cater for customers changing wants and also how those customers believe
those wants will be met. Beyond everyday items like food, South Africans want
branded goods such as clothing and gadgets that represent status and are
popular in the US and Europe. But mall owners say that though gadgets are
still desired, buyers are finding they do not have to go to malls to get their
hands on them.
These trends are opening the door for more clothing brands to enter South
Africa. Hyprop CEO Pieter Prinsloo says he has a long list of multinational
clothing stores that want space in Hyprops premium malls. Malls have to
adapt to what people want. At Hyde Park Corner, for example, we are moving
stores around. CNA is getting a smaller space. Some stores will close and be
replaced by ones that better suit the market, he says. Redefine CEO Marc
Wainer says he is concerned about the future of the cinema and music stores
in shopping malls. Cinemas take up a lot of space but often struggle to make
the rent related to that space. Music shops are also under pressure as people
download music as opposed to buying CDs. Meanwhile, we have plenty of

designer-clothes stores knocking on our door. People love to buy clothes.
Consumers do not only want to buy clothes, however. Tech brands such as
Apple, with its iconic iPhones and iPads, and Samsung, famous for its phones,
televisions and other music products, are still popular. But, while people
continue to shop for clothes in physical stores where they can try on items,
they are increasingly buying hi-tech gadgets online. So although hi-tech
brands will still have a presence in malls partly because people still go into
shops for repairs and advice they need less space because of changing
shopping patterns. The shifting patterns in consumer behaviour include going
onto shopping websites while sitting at coffee shops in malls while using WiFi
on their laptops, iPads and cellphones. Mr Prinsloo says that customers are
using applications on their phones to find products at shops while they are in
a centre, and then going to those shops and getting those products. This is
changing how mall owners think about attracting people to their malls.
SOURCE: Anderson, A. 2014. Shopping malls adapt to customers` changing wants, Business Day
Companies and Markets section, 10 March, p. 5
A community centre usually houses a supermarket and

provides a range of shops for soft goods, such as clothing or
dry-cleaning, as well as shops dealing in hard goods, such as
appliances and hardware. The community centre, therefore,
offers both shopping and convenience goods to consumers
who are within a 10 to 20 minutes driving range.
The largest shop in a neighbourhood centre is usually a
supermarket. Other retailers also commonly found in
neighbourhood centres are pharmacies, butchers, drycleaners, liquor stores and bakeries. This centre is normally
patronised by consumers within ten minutes driving time
from the centre.
Local centres typically contain shops and businesses such
as a superette, hairdresser and post office. Most customers

visiting a local centre live within walking distance of the
centre.
13.1.4 Size of the market area

Various factors determine the size of a shops market area.
The most important factor is the size of the shop itself,
followed by the product mix offered and the frequency with
which the products are bought. A caf or Kwikspar that sells,
among other things, convenience products, such as
cigarettes, newspapers and bread, serves a small market
area. Shops specialising in scarce and expensive products,
on the other hand, serve a large market area. Consumers
who want to buy expensive photographic equipment or
crystal glass, for instance, will travel long distances and for
long periods of time to get what they want. Generally, a
market areas size will be influenced by the following factors:
A shop that sells convenience goods will have a market

area smaller than that of a shop selling shopping or
speciality products
The more mobile the consumers in a specific area, the
bigger the market area of a shop in that area. Mobility
here refers to either ownership of vehicles or access to
other forms of transport that can be used to visit shops
The bigger the floor area of a shop, the bigger its market
area. A bigger floor area can stock deeper and wider
assortments of merchandise and, therefore, pull
customers from wider areas
The further a particular shop is from a competing shop,
the larger the market area of that particular shop.
13.1.5 Type of service rendered

Retailers may be classified according to the nature and level
of service provided to their customers. Four levels of service
rendered by retailers can be distinguised.24 These vary from
full service to the other extreme, whereby most of the
services are undertaken by the customers themselves, as is
the case with self-service shops.
Self-service is accepted by customers because they are

prepared to search for products in a shop and compare
prices themselves, provided a considerably lower price is
to be paid. Today many retailers utilise self-service,
especially for convenience products, such as groceries,
but also for shopping products, such as clothing. Selfservice is very important for discount stores, such as
Makro, because the savings in labour costs enable them
to offer discount prices to consumers.
Self-selection retailing is a variation of self-service.
Consumers still undertake the search and comparison
processes, but in this case they have at their disposal the
staff of the retailer for advice and assistance should they
need it. In most transactions the customer interacts with
the staff of the retailer only at the end of the shopping
process, when payment has to be made. A factory shop
selling clothing is an example of a self-selection retailer.
Limited-service retailers have more staff available to
serve customers than is the case with self-selection.
Customers usually need more assistance during the
buying process because of the nature of the product

purchased. A limited service is offered by furniture
shops, such as Joshua Doore, for example.
Full-service retailers sell speciality products, such as
jewellery, exclusive clothing and photographic
equipment. Customers who buy these products expect
advice and information. Services such as delivery,
adjustments and manufacture by order are also offered.
As one would expect, this level of service is the most
expensive offered by retailers.
13.1.6 Relationship with other businesses

The relationship between retailers and other firms in a
channel of distribution ranges from there being no
relationship to a strong relationship between retailers and
manufacturers, as in the case of franchise agreements.
Between these two extremes one finds retailers that are
voluntarily affiliated to other retail traders. The best-known
form of such a voluntary relationship is to be found where
retailers co-operate by means of a wholesaler-sponsored
voluntary chain group, such as the Spar organisation.
Another form of voluntary relationship is the retail cooperative group, of which Sentra is an example. All the
relationships described so far are part of vertical marketing
systems.
A vertical marketing system is a centrally programmed,
capital-intensive and tightly managed network of vertical
layers of firms whose objectives are to realise economies of
scale in all areas of their activities so that maximum impact
on the market can follow. An administered vertical
marketing system is very similar to a conventional

marketing channel, the difference being that one of the
channel members takes the initiative and gets other
members of the distribution channel to work towards a
common
objective.
Programmed
merchandising
agreements are one of the mechanisms used for such cooperation. An example of a well-managed and structured
vertical marketing system is the Bollywood movie studios in
Mumbai, India, which carefully manage the release of their
products through a sequence of cinemas, DVD sales and
television to maximise their return. A corporate vertical
marketing system usually consists of either a retailer that has
integrated backwards to ensure supplies or a manufacturer
that has integrated forwards to ensure that its products
reach the consumer. An example of a South African
corporate vertical marketing system is the Pep Group, which
owns its own factories and its own retail shops.
Contractual vertical marketing systems can take on any of
three forms, namely:
Wholesaler-sponsored chains Spar
Retail co-operative organisations Sentra
Franchised systems Spur, Juicy Lucy and Steers.
Franchising
LO14
Franchising is a business model which attempts to combine

the benefits associated with a large (and successful)
corporate business with the energy and innovativeness of a
locally based entrepreneurial small business. Although
various definitions of franchising have been developed over
time, the diversity of franchise arrangements makes it

difficult to condense it into a single definition. Instead it
should be seen as a business concept with the following
salient features:
The agreement between the franchisor and the

franchisee. The franchisors undertaking in the
agreement is the contribution of knowledge, skills,
patents, recipes, support and any other undertakings on
which the parties might agree. The franchisee, in turn,
undertakes to adhere strictly to the prescribed manner in
which to exploit the franchisors knowledge, skills,
patents, recipes, and so on, and to pay the franchisor a
fee for the benefit that the franchisee derives from the
agreement.
The objective to be achieved. The objective of a
franchise arrangement is to maximise the collective
marketing efficiency of the whole organisation (the
franchisor and all the franchisees) by continually striving
to ensure customer satisfaction.
The promotion and entrenchment of an image to be
projected. By following standardised procedures and
recipes and using specified architectural layouts and
decor, the firms image is entrenched in the minds of
consumers.
The support that both parties give one another. The
support provided for in a franchise agreement consists of
both initial or start-up support and ongoing support over
the term of the agreement.
The financial arrangements. The main reason for
having a franchise arrangement is the financial benefits
that are derived from it by both parties. Up-front and

continual payments and contributions are important
conditions in franchise arrangements.
The reduction of risk. A well-structured and established
franchise organisation has proved to be, generallyspeaking, a less risky business venture than an
independent new business.
Four types of franchise arrangements can be identified

based on the positions that the different parties occupy in
the distribution channel:
Original service/trademark holderretailer. Using this

arrangement, the franchisee acquires the use of the
franchisors trademark, architectural designs, logos,
operation manual and other business practices.
Examples of this arrangement are abundant in the fastfood business, including Spur, McDonalds and Wimpy.
Manufacturerretailer. In this case, a manufacturer
enters into an agreement with independent retailers,
who undertake to exclusively market its product or
products to final consumers. The best-known examples
are petrol stations and new-car dealerships.
Manufacturerwholesaler. In this arrangement, a
manufacturer sells its product or products to
wholesalers, who then sell such a product or products to
retailers. Coca-Cola manufactures and sells the softdrink syrup used for the production of Coca-Cola to
franchised bottlers such as Coca-Cola Sabco (in the
Eastern Cape) and Penbev (in the Western Cape). The
franchised bottlers then bottle and distribute the soft
drinks to retailers on their behalf.

Wholesalerretailer. This arrangement specifies that
the wholesaler undertakes a range of activities, such as
buying, national advertising and advice on shop layout.
Although the retailer remains independent, it trades
under the name of the wholesaler and benefits from the
wholesalers bulk buying and promotional programmes.
The Spar supermarkets are examples of retailers using
this arrangement.
EXAMPLE To be granted the rights to a franchise, a franchisee usually

(although not always) pays an initial, once-off franchise fee. The amount of this
fee depends solely on the individual franchisor. Famous Brands charges R114
500 for a Steers franchise. In addition to this initial franchise fee, the franchisee
is expected to pay weekly, bi-weekly or monthly royalty fees, usually in the range
of 3 to 7 per cent of gross revenues. Famous Brands charges Steers franchisees 5
per cent of turnover as a royalty and an additional 5 per cent on turnover as a
contribution to cover the cost of advertising and promotional material. In other
words, if the total monthly turnover of the Steers franchise is R400 000, the
franchisee will be expected to pay Famous Brands a monthly amount of R40
000.25 Similarly, Taste Holdings, the holder company for Maxis (the casual dining
restaurant) and Scooters Pizza, charge a joining fee, a set-up fee and an annual
royalty fee used for promoting the chain nationally. The joining fee for a typical
Maxis restaurant (size 150250 m2) begins at R100 000; the set-up cost is
between R1,6 million and R2 million; and the annual royalty fee is between 5 and
6 per cent. The joining fee for a Scooters Pizza (size 50100 m2) is about R75
000; the set-up cost ranges from R0,9 million to R1,1 million; and the annual
royalty fee is between 5 and 7 per cent.26
Franchising offers many advantages to people who want to
own and manage a business, including:
The chance to become an independent businessperson

with relatively little capital
A product that has already been established in the
market
Technical training and managerial assistance
Quality-control standards enforced by the franchisor,
which help the franchisee succeed by ensuring product
uniformity throughout the franchise system.
In turn, the franchisor gets wider geographic expansion and

growth with a limited investment, motivated owners to
make their firms successful and the economies of scale
benefits that the bulk purchasing of inventory brings.
Franchisors also often rely on franchisees, who are much
closer to the consumer than most officials at the chains
headquarters, to assist in new-product development and
help identify trends and new opportunities.
WEBSITE
Visit the websites http://www.
franchisedirect.co.za/ or
http://www.fasa.co.za/ (The Franchise
Association of South Africa) to investigate
franchising opportunities available in
various parts of South Africa.
Leased departments
As mentioned earlier, a leased department is a portion of a
retail shop that is rented to an outside party. It can also be
seen as subletting by an existing retailer. Bigger shops, such
as department stores and discount shops, are the types of
shops that tend to lease out departments. The lessee is
responsible for the fixtures and fittings, decor and other

equipment necessary to do business in the shop. In
exchange for the right to do business inside an existing shop,
the department lessee either pays a fixed amount or a
percentage based on sales turnover as rent to the shop
owner. Leased departments are used by retailers to broaden
their product or service offerings. Examples of products and
services offered by leased departments are cosmetics,
photographic studios and equipment, photo development,
shoe repairs and food. South African examples are photodeveloping services in pharmacies and cosmetics counters
in department stores. Steers outlets in Spar supermarkets
and MTN outlets in Clicks branches are other examples.
LO15
Non-shop retailers
Retailers whose interaction with customers is mainly by way
of telephone, mail, television, newspapers, magazines and
computer are known as non-shop retailers. With the
exception of vending machines, informal markets and
electronic kiosks, the consumer does not physically visit the
shop premises to do shopping. Non-shop retailers can be
classified according to the extent to which they depend on
location, or time available for transactions. A distinction can
also be made between traditional non-shop retailers and
those that have emerged from the technological
developments in electronics. Examples of traditional nonshop retailers are those involved in door-to-door selling,
mail-order catalogues and street hawkers. Modern nonshop retailers include those that communicate and sell over
the Internet and those that manage electronic kiosks.
Direct-selling retailing occurs in two main forms
canvassing and party-plan selling. Canvassing refers to

door-to-door retailing and selling in offices and factories.
Door-to-door retailing is the direct selling approach that
takes place in the customers residence. For the consumer, it
offers both place and time convenience. It is also the most
personalised form of retailing. Consumers are approached
either by a sales representative knocking on the door or by
telephone with a request for an appointment. Most door-todoor retailing is initiated by the use of the technique called
cold canvassing. The sales force approaches potential
buyers about whom little or nothing is known at their
homes, and the sales work takes place only after meeting the
potential buyer. Door-to-door retailing has encountered
resistance from the public in recent years because of
heightened safety and security concerns.
In party plan selling, a salesperson convinces someone to
host a gathering of neighbours, friends or colleagues at their
place of residence or workplace. The merchandise is then
shown and demonstrated to those in attendance and those
who want to buy or place orders with the salesperson. The
host is rewarded for the effort of arranging the meeting. The
extent of the rewards usually depends on the amount of
merchandise bought by invited guests.
Other forms of non-shop retailing include:
Telephone retailing, also called tele-retailing, takes
place when products or services are sold through
telephone contact. It is also involves providing
customers with information on available products and
services, credit applications and account balances, and
follow-up calls are made after transactions to measure
customer satisfaction.
Direct-mail catalogues use the postal services as a
channel to communicate with consumers. The offer is
usually contained in a letter, brochure and/or catalogue.
Interactive television retailing allows the customer to
view merchandise on television and order it without
having to leave the comfort of the home. One of the bestknown interactive television systems is Videotex.
Consumers who subscribe to Videotex can access a vast
amount of shopping and other information. The
Videotex information can be displayed either on a
television screen or a computer monitor.
Internet retailing allows consumers to visit a virtual
shop and access departments within the shop. Recent
developments have produced sound, animation, threedimensional views and colour, which enhance the
Internets ability to advertise merchandise (see
Technology in Action reader Convenience central to
Edcons e-commerce strategy).
Electronic kiosk retailing includes those retailing
activities that allow customers to access information and
order merchandise with a credit card. Electronic kiosks
are also extensively used to provide information in hightraffic areas, such as shopping centres and airports.
Some DVD rental firms have begun placing these kiosks
in small grocery retailers. Customer swipe their credit
cards and select a DVD from a menu and the DVD rolls
out much like a can of Coca-Cola from a vending
machine.
Vending machines are direct retail formats in which the
sellers have no direct contact with the customers. They
are operated with the use of coins or credit cards to

purchase mostly convenience goods. The vending
machine offers better time and place utility for retailing
convenience goods. No sales staff are involved and
products can be purchased 24 hours a day.
Street hawking is a highly visible non-shop retailing
activity, offering just about any conceivable product.
WEBSITE
Visit the Pick n Pay online shopping site at
https://shop.pnp.co.za to see the
consumer benefits offered by Pick n Pay.
Wholesaling intermediaries
LO16
Another important member of the channel of distribution is

the wholesaler. Wholesalers are firms that facilitate the
movement of products and services from the manufacturer
to the retailer. Variations in channel structures are due in
large part to variations in the numbers and types of
wholesaling intermediaries. Overall, there are two main
types of wholesalers: merchant wholesalers on the one hand
and agents and brokers on the other. Typically, merchant
wholesalers take title to the product (ownership rights),
unlike agents and brokers, who simply facilitate the sale of a
product from producer to end user. Figure 10.5 illustrates
the differences between the main types of wholesaling
intermediaries.
Generally, product characteristics, buyer considerations
and market conditions determine which type of wholesaling
intermediary the manufacturer should use. Product
characteristics that may dictate a certain type of wholesaler
include whether the product is standardised or customised,

the complexity of the product and the gross margin of the
product. Buyer considerations that affect wholesaler choice
include how often the product is purchased and how long
the buyer is willing to wait to receive the product. Market
characteristics that determine wholesaler type include how
many buyers are in the market and whether they are
concentrated in a general location or widely dispersed. For
example, a manufacturer that produces only a few engines a
year for space rockets will probably use an agent or broker to
sell its product. In addition, the handful of customers that
need the product are most likely concentrated near rocketlaunching sites, again making an agent or broker more
practical. On the other hand, a book publisher that prints
thousands of books and has many widely dispersed
customers with year-round demand for its product will
probably use a merchant wholesaler.
Figure 10.5 Major types of wholesaling intermediaries
Convenience central to Edcons ecommerce strategy
After the launch of e-commerce platforms for CNA and
Red Square, retail group Edcon plans to introduce an
online shopping website for its Boardmans chain. The
company joins local retailers entering the e-commerce
fray, highlighting the growing trend towards capturing
online trade in a bid to take market share. In tough
economic times a competitive edge can be gained by
tailoring businesses according to customers demands.
With ever greater numbers of time-poor and tech-savvy
shoppers, convenience is a key factor. Mr Price Apparel
launched its online platform last year. Woolworths also
offers online shopping. Edcon CEO Jrgen Schreiber
this week said online strategy was important. It offers
convenience to customers For us its a step-by-step
process. Were focusing on hard lines and low-queue
products. Were first doing everything outside apparel
and at some point in time we will go into the apparel
space, he said.
Edcon e-commerce executive David Gibbons said
cosmetics were a great category for e-commerce
they were easy to ship and lent themselves to online
shopping. Customers often know exactly what theyre
looking for and a website can provide them with a
huge range, good product information, customer
reviews and insight about new products. They seldom
shop exclusively either on-or off-line, so being

multichannel is an important part of the value
proposition, and having physical stores where product
can be exchanged is seen as a big benefit by
consumers, Mr Gibbons said.
Professional services group PwC says there are
several barriers to the development of e-commerce in
South Africa. The first is the low Internet penetration
and the high cost of broadband. Another is a postal
system widely seen as inefficient. Most retailers rely on
private couriers for deliveries, which add to costs.
SOURCE: Adapted from Moorad, Z. 2013. Convenience central to Edcons
e-commerce strategy, Business Day 6 June, p. 12
Merchant wholesalers
Slightly less than 60 per cent of all wholesale sales in the
United States are conducted by merchant wholesalers, but
they make up 80 per cent of all wholesaling establishments.
A merchant wholesaler is an intermediary that buys goods
from manufacturers and resells them to businesses,
government agencies, other wholesalers and retailers. All
merchant wholesalers take title to the goods they sell. Most
merchant wholesalers use one or more warehouses in which
they receive goods, store them and later reship them.
Customers are mostly small- or medium-sized retailers, but
merchant wholesalers also market to manufacturers and
institutional clients. Merchant wholesalers can be
categorised as either full service or limited service,
depending on the number of channel functions they
perform.
Full-service merchant wholesalers

Full-service merchant wholesalers perform all channel
functions. They assemble an assortment of products for
their clients, provide credit and offer advertising help and
technical advice. In addition, they maintain a sales force to
contact customers, store and deliver merchandise and
perhaps offer research and planning support. Depending on
the product line, full-service merchant wholesalers
sometimes also provide installation and repair services. Full
service also means going the extra mile to meet special
customer needs, such as offering fast delivery in
emergencies.
Limited-service merchant wholesalers
As the name implies, limited-service merchant wholesalers
perform only a few of the full-service merchant wholesalers
activities. Generally, limited-service merchant wholesalers
carry a limited line of fast-moving merchandise. They do not
extend credit or supply market information. Limited-service
wholesalers represent just a small part of the merchant
wholesaling industry.
Agents and brokers
Agents and brokers represent retailers, wholesalers or
manufacturers and do not take title to the merchandise.
Title reflects ownership, and ownership usually implies
control. Unlike wholesalers, agents or brokers only facilitate
sales and generally have little input into the terms of the
sale. They do, however, get a fee or commission based on
sales volume. Many perform fewer functions than limitedservice merchant wholesalers.
<<< LOOKING BACK

There can be no doubt that efficient and effective
distribution can be a very important means of satisfying
consumer needs and building a competitive advantage. It is
also a very difficult competitive advantage for competitors to
copy. In other words, it can be a sustainable competitive
advantage. Pick n Pay has made considerable efforts to
improve its channel of distribution in recent years,
concentrating its efforts on perishable products. The use of
technology has played an important role in shortening its
delivery times and getting produce to consumers in as fresh
a condition as possible. Benefits from centralised
distribution include better on-shelf availability, lower
overall inventory levels in stores, and lower transport costs.
SUMMARY
1
The nature of marketing channels and why

intermediaries are needed. Marketing channels are
composed of members that perform negotiating
functions. Some intermediaries buy and resell products;
other intermediaries aid the exchange of ownership
between buyers and sellers without taking title. Nonmember channel participants do not engage in
negotiating activities and function as an auxiliary part of
the marketing channel structure. Intermediaries are
often included in marketing channels for three
important reasons. First, the specialised expertise of
intermediaries may improve the overall efficiency of
marketing channels. Second, intermediaries may help

overcome discrepancies by making products available in
quantities and assortments desired by consumers and
business buyers and at locations convenient to them.
Third, intermediaries reduce the number of transactions
required to distribute products from producers to
consumers and end users.
2 The functions and activities of marketing channel
members. Marketing channel members perform three
basic types of functions. Transactional functions include
contacting, promoting, negotiating and risk-taking.
Logistical functions performed by channel members
include physical distribution and sorting functions.
Finally, channel members may perform facilitating
functions, such as researching and financing.
3 Alternative channel structures. There are many routes
a product can take to reach its final consumer. Marketers
search for the most efficient channel from the many
alternatives available. The alternative structures are:
The direct channel
An agent or broker channel
The retailer channel
The wholesaler channel.
4 Alternative channel arrangements. Marketers often use
alternative channel arrangements to move their
products to the consumer. With dual distribution or
multiple distribution, they choose two or more different
channels to distribute the same product. Non-traditional
channels help differentiate a firms product from the
competitors or provide a manufacturer with another
avenue for sales. Strategic channel alliances are
arrangements that use another manufacturers alreadyestablished channel. Finally, reverse channels exist when
products move in the opposite direction of traditional
channels, i.e. from consumer back to producer. Reverse
channels are often used for products that require repair
or recycling.
5 The issues that influence channel strategy. When
formulating a marketing channel strategy, the marketing
manager must determine which market, product and
producer factors will influence the choice of channel.
The manager must also determine the appropriate level
of distribution intensity.
6 Intensive distribution is maximum market coverage.
Exclusive is the opposite one or only a few dealers
stocking the product. Selective distribution is
somewhere in-between.
7 Channel conflict. Conflict often occurs among members
of a channel of distribution, mainly because they pursue
conflicting objectives that lead to inequities. There are
two types of conflict: vertical conflict (conflict between
two members on different levels in the distribution
channel, such as between a manufacturer and a
wholesaler or between a manufacturer and a retailer)
and horizontal conflict (between members at the same
level of the channel, such as two retailers).
8 Power in the distribution channel. Conflict in a channel
of distribution is often dealt with by the most dominant
channel member (often the biggest and financially
strongest), who has access to one or more of five bases
of power, namely, reward power, coercive power,
legitimate power, referent power and expert power. All of
these bases can be used to establish a position of

channel leadership.
9 Channel leadership is assumed by the strongest
member of the channel of distribution and could be
assumed a manufacturer, a retailer or a wholesaler.
10 The importance of physical distribution. Logistics and
physical distribution management include the following
activities: managing the movement and storage of raw
materials and parts from their sources to the production
site; managing the movement of raw materials, semimanufactured products and finished products within
and among factories, warehouses and distribution
centres; and planning and co-ordinating the physical
distribution of finished goods to intermediaries and final
buyers.
11 The subsystems of physical distribution. The physical
distribution system consists of five distinct subsystems
which play several key roles within physical-distribution
management: deciding on warehouse location, number,
size and type; setting up a materials-handling and
packaging system; maintaining an inventory-control
system; setting up procedures for processing orders; and
selecting modes of transportation. These subsystems are
highly interdependent.
12 The dimensions by which retailers can be classified.
There are many different kinds of retailers. A retail
establishment can be classified according to its
ownership, merchandise sold, location, market area,
services rendered and relationship with other
businesses. On the basis of ownership, retailers can be
broadly differentiated as independent retailers, chain
stores or franchise outlets. The type of merchandise that

retailers sell can be classified as a variety, a single
product line or speciality products. The location of
retailers can be classified as shopping areas or shopping
centres. The services that retailers provide can be
classified along a continuum of self-service, selfselection, limited service and full service. The
relationship of retailers with other businesses ranges
from no relationship to a strong relationship, such as
between franchisors and franchisees. The leased
department is a relationship between a shop and an
outside party that rents part of the shops floor area.
13 The major types of ownership of retail operations. The
most common form of ownership is the independent
ownership of a single retail shop or outlet, like a caf,
butchery or spaza shop, by a single owner or co-owners.
Other ways in which retail shops are owned are:
Multiple outlets, such as chain stores and branches of
enterprises
Retail shops that are owned by manufacturers also
known as forward integration
Shops owned by the state
There are also examples of retail shops owned by groups
of farmers, groups of consumers or utility companies.
Most of the retail establishments in South Africa are
independently owned.
14 Franchising and its salient characteristics. Franchising
refers to an agreement between a franchisor and a
franchisee with the objective of maximising the
marketing efficiency of the franchise organisation. The
image that the franchise organisation wants to project is
promoted and entrenched with the support of both

parties. The main reason for a franchise arrangement is
to derive financial benefits from it and reduce business
risk.
15 Non-shop retailing techniques. Non-shop retailing is
shopping that does not involve a store setting. Direct
selling retailing takes two main forms canvassing and
party plan selling. Here, a prospective buyer is directly
approached to conclude a sale. Tele-retailing takes place
when goods or services are sold through telephone
contact. In the case of direct mail catalogues and
videologues the postal service is the channel used to
communicate information about goods or services to the
consumer. Radio and television retailing focus on an
advertisement for a specific product or service that can
be ordered. Newspaper and magazine retailing also
contain an order form that consumers can use to order
goods or services. Interactive television retailing allows
the customer to view merchandise on a television screen
and order it without having to leave his or her seat. The
Internet offers products and services by way of displays
and order information. Some Internet sites are more
advanced and offer customers the ability to browse in a
virtual shop. Electronic kiosks allow customers to
access information and order products with a credit
card.
16 The types of firms that perform wholesaling activities,
and their functions. Wholesalers are classified into two
basic categories: merchant wholesalers, and agents and
brokers. Merchant wholesalers are independent
businesses that take title to goods and assume ownership
risk. Full-service merchant wholesalers perform all

channel functions. Limited-service merchant
wholesalers perform only a few of the channel functions.
Agents and brokers facilitate sales, but do not take title to
goods or set sales conditions. Brokers bring buyers and
sellers together, whereas agents function as salespeople
for one particular manufacturer or several
manufacturers of complementary product lines.

1
Describe the most likely marketing channel for each of

the following consumer products: chocolate bars,
Tupperware products, non-fiction books, new motor
vehicles, a farmers market produce, stereo equipment.
According to a newspaper report, the medical fund
Discovery has forced pharmaceutical manufacturer
Pfizer to lower by 5 per cent the private-sector price of its
successful drug, Lipitor (used to lower cholesterol). How
can you explain Pfizers decision?
Describe the distribution channel for university
textbooks. Explain why you think the channel is
structured as you describe it.
You have been hired to design a distribution channel for
a new firm specialising in the manufacturing and
marketing of novelties for university student
organisations. In a memo to the CEO of the firm,
describe how the channel should be structured.
STRATEGY READER >> Timing is everything for Survivors

Survivors are group of consumers in South Africa at the bottom of the of the
wealth and income pyramid, defined by the University of Cape Town, Unilever
Institute of Strategic Marketing, as individuals that live in households earning
less than R5 000 per month. Nevertheless, notwithstanding the importance of
this market segment to business (it is the biggest market segment by number
in South Africa), these consumers are poorly served by the supply chain. This
is probably because contemporary business models do not apply to this
complex segment and consequently its buying patterns are poorly understood.
Survivors source their goods from both formal as well as informal sectors,
unlike other market segments that rely almost exclusively on formal channels
of distribution (such as supermarkets). However where survivors purchase their
goods and the nature of the goods purchased, can to a large extent be
determined by the time of the month.
When Survivors receive their salaries or monthly grants or pension payouts,
they generally do a big shop and buy in bulk from formal outlets (such as
supermarkets), because it is generally cheaper than spaza shops and to avoid
the additional travelling expenses associated with multiple trips to the shops.
However, towards the end of the month the shopping behaviour of this market
segment changes. They tend to use informal shopping outlets such as Spaza
shops (because they are closer to where they live) and purchase lesser known
brands in smaller pack sizes (because they simply do not have the money to
do otherwise).
Consequently, the University of Cape Town, Unilever Institute of Strategic
Marketing concluded in their report on survivors in The Majority Report (2013)
that brand loyalty is generally stronger the beginning of the month and that
brand loyalty declines as the month progresses. As such marketers should
synchronise their marketing with buying patterns remembering that bulk
buying dominates at certain days of the month and that convenience and
smaller pack sizes are important from the middle to the end of the month.
SOURCE: University of Cape Town, Unilever Institute of Strategic Marketing.
2013. The Majority Report presentation. Cape Town: University of Cape Town.
QUESTIONS
1
2
How should marketers communicate with the Survivors market segment?

How could businesses reconfigure their supply chain to better serve the
Survivors market segment?
KEY CONCEPTS
Atmosphere: the overall impression conveyed by a shops physical layout, decor
and surroundings.
Automatic vending: the use of machines to offer goods for sale.
Chain stores: stores owned and operated as a group of firms by a single firm (the
holding company).
Containerisation: the process of putting large quantities of goods in sturdy
containers that can be moved from ship to truck to aeroplane to train without
repacking.
Convenience store: a miniature supermarket, carrying a limited line of highturnover convenience goods.
Department store: a store housing several departments under one roof.
Direct channel: manufacturers selling directly to consumers.
Direct marketing (direct response marketing): techniques used to get
consumers to make a purchase from their home, office or other non-retail
setting.
Direct retailing: representatives selling products door-to-door, office-to-office
or at home parties.
Discount store: a retailer that competes on the basis of low prices, high turnover
and high volume.
Discrepancy of assortment: absence of all the items a consumer needs to
receive full satisfaction from a product.
Discrepancy of quantity: the difference between the amount of product
produced and the amount an end user wants to buy.
Dual distribution (multiple distribution): two or more channels selected by a
producer to distribute the same product to target markets.
Electronic data interchange (EDI): computer-based order-processing
technology used to replace paper documents that usually accompany business
transactions, such as purchase orders and invoices, with electronic transmission
of the information.
Exclusive distribution: the most restrictive form of market coverage, which
entails only one or a few dealers within a given area.
Factory shop: an off-price retailer that is owned and operated by a

manufacturer.
Franchise: the right to operate a business or to sell a product.
Franchise outlets: retail stores owned and operated by individuals, but licensed
by a larger supporting organisation.
Franchisee: individual or business that is granted the right to sell another partys
(the franchisors) product.
Franchisor: originator of a trade name, product, method of operation, etc.,
which grants operating rights to another party to sell its product.
Gross margin: amount of money the retailer earns as a percentage of sales after
the cost of goods sold is subtracted.
Hypermarket: retail store which combines a supermarket and full-line discount
store in a space ranging from 20 000 to 30 000 square metres.
Independent retailer: retailer owned by a single person or partnership and not
operated as part of a larger retail institution.
Intensive distribution: distribution aimed at maximum market coverage.
Inventory control system: a system that develops and maintains an adequate
assortment of products to meet customers demands.
Just-in-time (JIT) inventory management: redesigning and simplifying
manufacturing by reducing inventory levels and delivering parts just when they
are needed on the production line.
Logistics: a broad term encompassing physical distribution, including the
procurement and management of raw materials and component parts for
production.
Marketing channel (channel of distribution): a business structure of
interdependent firms which reaches from the point of product origin to the
consumer.
Materials-handling system: moves inventory into, within and out of the
warehouse.
Non-shop retailing: shopping without visiting a shop.
Off-price retailer: retailer that sells at prices 25 per cent or more below
traditional department-store prices because it pays cash for its stock and is
usually not granted return privileges.
Physical distribution: the ingredient in the marketing mix that describes how
products are moved and stored.
Physical-distribution service: the package of activities performed by a supplier
to ensure that the right product is in the right place at the right time.
Physical-distribution system: five distinct, interdependent subsystems that play
several key roles within physical-distribution management: warehousing,
materials handling, inventory control, order processing and transportation.
Product offering: the mix of products offered to the consumer by the retailer;
also called the product assortment or merchandise mix.

Regional shopping centre: the largest of all the shopping centres. These centres
are in excess of 20 000 square metres of gross leasable area and serve the
regional population resident within 30 minutes driving time. A regional
shopping centre is built around a department store that serves as the major
drawcard for shoppers.
Retailing: all the activities directly related to the sale of goods and services to the
final consumer for personal, non-business use.
Retailing mix: combination of the six Ps product, place, promotion
(marketing communication), price, personnel and presentation to sell goods
and services to the end consumer.
Reverse channels: when products move in the opposite direction to traditional
channels i.e. from consumer back to producer.
Selective distribution: distribution achieved by screening dealers to eliminate
all but a few in any single area.
Speciality store: a retail store specialising in a given type of merchandise.
Strategic channel alliances: producers agreement to jointly use one producers
already established channel.
Supermarket: a large, departmentalised, self-service retailer that specialises in
food and some non-food items.
Superstore: larger and more diversified than a supermarket; carries a wide range
of food products as well as personal-care items, garden supplies, houseware,
appliances, wine, bakery products, clothing and other items. Its focus, however,
remains on food.
Telemarketing: the use of the telephone to sell directly to consumers.
Temporal discrepancy: difference between when a product is produced and
when a consumer is ready to buy it.
Unitisation: a technique for handling small packages by grouping boxes on a
pallet or skid.
Vertical marketing system: a centrally programmed, capital-intensive and
tightly managed network of vertical layers of firms whose objective is to achieve
economies of scale in all areas of their operations so that maximum impact on
the market can be realised.
Videologue: a video version of a catalogue that contains relevant information
and graphics, and can be developed to appeal directly to a particular market
segment. The use of movement, sight and sound makes videologues superior to
catalogues.
REFERENCES
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
Product and store brand loyalty depend on product availability.

Bizcommunity online newsletter, 2 November 2004. Available,
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Robertson, D. 2004. Sasols push into retailing picks up speed. Business Times
(supplement to the Sunday Times), 24 October 2004, p. 5; Kok, L. 2004. Sasol
brei vulstasie-netwerk uit. Sake-Burger, 28 June 2004, p. S12.
Whitfield, B. 2006. Nedbanks big ambition. Finweek, 5 October 2006, p. 49.
Nyamakanga, R. 2007. Absa to widen reach with 115 new outlets. Business
Day, 1 November 2007, p. 18.
Kaplan, B. 4 Feb 2014. Delivering value in a dynamic retail environment.
Available from
http://www.bizcommunity.com/Article/196/467/109209.html (Accessed 15
August 2014).
Microsoft teams up with Visa on system of electronic banking. Wall Street
Journal, 15 February 1996, p. B6.
Els, F. 2006. How to sell time. Finweek, 16 March 2006, p. 58.
South African Breweries corporate report. Financial Mail, 22 October 1999, p.
45.
Rose, R. 2006. Outcry over Mittals squeeze on suppliers. Business Day
electronic edition, 9 October 2006.
Furlonger, D. 2002. Kpke deals a new hand. Financial Mail electronic
edition, 8 March 2002.
Pile, J. 2008. Stubbing out the small man. Financial Mail, 30 May 2008, p.21.
This section is based on Chee, H. & Harris, R. 1993. Marketing: A global
perspective. Pitman, pp. 137138.
Brand, N. 2006. Checkers druk kelders oor pryse. Die Burger.
Makelaars onder druk van wet. Sake Burger, 13 March 2004, p. S8.
Furlonger, D. 2002. Kpke deals a new hand. Financial Mail, 8 March 2002.
www.pgibson.co.za (Accessed 29 June 2010).
Raia, E. 1995. Saturn rising star. Purchasing, 9 September 1995, pp. 4447.
BMW website, www
bmwplant.co.za/content/production/assemblyline.jsp.htm (accessed 29
June 2010).
Upfold, C, and Liu, H. 2010. Radio Frequency Identification (RFID) Adoption
in the South African Retail Sector: an Investigation of Perceptions Held by
Members of the Retail Sector Regarding the Adoption Constraints The
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pp. 8796.
Muler, E.J. 1994. Faster, faster, I need it now. Distribution, February 1994, pp.
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Puttergill R. 2012. Amazon next step forward: Buying a massive robotics
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This section is based on Terblanche, N. 1998. Retail management. Cape
Town: Oxford University Press Southern Africa.
Berman, B. & Evans, J.R. 1995. Retail management: A strategic approach (6th
edition). Englewood Cliffs: Prentice Hall, p. 155.
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management (3rd edition). Cape Town: Juta, pp. 286287.
www.fasa.co.za (Accessed 29 June 2010).
Taste Holdings annual report, 2009.
CHAPTER
11
strategy
LEARNING OUTCOMES
Describe the important role marketing communication plays in

the marketing mix.
2 Discuss the elements of the marketing communication mix in
terms of its nature, benefits and limitations.
3 Explore the relationship between advertising and outcome
variables, such as market share, the consumer, brand loyalty and
product attributes.
4 Differentiate between the major types of advertising in terms of
their nature and the functions they perform.
5 Describe the communication process in marketing terms.
6 Point out why the integration of marketing communication is
important.
7 Explain the objectives and tasks of marketing communication.
8 Discuss the concept of the hierarchy of effects and its
relationship to the marketing communication mix.
9 Describe the factors that affect the marketing communication
mix.
10 Advise a novice on how to create a marketing communication
plan.

principle or concept.
above outcomes.

French revolution
French carmaker Peugeot hopes a new marketing and
advertising campaign will finally improve its South
African brand image. Mainstream ad agency Euro
RSCG and a small, specialist marketing consultancy,
Duck and Craig, are working with the motor company
to turn around consumer perceptions of the brand. Its
been 10 years since Peugeot officially returned to South
Africa, after its disinvestment during the apartheid era.
For a while it looked like Peugeot would flourish.
Within four years, annual sales had grown to 9 000. But
Peugeot was so intent on selling cars, it gave little
thought to what would happen next. Customer
complaints piled up about poor after-sales service and
long waits for expensive spare parts. By last year, sales
had sunk to barely one-third of peak levels. Peugeot SA
MD Francis Harnie says: We still suffer from the
perception that we either have no spare parts or that
they are very expensive. She says Peugeot SA
executives have been remarkably honest about the
brand challenge. Euro RSCGs advertising will continue
its traditional appeal to people who like French design

flair and aesthetics. Thats how we have to position the
brand in South Africa.
SOURCE: Furlonger, D. 2012. French revolution, Financial Mail, 2
February, p. 59
QUESTIONS
1
2
Can advertising be used to change consumers perceptions and

attitudes?
What should the objectives of this advertising campaign be?
1. Introduction
Few goods, no matter how well developed, priced or
distributed, can survive in the market without effective
marketing communication. Marketing communication is
used by marketers to inform, persuade and remind potential
buyers of a product in order to influence their opinion or
elicit a response. Marketing communication is thus a
particularly important element of the marketing mix. A
marketing communication strategy is a plan for making
optimal use of the elements of marketing communication:
advertising, public relations, personal selling and sales
promotion to contribute to the realisation of the firms
marketing objectives.
2. The role of marketing communication in

LO1
the marketing mix
The marketing manager formulates the objectives of the
firms marketing communication strategy against the
background of the firms overall marketing objectives (see
Figure 11.1). Based on these overall objectives, marketers
then combine the elements of the marketing
communication strategy (the marketing communication
mix) into a coordinated plan. The marketing
communication plan then becomes an integral part of the
marketing strategy for reaching the target market.
The main function of a marketers marketing
communication strategy is to convince target customers that
the goods and services offered provide a differential, or
competitive advantage, over the competition. A competitive
advantage is the set of unique features of a firm or its
products that are perceived by the target market as
significant and superior to competitors. Such features may
include exceptional product quality, fast delivery, low prices,
excellent service or a product feature not offered by the
competition.
For example, Revlons ColourStay Lipcolour promises
lipstick that does not smear all day long. By effectively
communicating this differential advantage by means of
advertising, Revlon can stimulate demand for its smudgefree line of make-up. Duracell claims its batteries last up to
50 per cent longer than normal batteries. Whirlpool believes
its microwave ovens perform better than other microwave
ovens and offer extra space and convenience compared with

competing microwave ovens. These firms communicate this
competitive advantage by means of advertising. Pattex
believes its no more nails adhesive sticks to virtually
anything, and emphasises its instant adhesiveness in its
advertising, as well as the fact that it is solvent-free, superstrong, water-resistant, paintable and sandable. Philips
wants its target market to know that its kettle is the only one
with a full-length filter. Philips communicates this message
in an advertisement with the message: The Philips Filterline
kettle. Keeps the funny stuff on the outside, not the inside.
(See the Philips advertisement.)
To be of any value, these competitive advantages must be
communicated to the target audience or potential buyers.
Marketing communication is, therefore, a vital part of the
marketing mix, informing consumers of a products benefits
and, therefore, positioning the product or brand in the
minds of consumers.
Figure 11.1 The role of marketing communication in the marketing mix
3. The elements of the marketing

communication mix
LO2
Most marketing communication strategies use several

elements, which may include advertising, public relations
and publicity, personal selling and sales promotion, to reach
the target market. This combination is called the marketing
communication mix. The marketing communication mix is
that combination of these basic elements that management
believes will meet the needs of the target market and realise
the firms overall objectives. Not all of these elements will be
utilised to the same extent in all circumstances. Depending
on factors such as the nature of the product, the
characteristics of the target market, competitive situation
and the like some marketing managers may spend more on

some elements (such as advertising) and less on others.
3.1 Advertising
LO3
Almost all firms selling a product or a service use some form

of advertising, be it in the form of a multimillion-rand,
multi-media campaign or a simple classified advertisement
in a newspaper. Advertising is any form of paid
communication in which the sponsor or firm is identified.
Traditional communication media, such as television, radio,
newspapers, magazines, books, direct mail, billboards and
transit cards (advertisements on buses and taxis and at bus
stops), are commonly used to transmit advertisements to
consumers.
Marketers are finding many new, innovative ways to
transmit their advertisements, most notably by using
electronic means such as the Internet, SMS technology and
social networking websites. One of the primary benefits of
advertising is its ability to communicate with a large number
of people at the same time. Therefore, the cost per contact is
typically very low. Advertising has the advantage of being
able to reach the masses (for instance, by using national
television networks), but it can also be micro-targeted to
small groups of potential customers, such as with direct mail
to a select group of customers or by placing print advertising
in a trade magazine. Although the cost per contact in
advertising is very low, the total cost to advertise is normally
very high. This hurdle tends to restrict advertising on a
national basis to only those firms that are financially able to
do so. For instance, a full-page colour advertisement in the

daily newspaper Business Day costs about R450 000. The
cost of an advertisement in this newspaper is consequently
out of the reach of most smaller, and even medium-sized,
firms.
WEBSITE
For the rate card of Business Day visit:

http://www.businessdayonline.com/NG/images/confere
and for the Mail & Guardian at
http://cdn.mg.co.za/content/documents/2014/02/13/
card-2014-print-and-events.pdf.
3.1.1 The effects of advertising

Advertising is a popular form of marketing communication,
especially for consumer packaged goods and services. As a
result, advertising is a huge industry. AC Nielsen, which
compiles advertising spending figures in South Africa,
reported that R34,4bn was spent on advertising in South
Africa in the 12 months up to February 20131, compared to
the R32,1bn during 2012. This figure does not take into
account the advertising done in-house by both large and
smaller firms. The amount of money spent annually on
advertising by some South African firms is staggering. The
top 10 spenders during 2012 were: Unilever SA (R1,29bn),
Shoprite (R914m), SABMiller (R816m), Pick n Pay, Telkom,
Vodacom, MTN, Standard Bank, Distell and FNB. The retail
sector accounts for R8,5bn of the total, while travel,
transport and leisure account for R4,3bn, business to
business for R4,025bn and banking R4bn. In the cellphone
industry, Vodacom continues to be the biggest spender at
R504,9m, but this is 5 per cent less than the company spent
last year. MTN followed with R469m, up from the previous
year, and Cell C with R196m down from R373,3m the
previous year. Among banks, Standard spent R381,1m,
followed by FNB at R372,4m and Absa and Nedbank at
R260m. Capitec Bank, the bank making huge inroads at the
lower end of the market, spent R77,3m down from R83,9m
the year before.2 South Africas online advertising industry is
worth R319m at present. The online retail market is
dominated by 12 sites, which between them account for
more than three quarters of online retail sales in South
Africa, according to World Wide Worx3. They are:
The three largest online malls: M-Web Shopping, The

eBucks Shop and Digital Mall
The two largest online grocers: Pick n Pay Home
Shopping and Woolworths
The two largest online book retailers: Kalahari.com and
Exclusive Books
The largest online florist: NetFlorist
The largest online wine retailer: Cybercellar
The largest online electronics store: Digital Planet
The largest online health and beauty store: Ascot Direct
The largest auction site: Bidorbuy.
Advertising and market share

Todays most successful brands of consumer goods, like
Vodacom and Coca-Cola, were built by heavy advertising
and marketing investments over a long period of time. The
bulk of advertising budgets are spent on maintaining brand
awareness and market share. New brands with a small
market share tend to spend proportionately more on

advertising and sales promotion than those with a large
market share for two reasons. First, beyond a certain level
of spending for advertising and sales promotion,
diminishing returns set in. This means that, beyond a
certain level, sales or market share do not change no matter
how much is spent on advertising and sales promotion.
Understanding the advertising response function helps
marketers use budgets wisely.
EXAMPLE In the potato-chip market, well-established brands, such as

Simba or Willards chips, may spend proportionately (advertising spending as a
percentage of sales, say) less on advertising than a relative newcomer, such as
Pringles. Pringles spends proportionately more on its brand in an attempt to
increase awareness and market share. Simba or Willards, on the other hand,
spend only as much as needed to maintain market share, as anything more would
reap diminishing benefits. Because Simba and Willards have already captured the
attention of the majority of the target market, they only need to remind customers
of the product. Well-established brands such as South African Breweries would
spend only about 5 per cent of net revenues on advertising because their brands
are so well-known.
The second reason that new brands tend to require higher
spending for advertising and sales promotion is that a
certain minimum level of exposure is needed to influence
purchasing habits measurably. For example, if a relatively
new brand such as Canine Cuisine (a new dog food brand)
advertised its dog food in only one or two publications and
bought only one or two television advertising spots, it
certainly would not realise the exposure needed to penetrate
consumers perceptual defenses, obtain awareness and
comprehension and ultimately affect their purchasing

intentions. Canine Cuisine has in fact spent almost 22% of
net sales revenue on marketing in order to promote
awareness of their product.
Advertisings influence on the consumer

Advertising affects everyones daily life and influences many
purchases. Consumers turn to advertising for its
informativeness as well as its entertainment value. The
average consumer is exposed to hundreds of advertisements
a day from all types of advertising media. In just the
television media alone, researchers estimate that the
average American spends more than four hours a day

watching TV. With network television airing an average of 18
minutes of commercials during each hour of daytime
programming, consumers are certainly influenced in some
way by advertising.4
Despite arguments to the contrary, however, advertising
cannot manipulate society as much as some may fear,
because it cannot change strongly held values. Attitudes and
values are deeply rooted within an individuals
psychological make-up. Advertising seldom succeeds in
changing an attitude that stems from a persons basic value
system, or moral code, that is strongly supported by his or
her culture. Adolescents still in the process of forming their
personal value systems, however, may be susceptible to the
influences of advertising. The responsible and ethically
sound use of advertising is, therefore, a major obligation for
advertising managers. It is also for this reason that the
advertising industry in South Africa regulates itself via the
Advertising Standards Authority.
Although advertising may not influence a persons value
system dramatically, it may succeed in transforming a
persons negative attitude towards a product into a positive
one. When prior evaluation of the brand is negative, serious
or dramatic advertisements are more effective in changing
consumers attitudes. The television advertisements of the
Arrive alive campaign are an example. Humorous
advertisements, on the other hand, have been shown to be
more effective in shaping attitudes when consumers already
have a positive image of the advertised brand.5 Nandos
advertising campaigns are an example (see above). Research
has also shown that humour in advertising is more effective

in generating a favourable attitude from people whose need
for information is low rather than high. That is, consumers
specifically looking for information about a product or
service dont find humorous advertisements that funny6.
Therefore, marketers have to be sure that they know the
needs of their target market before deciding to use humour
in their advertising.
Marketers also need to ensure that their attempts at
humour are not found to be offensive by their target market.
For example, Vodacoms Weve been having it
advertisement, featuring a parody of a despotic African
leader, was criticised as encouraging the stereotyping of
foreigners and in so doing promoting the xenophobia that
was prevalent in South Africa at the time. A similar situation
occurred in the United States where, in an attempt to be
humorous, a Heinz advertisement for one of its products,
Deli Mayo (a mayonnaise spread), which featured two men
kissing, was withdrawn following complaints from familyrights organisations, who found the advertisement to be
offensive.7
Credibility and trust are important factors in advertising.
Consumers positive or negative attitudes towards an
advertiser (firm) can also influence their attitudes towards
the advertised product. Research has shown that when
consumers believe an advertiser is trustworthy and credible,
they are more likely to accept the advertised products claim
and more likely to change their attitudes and buying
behaviour.8 If not they will not respond as the advertiser
would hope for. For example, after 30 years of denying the
hazardous effects of smoking, US tobacco firms have lost

considerable credibility with the consumer. As a result,
consumers are reluctant to believe advertising by some
cigarette firms claiming that the effects of passive smoking
are not as serious as some people suggest.9

Nielsens global survey of trust in
adverting: 2007 vs 2013
Whether its advertising via old standbys like TV,
newspapers and radio or newer media like mobile and
online, earning consumer trust is the holy grail of a
successful campaign, according to Nielsens latest
Trust In Advertising report. The good news for
advertisers is that consumers around the globe are
more trusting now than they were several years ago. In
fact, the study reveals that trust in online advertising is
increasing, as is trust in ads on TV, radio and movie
screens. Word-of-mouth recommendations from
friends and family, often referred to as earned
advertising, are still the most influential, as 84 percent
of global respondents across 58 countries, according to
the Nielsen online survey, said this source was the most
trustworthy. Trust in advertising on branded websites
increased 9 percentage points to 69 percent in 2013 as
the second most trusted format, a jump from fourthplace ranking in 2007. Sixty-eight percent of survey
respondents indicated that they trust consumer
opinions posted online, which ranked third in 2013, up

7 percentage points from 2007. See the table below for a
summary of the above changes in preference related to
consumers trust placed in the various forms of
advertising.
SOURCE: Nielsen. Under the influence: consumer trust in advertising. 17
September 2013. Available from
http://www.iagratings.com/us/en/insights/news/2013/under-theinfluence-consumer-trust-in-advertising.html (Accessed 20 August 2014)
Advertising and brand loyalty

Consumers with a high degree of brand loyalty are least
susceptible to the influences of advertising for competing
goods or services. Advertisers, therefore, want their
customers to be loyal, and they actively encourage
consumers to insist on their brand. For example, a Tuc
advertisement says: Accept no substitutes.
Advertising also reinforces positive attitudes towards
brands. When consumers have a neutral or favourable frame
of reference towards a product or brand, they are often
positively influenced by its advertising. When consumers are
already highly loyal to a brand, they may buy more of it
when advertising and marketing communication for that
brand increase.10
Advertising and product attributes
Advertising can affect the way consumers rank a brands
attributes, such as colour, taste, smell and texture. For
example, in the past a shopper may have selected a brand of
cold meat on the basis of taste and the variety of cuts
available. But advertising may, over time, persuade that

consumer to choose cold meat on the basis of other
attributes, such as calories or fat content.
In its advertising campaigns, Purity baby foods
emphasises the fact that its products do not contain any
preservatives. When the marketers of Oros orange squash
discovered that mothers were concerned about the quality
of some concentrated beverages, the firm started
emphasising its real fruit juice and natural sugar
ingredients in its advertising. When concern was expressed
about the safety of South African beef, advertisers assured
consumers of the hygiene and wholesomeness of South
African beef as well as its health and nutritional value.
The advertisers of motor vehicles also understand the
influence of advertising on consumers rankings of brand
attributes. Vehicle advertisements have traditionally
emphasised such brand attributes as roominess, speed and
low maintenance. Today, however, vehicle marketers have
added safety to the list. Safety features such as antilock
brakes, power door locks and airbags are now a standard
part of the message in many vehicle manufacturers
advertisements.
Similarly, some manufacturers emphasise the

environmentally-friendly nature of their brands in their
advertisements because they are aware that this feature is
important to contemporary consumers. For example, even
the oil company, BP, who acknowledges that its product
contributes to global warming, was able to reposition itself
as a socially conscious firm by inve sting heavily in its
Beyond petroleum advertising campaign.11 However, given
the controversy surrounding the oil spill which the firm
caused in the Gulf of Mexico in 2010, it may have some

difficulty in maintaining this position.
3.1.2 Major types of advertising
LO4
A firms marketing communication objectives determine the

type of advertising it uses. If the objective of the marketing
communication plan is to enhance the image of the firm or
the industry, institutional advertising may be used. By
contrast, if the advertiser wishes to enhance the sales of
specific products or brands, product advertising is used.
Institutional advertising
Advertising in South Africa has historically been productorientated. However, many modern firms, such as Tiger
Brands, Unilever and Pick n Pay, market multiple products
and sometimes need a different type of advertising.
Institutional advertising, or corporate advertising, promotes
the corporation (the firm) as a whole rather than an
individual product or brand and is designed to establish,
change or maintain the firms identity. This type of
advertising does not usually ask the audience to do anything
apart from maintain a favourable attitude towards the firm,
its products or brands.
The purpose of the Barloworld advertisement is to
position the firm by referring to its value system and concern
for the environment, and not to sell any of its products or
services.
A form of institutional advertising called advocacy
advertising is typically used as a safeguard against negative
consumer attitudes and to enhance the firms credibility
among consumers who already favour its position.12 Often,

firms use advocacy advertising to express their views on
controversial issues. At other times, firms advocacy
campaigns react to criticism or blame, some in direct
response to criticism by the media. Other advocacy
campaigns may attempt to ward off increased regulation or
damaging legislation such as the governments threat to ban
all liquor advertising in the future.
The Commercial Speech Trust, perhaps fearing
government regulation of the advertising industry, regularly
publishes advertisements defending the consumers
commercial freedom and right to choose (see the
Commercial Speech Trust advertisement).
Product advertising
Unlike institutional advertising, product advertising
promotes the benefits of a specific product or service. Xerox,
for instance, uses the advertising slogan space-saving and
money-saving to communicate the benefits of its
photocopiers. The products stage in its life cycle often
determines which type of product advertising is used:
pioneering advertising, competitive advertising or
comparative advertising.
Pioneering advertising
Pioneering advertising is intended to stimulate primary
demand for a new product or product category. Heavily
used during the introductory stage of the product life cycle,
pioneering advertising offers consumers in-depth
information about the benefits of the product class.
Pioneering advertising also tries to create interest. Anglo
Platinum does not sell motor vehicles or cancer treatments

instead it promotes the use of platinum in its pioneering
advertising by creating interest in the metal. Its advertising
says: Platinum can save the planet. Imagine if a metal was
that useful. Platinum is used in catalytic converters, which
help reduce harmful emissions from automobiles, lowering
the harm to our planet. Platinum is key in new technologies.
Its used in cancer treatment and in pacemakers to keep
hearts beating. Imagine the possibilities of Platinum a
metal for the future.
Competitive advertising
Firms use competitive, or brand, advertising when a product
enters the growth phase of the product life cycle and other
firms begin to enter the market. Instead of building demand
for the product category, the purpose of competitive
advertising is to influence demand for a specific brand.
Often marketing communication becomes less informative
and appeals more to the consumers emotions during this
phase. For instance, Simonsvlei winery uses the following
emotional appeal in its print advertising campaign: You
laugh, you cry, you live, you die and in between, if you are
fortunate, you experience life.
During the growth phase of the product life cycle,
advertisements may begin to stress subtle differences
between brands, with heavy emphasis on building the recall
of a brand name and creating a favourable attitude towards
the brand. Motor vehicle advertising has long used very
competitive messages, drawing distinctions between
competing brands based on such factors as quality,
performance and image. Lawnmowers are another example.
The marketers of Wolf lawnmowers emphasise reliability

and quality. John Deere lawnmowers also claim to be
reliable and durable, but add that their high-torque engine
is particularly effective when mowing thick, heavy grass.
Comparative advertising
A controversial trend in product advertising is the use of
comparative advertising (see the Barilla advertisement).
Comparative advertising directly or indirectly compares two

or more competing brands on one or more specific
attributes. Products experiencing sluggish growth or those
entering the market against strong competitors are more
likely to use comparative claims in their advertising. When
the Italian brand Barilla entered the highly competitive
pasta market, a Barilla advertisement stated: Not all pasta is
created equal. Some other pastas can quickly become sticky.
Barilla pasta remains firm and will not stick or lump. Mecer
computers advertising says: Fact: Apple is Americas
favorite pie. Fact: Mecer is South Africas favourite PC.
Mutual and Federal, in a thinly veiled reference to shortterm insurance firms that conduct their business over the
telephone, asks: Did your parents not warn you not to talk
to strangers over the telephone?
Until recently, comparative advertising was not allowed
in South Africa. The Advertising Standards Authoritys rules
prohibit advertisers from falsely describing competitors
products and allow competitors recourse if advertisements
show their products or mention their brand names in an
incorrect or false manner. These rules also apply to
advertisers making false claims about their own products.
Is comparative advertising worth the trouble? Much
research suggests that comparative advertising is no more
effective at increasing purchase intentions than noncomparative advertising. Marketers also risk brand
misidentification and confusion when comparing different
brands in advertising. However, on the positive side,
research has produced these findings:13
Direct comparisons in advertisements attract attention

and may thereby enhance purchase intentions
Consumers perceive comparative messages as being
more relevant than similar non-comparative
advertisements and are able to recall more message
points from the comparative advertisements
Comparative advertisements for relatively unknown
brands can increase the association of those unknown
brands with well-known brands with which they are
compared
Comparative advertisements comparing objective brand
attributes can generate more positive attitudes than
comparative advertisements focusing on subjective
brand attributes. For example, the claim that car A has
8 per cent more boot space than car B (objective) is
potentially more effective than the claim that soup X is
tastier than soup Y (subjective)
When comparative advertisements for a new brand are
personally relevant and use a brand with high credibility
for comparison, they have a more positive effect on
purchase intentions than non-comparative
advertisements.
Chapter 12 examines the advertising element of the

marketing communications mix in greater detail.
4. Public relations and publicity

Concerned about how they are perceived by their target
markets, many firms often spend large sums of money to
build a positive public image by means of what is known as
public relations. Public relations is the marketing
communication function that evaluates public attitudes,
identifies areas within the firm that the public may be
interested in and executes a programme of action to earn
public understanding and acceptance. Public relations
helps a firm communicate with its customers, suppliers,
shareholders, government officials, employees and the
community in which it does business, using methods other

than advertising. Marketers use public relations and
publicity not only to maintain a positive image, but also to
educate the public about the firms goals and objectives,
introduce new products and help support the sales effort.
A solid public-relations programme can generate
favourable publicity. Publicity is public information about a
firm, its goods or services appearing in the mass media as a
news item. Sometimes a particular firm is not identified as
the source of the information. For example, the wine
industry received favourable publicity after several medical
studies found a link between good health and the
consumption of red wine. Sales of red wine in the United
States jumped dramatically after the report.14 This incident
underscores a peculiar reality of marketing: no matter how
many millions are spent on advertising, nothing sells a
product better than free publicity. As an organiser of the
Oscars event says: You cant underestimate the value of
celebrity association. If you own a jewellery company, of
course you want Halle Berry to walk down the red carpet
wearing your bracelet, and of course you want her to be seen
in the lobby of the hotel. Thats worth hundreds of
thousands of dollars of advertising. You cant put a price on
it.15 (See Reader 51 Celebrity endorsements: A risky
business? for an alternative view).
READER 51 >> Celebrity endorsements: A risky

business?
Celebrity endorsements can be used to boost attendance at an event, or take
the form of a celebrity becoming a spokesperson for an organisation or brand

(also known as a brand ambassador) to help raise its profile. When they are
successful, it is often because of strong synergies between the brand and the
celebrity the celebritys behaviour, performance and reputation in their
professional and personal lives correspond with the brands values.
Buying a product that a famous person wears or uses or speaks positively
of connects customers to the celebritys status and fame. Customers may also
believe that a celebrity had input into the development of the product or
service they are associated with, thus enhancing its credibility and appeal.
However, as humans celebrities are fallible and errors of judgement can
negatively impact the brand. Celebrities such as Tiger Woods, Lance Armstrong
and Oscar Pistorius are all celebrity sportsmen who have all made terrible
mistakes in their professional and personal lives.
Pistorius, who had been getting about $2 million (about R21,3 million) per
year from various brands, had two of his main sponsors (Nike and Oakley)
suspend their sponsorship when he was charged with the murder of Reeva
Steenkamp. Nike was also a sponsor of Lance Armstrong (a seven times Tour
de France winner) and when he confessed to taking drugs to enhance his
performance, they withdrew their sponsorship of about $10 million (about
R106,5 million) per year. However, Nike stuck with Tiger Woods after news
broke of his extramarital affairs in 2009, but consulting company Accenture
cancelled its six year long, $10 million a year sponsorship deal. Although the
celebrities suffered significant losses as their sponsors rushed to distance
themselves from their brand ambassadors, the damage to the brands cannot
be quantified emphasising the risk associated with using celebrities as part of
a brands marketing strategy.
SOURCES: Celebrity endorsements: should small businesses get in on the action? 2011, Simplybiz, 11
Oct 2011. Available from http://simplybiz.co.za/interact/blogs/celebrity-endorsements-should-smallbusinesses-get-action (Accessed 25 August 2014); Matthews, D. 2013. How to make celebrity
endorsements work. Available from http://esellermedia.com/2013/02/22/how-to-make-celebrityendorsements-work/ (Accessed 25 August 2014); Fottrell, Q. 2014. 10 endorsement deals gone bad,
Yahoo Finance. August 4, 2014. Available from http://finance.yahoo.com/news/10-endorsement-dealsgone-bad-122150062.html (Accessed 25 August 2014)
Although a firm does not pay for this kind of mass-media

exposure, publicity should not be viewed as free. Preparing
media releases and persuading media staff to print or
broadcast them cost money. Generating good publicity can,
therefore, be expensive. For example, winemakers wishing
to capitalise on the results of the scientific studies (which
they are not allowed to use in advertising) are sponsoring
workshops and conferences that discuss the findings and
their benefits to wine drinkers in the hope that this
information will be picked up by the media.
Unfortunately, unfavourable publicity can also cost a firm
millions. Through the mass media, the world quickly learns
when a firm pollutes a stream or the ocean (as happened to
the oil company BP when one of its oil drills spilt oil in the
Gulf of Mexico in 2010, leading to serious pollution),
produces a defective product (Toyotas reputation has been
harmed by negative publicity about defects in its vehicles),
employs executives engaged in corruption (HP Billiton had
employees arrested in China on charges of corruption) or is
accused of other undesirable acts.
Negative consumer reactions may cost the firm dearly in
lost sales. The firms involved in the Gulf of Mexico oil rig
disaster have lost billions of dollars in market capitalisation
since the explosion and sinking of the previously-mentioned
oil rig that sent a massive oil spill towards the Gulf coast.
BPs market capitalisation declined to $157,13 billion from
about $189,3 billion within a few days. In addition its share
price has fallen by 50 per cent as a result of the accident.16
5. Personal selling
Personal selling is a situation in which two people
communicate in an attempt to influence each other in a
purchase situation. In this two-sided encounter, the buyer
and seller have contrasting objectives they wish to
accomplish. The buyer may need to minimise cost or gain
assurance of a quality product, for instance, whereas the
salesperson may need to maximise revenue and profits.
Traditional methods of personal selling include a planned
presentation to one or more prospective buyers for the
purpose of making a sale. Whether it takes place face-to-face
or over the telephone, personal selling attempts to persuade
the buyer to accept a point of view or to take some action.
For example, a car salesperson may try to persuade a car
buyer that a particular model is superior to a competing
model in certain features, such as petrol consumption,
roominess and interior styling. Once the buyer is somewhat
convinced, then the salesperson may attempt to elicit some
action from the buyer, such as a test drive or a purchase.
Frequently, in this traditional view of personal selling, the
objectives of the salesperson are at the expense of the buyer,
creating a win-lose outcome.
More recent notions on the subject of personal selling
emphasise the relationship that develops between a
salesperson and a buyer. Relationship selling emphasises a
win-win outcome and the accomplishment of mutual
objectives that benefit both buyer and salesperson in the
long term. The purpose of relationship selling is neither a
quick sale nor a temporary increase in sales. Instead, it
attempts to create involvement and loyalty by building a

lasting bond with the customer.17
Personal selling and relationship selling are discussed in
more detail in Chapter 12.
6. Sales promotion
Sales promotion consists of all marketing activities other
than personal selling, advertising and public relations that
stimulate consumer purchasing and dealer effectiveness.
Sales promotion is generally a short-run tool used to
stimulate immediate increases in demand. Sales promotions
can be targeted at final consumers, trade customers or a
firms employees. Sales promotion activities include free
samples, contests, bonuses, trade shows, prizes and
coupons. A large marketing communication campaign
might use several of these sales promotion tools
simultaneously.
When Gillette launched the SensorExcel, it sent free
SensorExcel razors to 1,4 million 18-year-olds in the United
States with a note, For your eighteenth birthday a gift
from Gillette. The giveaway included a razor, shaving gel
and $2 in coupons for replacement razor blades. When
Gillette launched the SensorExcel in the UK it gave away
some 15 million SensorExcels, hanging them on the doors of
houses.18
Often marketers use sales promotion to improve the
effectiveness of other elements of the marketing
communication mix, especially advertising and personal
selling.
Sales promotion is discussed in more detail in Chapter
12.
7. The marketing communication

process
LO5
Marketing communication strategy is closely related to the

process of communication. As humans, we assign meaning
to feelings, ideas, facts, attitudes and emotions.
Communication is the process by which we exchange or
share meanings through a common set of symbols. When a
firm develops a new product, changes an old one, or simply
tries to increase sales of an existing product or service, it
must communicate its selling message to potential
customers. Marketers communicate information about the
firm and its products to the target market and various
audiences through its marketing communication
programmes.
Communication can be divided into two major
categories: interpersonal communication and mass
communication. Interpersonal communication is direct,
face-to-face communication between two or more people.
When communicating face-to-face, people see the other
persons reaction and can respond almost immediately. A
salesperson speaking directly to a customer is an example of
marketing communication that is interpersonal. Mass
communication, on the other hand, refers to communicating
to large audiences. A great deal of marketing

communication is directed at consumers as a whole, usually
through a mass medium, such as television or newspapers.
For example, when a firm advertises, it generally does not
personally know the people with whom it is trying to
communicate. Furthermore, the firm is unable to respond
immediately to consumers reactions to its message.
Instead, the marketing manager must wait to see whether
people react positively (such as buying the product) or
negatively (not buying the product) to the masscommunicated marketing communication. It must also be
kept in mind that clutter from competitors messages or
other distractions in the environment can reduce the
effectiveness of the mass-communication effort.
7.1 Elements of the communication process

Marketers are both senders and receivers of messages. As
senders, marketers attempt to inform, persuade and remind
the target market to adopt courses of action compatible with
the need to promote the purchase of goods and services. As
receivers, marketers attune themselves to the target market
in order to develop the appropriate messages, adapt existing
messages and spot new communication opportunities. This
way, marketing communication is a two-way, rather than a
one-way, process.19 The two-way nature of the
communication process is illustrated in Figure 11.2.
Figure 11.2 The communication process
7.1.1 The sender and encoding

The sender is the originator of the message in the
communication process. In an interpersonal conversation,
the sender may be a parent, a friend or a salesperson. In the
case of an advertisement or media release, the sender is the
firm itself. Coca-Cola, for example, would be the sender of a
message introducing its new iced-tea brand, Nestea.
Encoding is the conversion of the senders ideas and
thoughts into a message, usually in the form of words or
signs. Coca-Cola may encode its message into an
advertisement, or a Coca-Cola salesperson in a supermarket
may encode the marketing communication message as a
sales presentation. A basic principle of encoding is that what
matters is not what the source says, but what the receiver
hears. One way of conveying a message that the receiver will
hear properly is to use concrete words and pictures. Jeyes
Fluid uses a pair of arms like those of a body builder, with
bulging muscles and veins, to help convey the message that
this product is indeed the strong one.
7.1.2 Message transmission

Transmission of a message requires a channel, for example,
a voice, radio, newspaper or other communication medium.
A facial expression or gesture can also serve as a channel.
Reception occurs when the message is detected by the
receiver and enters his or her frame of reference.
In a two-way conversation, such as a sales pitch given by
a Coca-Cola sales representative to Shoprite Checkers
supermarket managers, for example, reception is normally
high. By contrast, the desired receivers may or may not
receive or comprehend Coca-Colas message when it is
mass-communicated (a national television advertisement,
for instance). This can occur because most media channels
are cluttered by noise. Noise is anything that interferes
with, distorts or slows down the transmission of
information. In some media, overcrowded with advertisers,
such as newspapers and television, the noise level is high
and the reception level is low (see Reader 52 Bathroom
advertising). For example, advertising by Vodacom and
MTN of their special offers may hamper reception of Cell Cs
introductory offer advertisements. When Cell C was
launched, there was also heavy advertising by Lotto, the
national lottery game. This noise would have hampered the
reception of Cell Cs launch and introductory offers.
Transmission can also be hindered by situational factors,
such as the physical surroundings light, sound, location,
weather, and so on; the presence of other people; or the
temporary moods consumers may bring to the situation.
Mass communication may not even reach all the correct

consumers. Some members of the target audience may be
watching television when Cell C offers are advertised, but
others may not be.
7.1.3 The receiver and decoding

Mass advertisers such, as Vodacom, Volkswagen, South
African Breweries and Coca-Cola, communicate their

messages through a channel to customers or receivers, who
will decode the messages. Decoding is the interpretation of
the language and symbols sent by the source through a
channel. Common understanding between two
communicators, or a common frame of reference, is
required for effective communication. Therefore, marketing
managers must ensure a proper match between the message
to be conveyed and the target markets attitudes and ideas.
Even though a message has been received, it will not
necessarily be properly decoded because receivers of the
message may selectively expose, distort and retain the
message (refer to Chapter 3). Even when people receive a
message, they tend to manipulate or modify the message to
reflect their own biases, needs, knowledge and culture.
Factors that can lead to miscommunication include
differences in age, social class, education, culture and
ethnicity. A study of US army recruitment advertisements
confirmed that the target audience young men between
the ages of 18 and 24 received both intended and
unintended messages. One television commercial showed
the firing of a cannon in order to symbolise teamwork. But
the target audience interpreted the image as representing a
skill that would have little value in civilian life, and that was
not what the advertiser had intended.20
Because people dont always listen or read carefully, they
can easily misinterpret what is said or written. Indeed,
researchers have found that a large proportion of both
printed and televised communications is misunderstood by
consumers. Bright colours and bold graphics have been
shown to increase consumers comprehension of marketing

communication. However, even these techniques are not
foolproof.
A classic example of miscommunication occurred when
Lever Brothers mailed out samples of its new dishwashing
liquid, Sunlight, which contains real lemon juice. The
package clearly stated that Sunlight was a household
cleaning product. However, many people saw the word
sunlight, the large picture of lemons and the phrase with
real lemon juice, and thought the product was lemon juice.
7.1.4 Feedback
During interpersonal communication, the receivers
response to a message is direct feedback to the source.
Feedback may be verbal, as in saying I agree, or nonverbal, as in nodding, smiling, frowning or gesturing.
Because mass communicators like Coca-Cola are often cut
off from direct feedback from consumers of their products,
they have to rely on market research or analyses of sales
trends for indirect feedback. Measurements such as the
percentage of radio listeners or magazine readers who
recognise, recall or state that they have been exposed to an
advertisement are often used as feedback. Indirect feedback
enables mass communicators to decide whether to
continue, modify or discontinue an advertisement.
7.2 The communication process and the

marketing communication mix
The four elements of the marketing communication mix
differ in their ability to affect the target audience. For

instance, marketing-communication-mix elements may
communicate with the consumer directly or indirectly. The
message may flow one way or two ways. Feedback may be
fast or slow, a little or a lot. Likewise, the communicator may
have varying degrees of control over message delivery,
content and flexibility. Table 11.1 outlines differences
among the marketing-communication-mix elements with
respect to the mode of communication, marketers control
over the communication process, the amount and speed of
feedback, the direction of message flow, marketers control
over the message, identification of the sender, the speed in
reaching large audiences and message flexibility.
From Table 11.1, we can see that most elements of the
marketing communication mix are indirect and impersonal
when used to communicate with a target market, and
provide only one direction of message flow. For example,
advertising, public relations and sales promotion are
generally impersonal, one-way means of mass
communication. Because they provide no opportunity for
direct feedback, they cannot adapt easily to consumers
responses, changing preferences, individual differences and
personal objectives. Personal selling, on the other hand, is a
personal, two-way means of communication. The
salesperson is able to receive immediate feedback from the
consumer and adjust the message in response. Personal
selling, however, is very slow in dispersing the marketers
message to large audiences. Because a salesperson can
communicate only with one person or a small group of
people at one time, it is a poor choice if the marketer wants
to send a message to many potential buyers.
READER 52 >> Bathroom advertising a captive

audience
As advertising has expanded beyond traditional media channels, public
utilities became a sought-after platform for message transmission, pitching
the message to people during their most private of moments. Marketing expert
HB Klopper says bathroom advertising does work in some instances, but warns
against the potential for what he calls advertising wearout. You have a
captive audience, he says, [But] if you bore people you will miss the power of
the advertising. Klopper believes that a boring or static advertisement
constitutes a missed opportunity, suggesting that video screens are perhaps a
better format than poster ads. Alternatively, Klopper theorises that a more
copy-heavy and information-packed advertisement could provide greater
insights to consumers. This in contrast to an advert with a short slogan, which
he says may be quickly forgotten. He recommends that advertisers be sensitive
to their target market and ask themselves two key questions: Is there a
natural fit between the consumer and the product? Will the washroom actually
support the brand? An example is the eye-catching campaign for Baby Soft
toilet tissue below (see advertisement on the left). A more radical approach is
the hard hitting road safety campaign in night club bathrooms emphasizing
the possible consequences of driving under the influence of liquor (see
advertisement on the right).
SOURCE: Pienaar, J. & De Waal, M. What do you view in the loo? Journal of Strategic Marketing.
IMM. June-July 2014, pp.18-20
Table 11.1 Characteristics of the elements in the marketing communication mix
8. Integrated marketing communications LO6

So far, the communications process and the four types of
marketing-communication-mix elements that marketers

may use to communicate their message to consumers have
been discussed, namely, advertising, public relations,
personal selling and sales promotion. Ideally, marketing
communications using each marketing mix element should
be integrated. That is, the message reaching the consumer
should be the same regardless of whether it is from an
advertisement, a salesperson in the field, a magazine article
or a coupon in a newspaper insert. First National Banks
Hello Steve/Beep Bank campaign is a good example.
Whether it was on radio, TV or in print, the message was the
same: FNB does banking better and more conveniently and
non-FNB clients should switch to them and their innovative
new services. As a result of the campaign FNB registered 1.3
million new accounts in 12 months.21
A firms communication messages, from the consumers
perspective, are already integrated. Typical consumers do
not think in terms of advertising, sales promotion, public
relations or personal selling as separate entities. To the
consumer, everything is an ad. The only people who can
disentangle these communication elements are marketers
themselves. Unfortunately, many marketers neglect this fact
when planning marketing communication messages and fail
to integrate their communication efforts from one marketing
communication element to the next. More often than not,
the underlying reason for disparate messages is that
different departments and individuals within an
organisation have responsibility for advertising, public
relations, personal selling and sales promotion. Managers of
these different functional areas may not communicate
effectively or they may disagree on marketing
communication messages or objectives.

The largest rift that continually hampers integrated
marketing communication is usually found between the
sales force and the advertising department. On the other
hand, all too often, messages delivered via advertising and
sales promotion are in synch, yet the managers of these
functional areas fail to keep the sales department abreast of
the latest marketing communication campaign. The result is
conflicting messages and, ultimately, confusion for the
consumer. For example, banks have been notorious for
departmentalising their communications efforts. As a result,
television advertisements look nothing like their direct-mail
pamphlets and even less like the signage at branch level.
This fragmentation of messages is also prevalent in many
South African provinces that try to market themselves as a
tourist destination. For example, in the Eastern Cape
province, although the Office of the Premier is responsible
for the overall marketing of the province, other
organisations, such as the Eastern Cape Tourism Board and
the Eastern Cape Development Corporation, also try to
market the province as a tourism and investment
destination, without any regard for messages being
conveyed about the province by other marketing agencies.
This poorly integrated, disjointed approach to marketing
communication has compelled more firms to adopt the
concept of integrated marketing communications (IMC).
IMC is the method of carefully coordinating all marketing
communication activities media advertising, sales
promotion, personal selling, public relations, direct
marketing, packaging and other forms of marketing
communication, such as websites to produce a consistent,

unified message that is customer-focused.22
Following the concept of IMC, marketing managers
carefully work out the roles that the various marketing
communication elements will play in the marketing mix.
Timing of marketing communication activities is
coordinated and the results of each campaign are carefully
monitored to improve future use of the marketingcommunication-mix tools. Typically, a marketing
communications manager is appointed who has overall
responsibility for integrating the firms marketing
communications.
>>Strategy
A firm that has successfully implemented IMC in the
United States is Hewlett Packard. With 100 000
employees, more than 2 000 different products and
hundreds of marketing managers within the firm with
different specialities and agendas, internal integration
of marketing communications at Hewlett Packard was
an ambitious objective. The firm began by integrating
its advertising and media campaigns, and not long after
found itself focusing on its entire marketing effort. That
meant integrating all of its field-sales operations,
product-line teams, geographic marketing operations
and its corporate marketing division, so that all
elements were communicating together and sending
out the same messages to consumers. To realise its
objective, Hewlett Packard created marketing councils
within the firm to bring together representatives of all

its marketing divisions. Through meetings and
conferences, the marketing councils create a strategy
by which all marketing messages flow for both current
campaigns and new product launches. Once the
councils outline strategies, various marketing centres
within Hewlett Packard implement those strategies
using either more global messages that can be used
broadly, or very specific messages tailored to individual
customer groups. Now, when Hewlett Packard
introduces a new computer product, for instance, a
coordinated plan helps ensure that salespeople,
product-line
teams,
and
the
marketing
communications department all work together.23
9. The objectives and tasks of marketing

communication
LO7
People communicate with one another for many reasons.

They communicate for amusement reasons, ask for help,
give assistance or instructions, provide information and
express ideas and thoughts. Marketing communication, on
the other hand, attempts to modify behaviour and thoughts
in some way. Advertisers, for instance, may try to persuade
consumers to buy Quality Street chocolates rather than
Beacons chocolates. Marketing communication also strives
to reinforce existing behaviour by, for instance, getting
consumers to continue to dine at Steers once they have
switched from a competing fast-food restaurant. The source

(the seller) hopes to project a favourable image, encourage
brand loyalty or to motivate a purchase of the firms goods
and services.
Marketing communication can perform one or more of
the three following tasks: to inform the target audience, to
persuade the target audience and to remind the target
audience. Often a marketer will attempt to accomplish two
or more of these tasks at the same time. Table 11.2 lists the
three tasks of marketing communication and includes some
examples of each.
9.1 Informing
Informative marketing communication may attempt to
convert an existing consumer need into a want or to
stimulate interest in a new product. Information-type
advertising is generally more prevalent during the early
stages of the product life cycle. Consumers typically will not
buy a product or service, or support a non-profit
organisation, until they know its purpose and its benefits to
them. Marketers of the energy drink Red Bull do just that
when they say that it replenishes the body with readily
available energy needed for recovery from exercise or
mental activity. Informative messages are important for
promoting complex and technical products, such as motor
vehicles, computers and investment services. Informative
marketing communication is also important for a new
brand being introduced into an old product class.
Table 11.2 Examples of marketing communication tasks
Informing
Increasing the
awareness of a
new brand or
product class
Informing the
market of new
product
attributes
Suggesting new
uses for a
product
Reducing
consumers
anxieties
Telling the
market of a price
change
Describing
available
services
Correcting false
impressions
Explaining how
the product
works
Building a firms
image
Persuading
Building brand
preference
Encouraging
brand switching
Changing
customers
perceptions of
product
attributes
Influencing
customers to
buy now
Reminding
Reminding customers
that the product may
be needed in the near
future
Reminding consumers
where to buy the
product
Keeping the product in
consumers minds
during off-peak times
Maintaining consumer
awareness
A new brand of tea (such as Manhattan Ice Tea) entering

the well-established tea product category dominated by

well-known brands, such as Joko, Five Roses and Glen,
cannot establish itself against more mature products unless
potential buyers are aware of it, understand its benefits and
understand its positioning in the market.
9.2 Persuading
Persuasive marketing communication is designed to
stimulate a purchase or an action for example, to drink
more Lemon Twist or to try a Cornetto ice cream.
Persuasion normally becomes the main marketing
communication objective when the product enters the
growth stage of its life cycle. By this time, the target market
should have general product awareness and some
knowledge of how the product can fulfil their wants.
Therefore, the primary emphasis of the marketing
communication task switches from informing consumers
about the product category to persuading them to buy the
firms brand rather than that of the competitor.
At this stage, the marketing communication message
emphasises the products real and perceived competitive
advantages. The Duracell Ultra advertisement encourages
potential buyers to buy its batteries that are the best
Duracell battery for todays high-tech appliances. Often
(but certainly not always), persuasive appeals are based on
emotional needs such as love, belonging, self-esteem and
ego-satisfaction.
Persuasion can also be an important objective for very
competitive, mature product categories, such as many
household items (e.g. fridges and stoves), soft drinks,

cellphones, holiday destinations and banking services. In a
market characterised by many competitors, the marketing
communication message often encourages brand switching
and attempts to convert some buyers into loyal users. For
example, to persuade new customers to switch their cheque
accounts, a banks marketing manager may offer lower
transaction fees, or a car dealer may offer a years free
insurance.
9.3 Reminding
Reminder marketing communication is used to keep the
product and brand name in the publics mind. This type of
marketing communication prevails during the maturity
stage of the life cycle. It assumes that the target market has
already been persuaded of the products merits. Its purpose
is simply to trigger a memory. Avis Rent-a-Car, Mercedes

Benz, KFC, Parker pens, and many other consumer
products, often use reminder marketing communication to
good effect. Amazon.com is now a well-established brand,
but its managers still spend 25 per cent of the firms income
on marketing communication. An excellent example of
reminding is the billboard advertisement below from
Eskom, reminding consumer to use electricity wisely. As can
been seen in the advertisement, they themselves use
electricity wisely, by shining the light on the bill board
during evenings, only on the message reminding us all to
use electricity wisely.
10. AIDA and the hierarchy of effects
LO8
The ultimate objective of marketing communication is to

persuade someone to buy a product or service or, in the
case of non-profit organisations, to take some action (for
instance, to donate blood). A classic theoretical model for
addressing marketing communication objectives is the
AIDA concept.24 The acronym stands for attention, interest,
desire and action which denote the stages of consumer
involvement with a marketing communication message.
The AIDA model proposes that consumers respond to
marketing messages in a cognitive (thinking), affective
(feeling, emotions) and conative (action, doing) sequence.
First, the marketing communication manager attracts a
persons attention by a greeting and approach (in the case of
personal selling) or loud volume, unusual contrasts, bold
headlines, movement, bright colours, humour, and so on (in
the case of advertising and sales promotion). Next, a good

sales presentation, demonstration or advertisement creates
interest in the product and then illustrates how the products
features will satisfy the consumers needs desire. Finally, a
special offer or a strong closing sales pitch may be used to
obtain purchase action.
An expanded version of the AIDA concept is the
hierarchy of effects model25 (see Figure 11.3). This
advertising model also proposes that consumers follow a
cognitiveaffectiveconative (i.e. thinking liking doing)
sequence in responding to marketing communication
messages. It assumes that marketing communication
propels consumers along the following six steps in the
purchase-decision process:
Awareness. The advertiser must first ensure awareness

in the target market. A firm cannot sell something if the
market does not know that the product or brand exists.
Imagine that Acme Company, a pet-food manufacturer,
is introducing a new brand of cat food called Stripes,
especially formulated for finicky cats. To increase the
general awareness of its new brand, Acme heavily
publicises the introduction and places several
advertisements on TV and in consumer magazines.
Knowledge. Simple awareness of the availability of a
brand seldom leads to a sale. The next step is to inform
the target market about the products characteristics and
how they would succeed in satisfying consumer needs.
Print advertisements for Stripes cat food should detail
the ingredients that cats love real tuna, chicken or
turkey as well as the products nutritional benefits.
Liking. After the target market learns about the product,

the advertiser must generate a favourable attitude. A
print advertisement or TV commercial cannot actually
tell pet owners whether their cats will like Stripes.
Therefore, Acme may compile a list of cat owners in
several major cities and send each a sample of the new
cat food. Alternatively they can set up a small staff
counter inside a pet shop and interact face-to-face with
cat owners who enter the shop. Acme hopes to establish
liking (by the cats as well as their owners) for the new
brand.
Preference. Even though owners (and their cats) may
like Stripes, they may not see any advantage over
competing brands, especially if owners are brand-loyal.
Therefore, Acme must create brand preference by
explaining the products differential advantage over the
competition. Acme has to convince owners that Stripes is
distinctly better than other cat foods in some respect.
Specifically, Acme has to show that cats want to eat
nothing else. Advertising at this stage claims that Stripes
will satisfy even the pickiest of the litter.
Conviction. Although pet owners may come to prefer
Stripes to other brands, they may not yet have developed
the conviction (or an intention) to buy the new brand. At
this stage, Acme might offer the consumer additional
reasons to buy Stripes, such as easy-to-open, zip-lock
packaging that keeps the product fresh, additional
vitamins and minerals that healthy cats need or feline
taste-test results that demonstrate the superiority of
Stripes.
Purchase. Some members of the target market may now
be convinced to buy Stripes, but have yet to make the

purchase. Displays in grocery shops, coupons, premiums
and trial-size packages can often persuade the reluctant
shopper to try the new product.
Most buyers involved in high-involvement purchase
situations pass through these six stages of the hierarchy of
effects on the way to making a purchase. The marketers task
is to determine where on the purchase ladder most of the
target consumers are located and design a marketing
communication plan to meet their needs (see Figure 11.3).
For instance, if Acme has determined that about half its
buyers are in the preference or conviction stage, but have
not bought Stripes cat food for some reason, the firm may
mail cents-off coupons to cat owners to prompt them to buy.
Figure 11.3 AIDA and the hierarchy of effects
The hierarchy of effects model does not explain how all

marketing communications influence purchase decisions.
The model suggests that marketing communication
effectiveness can be measured in terms of consumers
progress from one stage to the next. However, the order of
stages in the model as well as whether consumers actually

go through all the steps has been much debated. For
example, purchase may occur without liking or preference,
perhaps when a low-involvement product is bought on
impulse. Regardless of the order of the stages or consumers
progression through these stages, the hierarchy of effects
model helps marketers by suggesting which marketing
communication strategy will be most effective at different
stages.26
10.1 The hierarchy of effects and the marketing

communication mix
Although advertising does have much impact in the later
stages of the hierarchy of effects, it is most useful in creating
awareness and knowledge about goods or services. By
contrast, personal selling reaches fewer people at first.
Salespeople are more effective at developing customer
preferences for merchandise than at gaining conviction. For
example, advertising may help a potential computer
purchaser gain knowledge and information about
competing brands, but the salesperson in an electronics
shop may be the one who actually encourages the buyer to
decide a particular brand is the best choice. The salesperson
also has the advantage of having the computer physically
there to demonstrate its capabilities to the buyer. Samsung
Electronics SA reckons that salespeople selling products
such as TVs, hi-fis and radios can switch prospective buyers
from their preferred brands in 80 per cent of cases.27 Pierre
van der Hoven, chief executive of Three Blind Mice, a firm
that specialises in in-house TV advertising, quotes a similar

figure. He says that research shows that 70 per cent of
purchase decisions are made in-store and offer a wonderful
opportunity for skillful retail marketers.
Like advertising, a good sales promotion can build
awareness of a new product. Sales promotion can also stir
strong purchase intent. For example, coupons and other
price-off marketing communications are techniques used to
persuade customers to buy new products. Frequent-buyer
sales promotion programmes, which allow consumers to
accumulate loyalty points (such as First National Banks eBucks or the Clicks Club Card) or other monetary rewards,
such as cash-back vouchers that can later be redeemed for
goods, tend to increase purchase intent as well as encourage
repeat purchases.
Frequent-buyer customer cards for products and
services, such as the Clicks Club Card, are popular (Clicks
has a database of 5 million names and addresses, of which
2,1 million are active members), especially among women,
the affluent and young people aged 25 to 34. Most of these
consumers say that the availability of frequent-customer
cards often influences their shopping decisions. Clicks, for
instance, has found that almost half of all its sales are to
Club Card holders.28 Retailers are increasingly using
incentive programmes to cultivate consumer loyalty and
encourage repeat purchases.
The idea behind the introduction of loyalty cards is that
they increase the profitability of the businesses. This is
because an increase in customer retention reduces
overhead costs29 (see Chapter 1). However, loyalty cards
have also come under some criticism as simply adding to

the costs of doing business and as such adding to the price
that the consumer will ultimately pay for the firms products.
Critics also point out that the introduction of a loyalty
system will probably result in no more than a temporary
advantage for the firm because it is more than likely that
competitors will respond by introducing a similar
innovation.
10.2 Factors affecting the marketing

communication mix
LO9
Marketing communication mixes vary a great deal from one

product and one industry to the next. Normally, advertising
and personal selling are used to promote goods and
services, supported and supplemented by sales promotions.
Public relations help develop a positive image for the firm
and the product or brand. Nevertheless, a firm may choose
not to use all four marketing communication elements in its
marketing communication mix, or it may choose to use
them in varying degrees. Firms such as Tupperware, Amway
and Golden Products rely heavily on personal selling for
marketing communication purposes, but Colgate relies
more on mass advertising. The particular marketing
communication mix chosen by a firm for a product depends
on several factors: the nature of the product, the stage in the
products life cycle, the target market characteristics, the
type of buying decision, funds available for marketing
communication and the use of either a push or a pull
strategy.
10.2.1 Nature of the product

The characteristics of the product itself can influence the
marketing communication mix. For instance, a product can
be classified as either a business product or a consumer
product (see Chapter 8). As business products are often
custom-made to the buyers exact specifications, they are
often not well suited to mass marketing communication.
Therefore, producers of most business products, such as
computer systems, farming equipment or industrial
machinery, rely more heavily on personal selling than on
advertising. Informative personal selling is common for
industrial installations, accessories and component parts
and materials. However, advertising still serves a purpose in
promoting business products. Advertisements in trade
media may be used to create general buyer awareness and
interest. Moreover, advertising can help to locate potential
customers for the sales force. For example, print media
advertising often includes coupons inviting the potential
customer to complete this for more detailed information.
On the other hand, because consumer products are
generally not custom-made, they do not require the selling
efforts of a sales representative who can tailor them to the
users needs. Therefore, consumer products are promoted
mainly by means of advertising to create brand familiarity.
Broadcast advertising, newspapers and consumerorientated magazines are used extensively to promote
consumer products, especially non-durables. Sales
promotion, the brand name and the products packaging are
about twice as important for consumer products as for
business products. Persuasive personal selling is important
at the retail level for shopping products, such as motor

vehicles and electrical appliances.
The costs and risks associated with a product also
influence the marketing communication mix. As a general
rule, when the costs or risks of using a product increase,
personal selling becomes more important. Items that are a
small part of a firms budget (supply items such as
stationary, for instance) or of a consumers budget (e.g.
convenience products such as newspaper) do not require a
salesperson to close the sale. In fact, inexpensive items, such
as sugar and pencils, cannot support the cost of a
salespersons time and effort unless the potential volume is
high. On the other hand, expensive and complex machinery,
new buildings, cars and new homes represent a
considerable investment. A salesperson must assure buyers
that they are spending their money wisely and not exposing
themselves to undue financial risk.
Social risk is an issue as well. Many consumer products
are not products of great social importance because they do
not reflect a social position. People do not experience much
social risk in buying a loaf of bread or a chocolate bar.
However, buying some shopping products and many
specialty products, such as jewellery and clothing, does
involve a social risk. Under these circumstances many
consumers depend on sales personnel for guidance and
advice in making the proper choice.
10.2.2 Stages in the product life cycle

The products stage in its life cycle is a major factor when it
comes to designing a marketing communication mix (see
Figure 11.4). During the introductory stage, the basic

objective of marketing communication is to inform the
target audience that the product is available. Initially, the
emphasis is more on the general product class for
example, the concept of green tea to build primary
demand. This emphasis gradually changes to awareness of
specific brands, such as Manhattan Tea. Normally, both
extensive advertising and public relations inform the target
audience of the new product class or brand and heighten
awareness levels (see Reader 53 Marketing communication
and the arts). Sales promotion encourages early trials of the
product, and personal selling motivates retailers to carry the
product.
READER 53 >> Marketing communication and the arts

Understanding the value and contribution of different marketing
communication elements in the communication mix are important to all firms,
including small firms and those which market the arts. Relating his experience
of promoting theatre plays, the well-known playwright Deon Opperman says
that, in the case of The Sound of Music, R1,5 million was spent directly on
promotions and publicity, compared with the R6 million which went for
production costs. Radio advertisements contributed significantly to the sharp
increase of sales and are by far the most effective advertisement medium for
productions of this nature, according to Opperman. He believes that although
billboards have a constant presence and make a difference over the long
term, they dont really have an impact on daily ticket sales. Similarly, in his
experience, newspaper advertisements do not really have a direct impact on
ticket sales. And posters do not help either. They only serve a purpose at the
ticket sales offices and theatres themselves where they act as reminders to
theatregoers.
SOURCE: Translated and adapted from Marketing communications and the arts. Finweek, 29 June
2006, p. 95
When the product reaches the growth stage of the life

cycle, the marketing communication mix may change.
Often, a change is necessary because different types of
potential buyers are targeted. Although advertising and
public relations continue to be major elements of the
marketing communication mix, sales promotion can be
reduced because consumers need fewer incentives to
purchase. The marketing communication strategy then
emphasises the products advantage over the competition
(competitive
advantage).
Persuasive
marketing
communication is used to build and maintain brand loyalty
to support the product during the growth stage. By this
stage, personal selling has usually succeeded in attaining
adequate distribution for the product.
Figure 11.4 The product life cycle and the marketing communication mix
As the product reaches the maturity stage of its life cycle,

competition becomes fiercer, and persuasive and remindertype advertising are used more often. Sales promotion
comes back into focus as product sellers try to increase their
market share. All marketing communication, especially
advertising, is reduced as the product enters the decline
stage. Nevertheless, personal selling and sales promotion
efforts may be maintained, particularly at the retail level.
10.2.3 Target market characteristics

A target market characterised by widely scattered potential
customers, well-informed buyers, and brand-loyal repeat
purchasers generally requires a marketing communication
mix with more advertising and sales promotion and less
personal selling. Sometimes, however, personal selling is
required even when buyers are well informed and
geographically dispersed. Although industrial installations
and component parts may be sold to very competent people
with extensive knowledge and work experience, salespeople
are still required to explain the product and work out the
details of the purchase agreement. For example, salespeople
from Agrilek (a division of Eskom) who sell electricity
packages to farmers will do a detailed analysis of the
electricity needs and consumption of the farmer and
recommend ways of optimising the use of electricity.
Often firms sell goods and services in markets where
potential customers are hard to locate. Print advertising
(such as brochures) can be used to find them. The reader is
invited to call for more information or to mail in a reply card
for a detailed brochure. As the calls or cards are received,
salespeople are sent to visit the potential customers.
10.2.4 Types of buying decisions

The marketing communication mix also depends on the
type of buying decision for example, whether it is a routine
decision or a complex decision (extensive decision-making).
For routine consumer decisions, such as buying toothpaste
or a soft drink, the most effective marketing communication
calls attention to the brand or reminds the consumer about
the brand. Advertising and, especially, sales promotion are
the most productive marketing communication tools to use
for routine decisions. If the decision is neither routine nor
complex, advertising and public relations help establish
awareness of the product.
For example, suppose someone is looking for a bottle of
wine to serve to his dinner guests. Being a teetotaller, he is
not familiar with wines. Yet he has seen advertising for
Nederburg wine and has also read an article about
Nederburg wines and home entertainment in Garden and
Home. Consequently, he may be more likely to buy a
Nederburg wine because he is already aware of it.
By contrast, consumers making complex buying
decisions, such as investing in a money market unit trust or
getting someone to set up a home page on the Internet, are
more extensively involved. They rely on large amounts of
information to help them reach a purchase decision.
Personal selling is most effective in helping these consumers
make a decision. For example, a consumer thinking about
buying a motor vehicle or a computer, for the first time in
particular, usually depends on a salesperson to provide the
information they need to reach a decision. Print advertising

and the Internet may also be used for high-involvement
purchase decisions, as they can often provide a large
amount of information to the consumer relatively easily and
quickly.
10.2.5 Available funds

Money, or the lack of it, is often the most important factor in
deciding on the nature and composition of the marketing
communication mix. A small, under-capitalised
manufacturer may rely heavily on free publicity if its product
is unique. If the situation warrants a sales force, a
financially-strained firm may turn to manufacturers agents,
who work on a commission basis with no advances or
expense accounts. Even well-capitalised firms may not be
able to afford the advertising rates of publications like
Cosmopolitan, YOU and Readers Digest. The price of a highprofile advertisement in these media could pay the salary of
a salesperson for a year!
When funds permit a mix of marketing communication
elements, a firm will generally try to optimise its return on
marketing communication spending while minimising the
cost per contact, or the cost of reaching one member of the
target market. In general, the cost per contact is very high for
personal selling, public relations and sales promotions, such
as sampling (see Reader 54 Sampling campaign reaches
over a million) and demonstrations. On the other hand, for
the number of people national advertising reaches, it has a
very low cost per contact.
Often there is a trade-off between the funds available, the
number of people in the target market, the quality of

communication needed and the relative costs of the
marketing communication elements. For instance, a firm
may have to forgo a full-page colour advertisement in
Femina or Garden and Home in order to pay for a personalselling effort at a trade fair, for instance. Although the
magazine advertisement will reach more people than
personal selling, the high cost of the magazine space may be
a problem.
10.3 Push and pull strategies

The last factor that affects the marketing communication
mix is whether a push or a pull marketing communication
strategy will be used. Manufacturers may use aggressive
personal selling and trade advertising to convince a
wholesaler or a retailer to carry and sell their merchandise.
This approach is known as a push strategy (see Figure 11.5).
The wholesaler, in turn, must often push the merchandise
forward by persuading (or even pressurising) the retailer to
stock the goods. The retailer then uses advertising, displays
and other forms of marketing communication to convince
the consumer to buy the pushed products.
READER 54 >> Sampling campaign reaches over a

million
More than one million South African consumers have received a taste of the
newly reformulated Coca-Cola Light, thanks to a high-visibility sampling
campaign that has been running over the past few months. The Coca-Cola
Light relaunch commenced at the beginning of July 2006, following extensive

quantitative research, during which local consumers indicated a preference for
the fresh packaging graphics and improved taste. This is the second time that
the Coca-Cola Light formula has been changed since the brand was first
introduced to the South African market as Diet Coke in the mid-1980s.
To kick off, promotional teams distributed more than 220 000 cans to
commuters in Johannesburg, Durban, Pietermaritzburg, Bloemfontein, Port
Elizabeth and Cape Town. Activations were planned twice a day during peak
traffic periods in areas where Coca-Cola Light billboards were most visible.
To support this programme, the brand acquired nearly 100 separate
outdoor sites across the country, with a combined square meterage of well
over 1 500 m2. Branded trucks, banners and promoters contributed to a
distinctive on-street presence.
During the workday, the sampling crews didnt rest and targeted major
office parks in all the key centres. A further 64 000 cans were sampled this
way. Consumers who missed the intersection and at work sampling were able
to try the new-look, better-taste Coca-Cola Light when they made a purchase
at one of the 30 Boardmans shops nationwide. Some 245 000 people were
reached through this channel.
The balance of nearly 500 000 cans was sampled at 186 selected
supermarkets and hypermarkets, as well as lifestyle events, such as the
International Fashion Sale and Decorex.
SOURCE: Bizcommunity online newsletter, www.bizcommunity.com, 19 October 2006
At the other extreme is a pull strategy, which stimulates

consumer demand to obtain product distribution. Instead of
trying to sell to the wholesaler, the manufacturer using a pull
strategy focuses its marketing communication efforts on
end, or final, consumers. As they begin demanding the
product, the retailer orders the merchandise from the
wholesaler. The wholesaler, confronted with rising demand,
then places an order for the pulled merchandise from the

manufacturer. In other words, consumer demand pulls the
product through the channel of distribution (see Figure
11.5). Heavy sampling, introductory consumer advertising,
cents-off campaigns and couponing all create demand from
final consumers and form part of a pull strategy.
Rarely does a firm use a pull or a push strategy
exclusively. Instead, the marketing communication mix will
frequently contain both pull and push components
depending on decisions such as the media selected for the
communication campaign.
Figure 11.5 Push versus pull strategies
>>Strategy
The pharmaceutical firm Marion Merrell Dow uses a
push strategy using personal selling and trade
advertising to promote its Nicoderm patch nicotinewithdrawal therapy to doctors. Sales presentations and
advertisements in medical journals give doctors the
detailed information they need to prescribe the therapy
to their patients who want to stop smoking. Marion
Merrell Dow supplements its push marketing
communication strategy with a pull strategy targeted

directly at potential patients using advertisements in
consumer magazines and on television. The
advertisements illustrate the pull strategy in action:
Marion Merrell Dow directs consumers to ask their
doctors about the Nicoderm patch.
11. Steps in developing the marketing

communication plan
LO10
A marketing communication plan is a carefully arranged

sequence of marketing communications steps designed
around a common theme and geared to specific objectives.
Because marketing communication is something of an art,
developing a marketing communication plan can be a
demanding task. Despite many specific suggestions and
guidelines, creativity still plays a key role in this process.
Effective planning of a marketing communication plan
significantly stimulate sales. Ineffective planning, on the
other hand, can waste millions of rands and actually harm
the image of the firm and its products (see Reader 55
Incorrect media planning is costly).
The marketing communication plan consists of several
distinct steps:
Setting marketing communication objectives
Developing a marketing communication budget

Choosing the marketing communication mix.
READER 55 >> Incorrect media planning is costly

Successful advertising depends on several aspects. Among them are appealing
creative concepts, proper execution, and delivery. If one part of the chain is
broken, the advertising will lose the effectiveness and the money is wasted.
The point I want to emphasise is the delivery of the message. This part is
called media planning and buying. The message is wasted when the people
who are supposed to hear it do not get to hear it. This is often the result of
bad media planning. What is media planning? In simple terms, media
planning and buying is a usage of an exact media vehicle to communicate
advertising messages with the target market. In Limpopo there is a billboard
for the provincial Department of Health with the whole paragraph of 31 words.
Can you read that driving past at the 100km/h? On another occasion, I saw
billboards for a national retailer of shoes but they have no store within
150km radius. To compound the problem, though the billboard was in
KwaZulu-Natal, the language used on the billboards is Sesotho. Who reads
that language in KZN? In a nutshell, for media planning not to result in a
waste of money, you should consider the following basic principles:
Who you want to talk to?
Where are they found?
Which media do they consume?
How many are you likely to reach?
How often?
When doing the planning you need to understand the background of the
brand, what makes the brand relevant to the target market, the association
with certain activities and what sort of people participate in those activities.
SOURCE: Adapted from Maswanganye, T. 2013. Incorrect media planning is costly, Bizcommunity, 13
January
11.1 Analysing the market

If firms truly accept the marketing concept of satisfying
consumer needs and wants, they must conduct research
simply to find out what these needs and wants are. With the
increasing complexity of the market, proper research is
necessary to ensure an effective marketing communication
plan. Research identifies the products target market.
Research also determines the plans marketing
communication objectives. As noted in Chapter 5,
information can be obtained by means of either secondary
or primary research.
Internal secondary research utilises internal company
data, such as sales data or data about the effectiveness of
previous advertising efforts, to provide the marketing
manager with valuable information for promoting a current
brand. External secondary data are available from research
firms that continually conduct research and sell the research
reports to any firm willing to pay.
>>Strategy
Before Standard Bank launched its first integrated
global advertising campaign the bank did a six-monthlong research study. The bank sought the views of 50
000 employees across 33 countries using an employee
survey called Heartbeat. The banks executives hosted
58 roadshows during this process.30
After the South African Feedlot Association

conducted a research project to ascertain how
consumers perceive beef, the organisation found it
necessary to launch an advertising campaign to change
the consumers perceptions of this meat. They found
that 45 per cent of consumers were eating less beef
than two years previously, that 50 per cent of
consumers named safety as a primary concern, that
females were the consumers mainly moving away from
beef consumption and that affordability of beef was a
primary issue. The SA Feedlot Association wanted to
reposition beef as a healthy and delicious meal option
for all occasions domestically. The campaign used
broadcast and print advertisements designed to
communicate a number of key messages to educate
consumers on the versatility, value and superior quality
of South African Beef.31
In other cases, primary research, or information collected
exclusively for an immediate marketing communication
problem, is necessary for proper planning (see Chapter 5).
However, market information is usually not available for a
new product or a new product category. In that case,
primary research might consist of an in-home use test, test
marketing or focus-group research. These methods provide
valuable insights into potential buyers characteristics and
help the marketer to shape the marketing communication
plan.
11.2 Identifying the target audience

Based on market research, the market segment that the firm

wants to reach with a given marketing communication plan
should
be
explicitly
defined
geographically,
demographically, psychographically or behaviourally.
Naturally, the target audience should be those most likely to
buy the product within a defined period.
EXAMPLE >> Cuthberts targets its marketing communication at

the broad middle market, commercial value-for-money fashion footwear for the
whole family.32 Therefore, Cuthberts will use communication media that reach
the whole family, such as YOU and Huisgenoot magazines, or advertise during
family TV programmes such as Top Billing.
Some innovative marketers have in recent years developed
very original media to reach their target markets, provided
that the target audience is properly defined. An analysis of
the use of outside billboards has shown that:33
39% of cellular network sites are in rural/township areas

72% of government advertising is in rural/township
areas
80% of canned food advertising is in rural/township
areas
68% of margarine advertising is in rural/township areas
85% of sugar advertising is in rural/township areas
86% of car brand advertising is found in urban areas
84% of casinos are advertised in urban areas.
11.3 Setting marketing communication

objectives
Objectives are the starting point for any marketing

communication plan. Indeed, marketing managers cannot
possibly plan a marketing communication programme
unless they know what objectives they are trying to realise.
The objectives that a marketing manager may pursue
include increasing awareness, improving or changing the
consumers attitude about the product or brand, changing
the consumers buying behaviour, reminding the consumer
of the product or increasing the consumers recall of the
product. Additionally, marketing managers must
understand their current position in terms of each objective
before a reasonable goal can be formulated. For an
awareness objective, for example, the marketing manager
should determine what awareness level the product
currently enjoys. Later, the manager will be able to use this
benchmark to assess how well the marketing
communication effort affected awareness levels.
Marketing communication objectives should centre on
the consumers stage in the hierarchy of effects, or the
potential buyers current stage in the purchasing process.
The role of marketing communication is to change the
receivers attitudes and intentions towards the product or
brand, moving him or her through the hierarchy towards an
action (i.e. a sale). At the same time, the consumers
response to the marketing communication message helps
the marketer move to the next step in promoting the
product.34 To be effective, marketing communication
objectives should meet these four criteria:
Objectives should be measurable
Objectives should be based on sound research and
should identify a well-defined target audience

Objectives should be realistic
Objectives should reinforce the overall marketing plan
and relate to specific marketing objectives.
11.4 Developing a marketing communication

budget
After identifying the target audience and specifying the
marketing communication objectives, the marketing
manager can finalise a budget. This is no simple task, nor is
there a cookbook approach that will create an ideal
marketing communication budget under all circumstances.
Theoretically, the marketing communication budget should
be set at a level that maximises profitability and return on
investment. This theory is not easy to implement, however,
because it requires knowledge of the actual monetary
benefits resulting from the marketing communication
effort.35 The easier techniques for setting budgets are the
following:
Arbitrary allocation and all-you-can-afford. The

easiest way to set a marketing communication budget is
simply to pick a rand amount. This method is called
arbitrary allocation. Many firms use the arbitrary method
for setting their marketing communication budgets, even
though the budget allocated may or may not be enough
to advertise the product effectively. The all-you-canafford approach is a form of arbitrary allocation because
determining what is affordable can be based on many
arbitrary criteria. Perhaps the reason for the popularity

of this rather illogical approach to budget setting is the
difficulty of measuring the effectiveness of marketing
communication and deciding how much money is
needed to meet marketing communication objectives.
Competitive parity method. Using this approach, the
firm allocates enough money to match the marketing
communication expenditures of the competition.
Perhaps the biggest problem with this method is that it
ignores creativity and media effectiveness. Marketers
assume their competitor is spending the appropriate
amount on marketing communications, disregarding
their own particular situation, opportunities, strengths
and weaknesses. One advantage of the competitive
parity method is that it forces the firm to examine
competitors marketing communication actions.
Nandos does not follow the competitive parity method.
Whereas competitor KFC spends an estimated R200
million on advertising, Nandos gets by with R38
million.36
Percent-of-sales method. This method of setting a
marketing communication budget typically uses a
percentage of the previous years total sales or a forecast
of future sales to determine marketing communication
expenditures. The percent-of-sales approach can also be
based on sales by product, territory or customer group.
Nike South Africa uses this method. It allocates 10 per
cent of sales to marketing communication activities.37
Reckitt Benckiser, the owner of such well-known brands
as Clearasil, Strepsils, Vanish and Mr Min, spends about
12 per cent of its revenue on advertising. Amazon.com
spends about 24 per cent of revenue (or $29 per

customer) on marketing communication.38 The inherent
weakness of this approach is that the budget becomes a
consequence of sales rather than a determinant of sales.
As sales decline, the marketing communication budget
also falls. Yet, research has shown that advertisers
maintaining their marketing communication budgets
during slow sales periods to generate better sales than
those that do not. The percent-of-sales approach also
bears little relationship, if any, to a firms marketing
communication objectives. However, the appeal of the
percent-of-sales approach is its simplicity. It is easy for
managers to use and understand because they often
view costs in percentage terms.
Market share method. The market share approach to
budgeting depends on how much marketing
communication is needed to maintain or win a certain
market share. If a firm is satisfied with its market share, it
may decide to continue spending the same amount or
percentage it spent in the past. If the firm plans to
increase its market share, it can increase its budget to
meet its market share objectives. Like the percent-ofsales approach, however, this method ignores quality
and creativity. Who is to say that spending R5 million this
year will be more or less effective than the spending of
R5 million last year? Moreover, the firm is letting its
competition indirectly set its marketing communication
budget. Besides recognising the importance of
competition for market share, this approach is not much
of an improvement over the other methods.
Objective-and-task method. Deciding on the marketing
communication budget has evolved over the years

towards more advanced and scientific techniques, the
most popular of these being the objective-and-task
approach. Although this approach is not as simple as the
methods already discussed, its underlying logic for
budget setting is significantly more judicious. First,
management sets objectives to be realised (such as the
number of customers reached or the level of brand
awareness attained). Second, it defines the marketing
communication activities and tools required to realise
those objectives. Then a budget is built by adding up the
costs of the planned marketing communication activities
required to realise the stated communication objectives.
The objective-and-task approach requires that management
understand the effectiveness of various marketing
communication tools. The approach also assumes that
realising the objectives will be worth the costs. The major
advantage of the objective-and-task method is that it
explicitly incorporates planning into the budgeting process.
Marketing communication objectives are defined,
alternatives analysed and the costs of each element in the
marketing communication plan determined. The objectiveand-task approach has been more readily adopted by large
firms and manufacturers of consumer products whose
marketing communication budgets are significant.39
EXAMPLE >> A good illustration of the objective-and-task method is the

one used by the advertising agency J. Walter Thomson. Brenda Wortley, media
director of J. Walter Thomson, says: Because our clients have a high regard for
our services, they prefer to tell us up front that a year from now, this is the market
share or volume growth that they want. After a competitive market analysis, we
take a task approach to determine the budget and the most appropriate
media.40
11.5 Deciding on a marketing communication

mix
Finally, marketing managers select the combination of
elements advertising, sales promotion, personal selling
and public relations that will be included in the overall
marketing communication plan. Remember that the
marketing communication mix depends on such factors as
the type of product, its stage in the product life cycle, target
market characteristics, type of buying decision, available
funds and push versus pull strategies. Managers may choose
several different elements for one marketing
communication campaign.
Different elements are typically chosen to address
consumers in different stages of the hierarchy of effects. For
example, public relations might be used to create a positive
corporate image among target customers. Advertising may
focus on developing corporate and product awareness as a
complement to personal selling. The function of personal
selling might be to interact with customers, amplify and
explain the advertising messages, and design the right
product to meet customers specific needs. Personal selling
may also help secure proper distribution for the product.
Sales promotion may enter the picture as a special discount
to prospective buyers if they purchase right away.
Nike South Africa, for instance, spends a third of its
marketing communication budget on above-the-line

marketing communications (mainly advertising), a third on
sponsorship and a third on in-store marketing
communications.41
<<< LOOKING BACK

There is no question that advertising can influence and
change consumers perceptions and attitudes. In this case
Peugeot hopes a new marketing and advertising campaign
will improve its South African brand image.
The poor perceptions of the unavailability of spare parts
and the idea that the brand is very expensive will be the
focus of this campaign.
SUMMARY
1
The importance of marketing communication in the marketing mix.

Marketing communication is communication by marketers that informs,
persuades and reminds potential buyers of a product in order to influence an
opinion or elicit a response. The marketing communication strategy is the
plan for using the elements of marketing communication advertising,
public relations, personal selling and sales promotion to meet the firms
overall objectives and marketing goals. Based on these objectives, the
elements of the marketing communication strategy become a co-ordinated
marketing communication plan. The marketing communication plan then
becomes an integral part of the total marketing strategy for reaching the
target market, along with product, distribution and price decisions.
The elements of the marketing communication mix. The elements of the
marketing communication mix include advertising, public relations,
personal selling and sales promotion. Advertising is a form of impersonal,
one-way mass communication paid for by the source. Public relations is the
function of marketing communication concerned with a firms public image.
Firms cannot buy good publicity, but they can take steps to create a positive
image. Personal selling typically involves direct communication, in person or

by telephone. The seller aims to initiate a purchase by informing and
persuading one or more potential buyers. Contemporary notions of personal
selling focus on the relationship developed between the seller and buyer.
Finally, sales promotion is normally used to back up other components of the
marketing communication mix by motivating employees and stimulating
consumer and business-customer purchasing.
The effects or outcomes of advertising. Advertising increases market share,
but there is evidence that beyond a certain level of spending for advertising
and sales promotion, diminishing returns set in. That is, sales or market
share do not change no matter how much is spent on advertising and sales
promotion. Under-standing the advertising response function helps
marketers use budgets wisely. Advertising affects everyones daily lives and
influences many purchases. Consumers turn to advertising for its
information value as well as its entertainment value. Consumers with a high
degree of brand loyalty are least susceptible to the influences of advertising
for competing goods or services. Advertising also reinforces positive attitudes
towards brands. When consumers have a neutral or favourable frame of
reference towards a product or brand, they are often positively influenced by
its advertising. When consumers are already highly loyal to a brand, they may
buy more of it when advertising and marketing communication for that
brand increase. Advertising can also affect the way consumers rank a brands
attributes, such as colour, taste, smell and texture.
Major types of advertising. Institutional advertising, or corporate
advertising, promotes the firm as a whole and is designed to establish,
change or maintain the firms identity. Usually it does not ask the audience to
do anything other than maintain a favourable attitude towards the firm, its
products or brands. Unlike institutional advertising, product advertising
promotes the benefits of a specific product or service. Pioneering advertising
is intended to stimulate primary demand for a new product or product
category. Heavily used during the introductory stage of the product life cycle,
pioneering advertising offers consumers in-depth information about the
benefits of the product class. Pioneering advertising also seeks to create
interest. Firms use competitive or brand advertising when a product enters
the growth phase of the product life cycle and other firms begin to enter the
market. Instead of building demand for the product category, the objective of
competitive advertising is to influence demand for a specific brand.
Comparative advertising directly or indirectly compares two or more
competing brands on the basis of one or more specific attributes.
The communication process. The communication process has several steps.
When an individual or firm has a message it wishes to convey to a target
6
7
audience, it encodes that message using language and symbols familiar to

the intended receiver and sends the message through a channel of
communication. Noise in the transmission channel distorts the sources
intended message. Reception occurs if the message falls within the receivers
frame of reference. The receiver decodes the message and usually provides
feedback to the source. Normally, feedback is direct for interpersonal
communication and indirect for mass communication.
Integration is important to ensure that a consistent message reaches the
target audience regardless of the communication channel being used.
The objectives and tasks of marketing communication. The fundamental
objectives of marketing communication are to induce, modify or reinforce
behaviour by informing, persuading and reminding. Informative marketing
communication explains a product or services purpose and benefits.
Marketing communication that informs the consumer is typically used to
increase demand for a general product category or to introduce a new
product or service. Persuasive marketing communication is designed to
stimulate a purchase or an action. Marketing communication that persuades
the consumer to buy is essential during the growth stage of the product life
cycle, when competition becomes fierce. Reminder marketing
communication is used to keep the product and brand name in the publics
mind. Marketing communications that remind are generally used during the
maturity stage of the product life cycle.
The hierarchy of effects concept and its relationship to the marketing
communication mix. The hierarchy of effects model outlines the six basic
stages in the purchase decision-making process, which are initiated and
propelled by marketing communication activities:
Awareness
Knowledge
Liking
Preference
Conviction
Purchase.
The components of the marketing communication mix have varying levels of
influence at each stage of the hierarchy. Advertising is a good tool for
increasing awareness and knowledge of products or a service. Sales
promotion is effective when consumers are at the purchase stage of the
decision-making process. Personal selling is most effective in developing
customer preferences and gaining conviction.
The factors that affect the marketing communication mix. Marketing
communication managers consider many factors when creating marketing
communication mixes. These factors include the nature of the product, the
product life cycle stage, target market characteristics, the type of buying
decision involved, availability of funds and the feasibility of push or pull
strategies. Since most business products tend to be customised to the buyers
exact specifications, the marketing manager may choose a marketing
communication mix that relies more heavily on personal selling. On the
other hand, consumer products are generally mass-produced and lend
themselves more to mass-marketing communication efforts, such as
advertising and sales promotion. As products move through different stages
of the product life cycle, marketers will choose to use different marketing
communication elements. For example, advertising is emphasised more in
the introductory stage of the product life cycle than in the decline stage.
Characteristics of the target market, such as the geographic location of
potential buyers and brand loyalty, influence the marketing communication
mix, as does whether the buying decision is complex or routine. The amount
of funds a firm has available to allocate to marketing communication may
also help determine the marketing communication mix. Small firms with
limited funds may rely more heavily on public relations, whereas larger firms
may be able to afford broadcast or print advertising. Finally, if a firm uses a
push strategy to promote the product or service, the marketing manager may
choose to use aggressive advertising and personal selling to wholesalers and
retailers. If a pull strategy is chosen, then the manager often relies on
aggressive mass marketing communication, such as advertising and sales
promotion, to stimulate consumer demand.
10 How to create a marketing communication plan. Effective marketing
communication planning is crucial to a products success. Marketing
communication planning involves several distinct steps. First, marketing
communication managers analyse the marketplace, usually by conducting
research. Second, they define the target market in terms of demographic,
geographic, psychographic or behavioural variables. Third, marketing
communication managers set specific marketing communication objectives.
Fourth, marketing communication managers determine the marketing
communication budget. Finally, they select the elements of the marketing
communication mix.
STRATEGY READER >> Padding up: Advertisers are

moving onto electronic reading devices
Rising print and distribution costs will drive publishers towards electronic
devices, according to media specialists. They say the growing popularity of

touch-screen products like the iPad (Apple), Galaxy Tab (Samsung), Kindle
(Amazon) and PlayBook (BlackBerry) is a sure sign of the way things are going.
Latest audit Bureau of Circulations (ABC) figures for the second quarter of
2011 show many publications continuing to lose readers. Declining print
circulation around the world has been linked to online reading. A UK report
shows print circulation there has fallen by 25 per cent since 2007. Advertisers
have migrated online so quickly that digital has overtaken TV as the biggest
advertising spender. Research firm Gartner says annual demand for media
tablets will rise from 18m in 2010 to 294m in 2015.
A number of South African publishing groups are moving towards the
technology. Elan Lohmann, digital MD at the Avusa group, says it is planning a
tablet app launch. It is an important space in the future landscape of the
media. News24 launched its 24.com tablet application (app) last year. GM
Greg Cohen says there are more than 15 000 iPads using this app. The latest
South African newcomer is the iMaverick app, a tablet version of the news and
opinion website Daily Maverick.
Tablet apps are a lot closer to print than online, he says. Theres a big
difference between a tablet publication and an online publication. Though you
need the Internet to download the app, it is just a delivery mechanism, a
distribution channel. Once the edition is downloaded it can be viewed at any
time without the need for a web connection. New Media Publication MD
Helene Lindsay says there will always be a space for print but tablet apps will
continue to grow quickly. New entrants who cant afford paper or distribution
space can now produce high-quality publications at a fraction of the cost.
SOURCE: Mokgata, Z., 2011. Padding up, Financial Mail, 26 August, p. 56
QUESTIONS
1
2
Do different generations have different preferences when it comes to

reading print versus e-books?
How important is it to market e-books differently to how one would
3
4
market traditional paper books and magazines?

How likely is it that e-books/magazines will replace traditional
books/magazines?
What can you do to overcome hurdles to reading e-books, such as does
one need special software to read e-books, or can one return an e-book
once it has been read or even can I lend my e-book to a friend once I
have finished reading it.

1
2
3
4
5
What is a marketing communication strategy? Explain the concept of a

differential or competitive advantage in relation to a marketing
communication strategy.
Why is understanding the target market a crucial aspect of the
communication process?
Discuss the importance of integrated marketing communications. Provide
current examples of some firms that practise and some that do not practise
integrated marketing communications.
Discuss the role of personal selling and advertising in promoting business
products. How does their role differ in promoting consumer products?
The Tobacco Products Control Act prohibits advertising by tobacco
companies. Outline a strategy using alternative communication channels
that tobacco companies can use to promote their products
Discuss why using the objective-and-task method to determine a products
marketing communication budget is superior to other budget-setting
methods.
Choose a partner from class and go together to interview the owner or
manager of several small businesses in your city. Ask them what their
marketing communication objectives are and why. For example, are they
trying to inform, persuade or remind customers to do business with them?
Also determine if they believe they have an awareness problem or need to
persuade customers to choose their businesses instead of their competitors.
Ask them to list the characteristics of their primary market, the strengths and
weaknesses of their direct competitors and how they are positioning their
firm to compete. Prepare a report to present in class summarising your
findings.
KEY CONCEPTS
Advertising: impersonal, one-way mass communication about a product or
firm, paid for by a marketer.
AIDA concept: model that outlines the process for achieving marketing
communication objectives in terms of stages of consumer involvement with the
message. The acronym stands for attention, interest, desire and action.
All-you-can-afford approach: method of setting a marketing communication
budget that relies on determining how much the marketer can spend.
Arbitrary allocation: method of setting a marketing communication budget
that picks an amount of money without reference to other factors.
Channel: a medium of communication used for transmitting a marketing
communication message.
Communication: process by which we exchange or share meanings through a
common set of symbols.
Comparative advertising: form of advertising that compares two or more
specifically named or shown competing brands on the basis of one or more
specific attributes.
Competitive parity: method of setting a marketing communication budget that
matches a competitors spending.
Decoding: interpretation of the language and symbols sent by the source
through a channel.
Encoding: conversion of the senders ideas and thoughts into a message, usually
in the form of words, signs or symbols.
Feedback: receivers response to a message.
Hierarchy of effects model: model that outlines the six-stage process by which
consumers make purchase decisions: awareness, knowledge, liking, preference,
conviction and purchase.
Institutional advertising: form of advertising designed to enhance a firms
image rather than promote a particular product.
Integrated marketing communications (IMC): the method of carefully coordinating all marketing communication activities to produce a consistent,
unified message that is customer-focused.
Interpersonal communication: direct, face-to-face communication between
two or more people.
Market share approach: method of setting a marketing communication budget
that allocates the amount needed to maintain or win a certain market share.
Marketing communication: communication by marketers that informs,
persuades and reminds potential buyers of a product in order to influence an
opinion or elicit a response.
Marketing communication mix: combination of marketing communication

tools, including advertising, public relations, personal selling and sales
promotion, used to reach the target market and realise the firms overall
objectives.
Marketing communication plan: carefully arranged sequence of marketing
communication efforts designed around a common theme and geared to
specific objectives.
Marketing communication strategy: plan for the optimal use of the elements of
marketing communication advertising, public relations, personal selling and
sales promotion.
Mass communication: communication to large audiences.
Noise: anything that interferes with, distorts or slows down the transmission of
information.
Objective-and-task approach: method of setting a marketing communication
budget that begins with marketing communication objectives, defines the
communication tools required to achieve those objectives and then adds up the
costs of the planned activities.
Percent-of-sales approach: method of setting a marketing communication
budget that allocates an amount equal to a certain percentage of total sales.
Personal selling: planned presentation to one or more prospective buyers for
the purpose of making a sale.
Public relations: marketing function that evaluates public attitudes, identifies
areas within the firm in which the public may be interested and executes a
programme of action to earn public understanding and acceptance.
Publicity: public information about a firm or product appearing in the mass
media as a news item.
Pull strategy: marketing strategy that stimulates consumer demand to obtain
product distribution.
Push strategy: marketing strategy that uses aggressive personal selling and trade
advertising to convince a wholesaler or a retailer to carry and sell particular
merchandise.
Receiver: person who decodes a message.
Sales promotion: marketing activities, other than personal selling, advertising
and public relations, that stimulate consumer buying and dealer effectiveness.
Sender: originator of the message in the communication process.
REFERENCES
1
Mokgata, Z. 2013. Huge discount in ad spending harm market. Financial

Mail. Available from
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http://www.financialmail.co.za/business/media/2013/07/11/hugediscounts-in-ad-spending-harmmarket">http://www.financialmail.co.za/business/media/2013/07/11/hugediscounts-in-ad-spending-harm-market (Accessed 3 February 2015).

Ad spend jumps 11% to 32bn. Business Live. 2012. Available from
http://www.fastmoving.co.za/news/retailer-news-16/ad-spend-jumps-11to-r32bn-1511 (Accessed 3 February 2015).
Ad spend jumps 11% to 32bn. Business Live. 2012. Available from
http://www.fastmoving.co.za/news/retailer-news-16/ad-spend-jumps-11to-r32bn-1511 (Accessed 3 February 2015).
Time spent with media. Standard & Poors Industry Surveys, 14 March 1996,
p. M1; Radio and TV broadcasting: Commercials clog the airways. Standard
& Poors Industry Surveys, 12 May 1994, p. M35.
Chattaopadhyay, A. & Basu, K. 1990. Humor in advertising: The moderating
role of prior brand evaluation. Journal of Marketing Research, November, pp.
466476.
Zhang, Y. 1996. Responses to humorous advertising: The moderating effect of
need for cognition. Journal of Advertising, spring 1996, pp. 1534.
Sweeney, T. 2008. Heinz pulls ad showing men kissing. Guardian Online, 24
June 2008. Available, http://www.guardian.co.uk/media.
Goldberg, M.E. & Hartwick, J. 1990. The effects of advertiser reputation and
extremity of advertising claims on advertising effectiveness. Journal of
Consumer Research, September 1990, pp. 172179.
Stoff, R. 1994. AD/PR notes: Developments in advertising and public
relations of tobacco firms. St. Louis Journalism Review, September 1994, p.
17.
Grover, R. & Srinivasan, V. 1992. Evaluating the multiple effects of retail
marketing communications on brand loyalty and brand switching segments.
Journal of Marketing Research, February 1992, pp. 7689; see also Raj, S.P.
1982. The effects of advertising on high and low loyalty consumer segments.
Journal of Consumer Research, June 1982, pp. 7789.
Kenney, J. 2006. Beyond propaganda. New York Times online edition, 14
August 2006. Available, http://www.nytimes.com.
Burgoon, M., Pfau, M. & Birk, T.S. 1995. An inoculation theory explanation
for the effects of corporate issue/advocacy advertising campaigns.
Communication Research, August 1995, p. 485.
For a comprehensive review of academic research on the effectiveness of
comparative advertising, see Berry, T.E. 1993. Comparative advertising: What
have we learned in two decades? Journal of Advertising Research, March
April 1993, pp. 1929.
Goldman, K. 1994. Winemakers look for more free publicity. Wall Street
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Journal, 29 September 1994, p. B4.

Hickey, T. 2003. Booty Call. High Life, March 2003, p. 57.
Shore, S. 2010. Oils spill leads to huge drop in market cap of BP and
Halliburton. Available, http://www.huffingtonpost.com/2010/05/03/oilspill-leads-to-huge-d_n_561675.html; Karrar-Lewsey, T. 2010. BP gets a lift
from Libya. The Wall Street Journal (European edition), 6 July, p.1.
Bingham, F.G., Quigley, C.J. & Notarantonio, E.M. 1996. The use of
communication style in a buyer-seller dyad: Improving buyer-seller
relationships. Proceedings: Association of Marketing Theory and Practice,
1996 Annual Meeting, Hilton Head, South Carolina, March, pp. 188195.
Oliver, S. 1996. Happy birthday, from Gillette. Forbes, 22 April 1996, p. 37.
Kitchen, P.J. 1993. Marketing communications renaissance. International
Journal of Advertising, 12 (1993), pp. 367386.
Keck, M.G.L. & Meuller, B. 1994. Observations: Intended vs. unintended
messages: Viewer perceptions of United States Army television commercials.
Journal of Advertising Research, MarchApril 1994, pp. 7077.
Neethling, T. 2012. Banks taking gloves off in advertising campaigns.
Business Day, 30 May, p.4.
See Schultz, D.E., Tannenbaum, S.I. & Lauterborn, R.F. 1993. Integrated
marketing communications. Lincolnwood: NTC Business Books.
Yarbrough, J.F. 1996. Putting the pieces together. Sales & Marketing
Management, September 1996, pp. 6977.
AIDA concept based on the classic research of E.K. Strong, Jr., as theorised in
The psychology of selling and advertising. 1925. New York: McGraw-Hill; and
Theories of selling. Journal of Applied Psychology, 9 (1925), pp. 7586.
The hierarchy of effects model is based on the classic research of Lavidge,
R.C. & Steiner, G.A. 1961. A model for predictive measurements of
advertising effectiveness. Journal of Marketing, 25 (1961), pp. 5962. For an
excellent review of the AIDA and hierarchy of effects models, see Barry, T.E.
& Howard, D.J. 1990. A review and critique of the hierarchy of effects in
advertising. International Journal of Advertising, 9, pp. 121135.
Barry, T.E. & Howard, D.J. 1990. A review and critique of the hierarchy of
effects in advertising. International Journal of Advertising, 9, p. 131.
Koenderman, T. 1997. How Samsung captured SA. Financial Mail, 11 July
1997, pp. 8788.
www.clicks.co.za, (Accessed 25 June 2010).
Murphy, J. 1997. The Art of Satisfaction. Financial Times, 23 April 1997; Ad
Focus, supplement to the Financial Mail, 23 March 2010.
Kamhunga, S. 2009. Standard launches integrated global advertising
campaign. Business Day, 20 July 2009, p. 13.
SA beef communications campaign attracts international interest.
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October 2004.
Edgars annual report, March 1997, p. 44.
Warburg, E. 2010. Billboards - a rural vs urban analysis. Bizcommunity, 15
July, citing the Out-of-Home survey of Posterscope.
Jones, D.B. 1994. Setting marketing communication goals: A
communications relationship model. Journal of Consumer Marketing, 11, pp.
3849.
Danaher, P. & Rust, R.T. 1994. Determining the optimal level of media
spending. Journal of Advertising Research, JanuaryFebruary 1994, pp. 2834.
Koenderman, T. 2007. Barking mad. Fin Week, 22 November 2007, p. 66.
Penstone, K. 2001. Going for gold. Marketing Mix, 19(11), p. 19.
Strauss, J., El-Ansary, A. & Frost, R. 2006. E-marketing (4th edition). Pearson
Education.
Bigne, E. 1995. Advertising budgeting practices: A review. Journal of Current
Issues and Research in Advertising, fall, pp. 1731.
More demand, less commission. Ad Focus, supplement to Financial Mail, 29
May 1998, p. 155.
Penstone, K. 2001. Going for gold. Marketing Mix, 19(11), p. 19.
CHAPTER
12
Implementing marketing
LEARNING OUTCOMES
1
2
3
4
5
6
7
8
9
10
11
12
13
Describe the advertising campaign process.

Differentiate between the different advertising appeals.
Differentiate between the different advertising message-execution
styles.
Evaluate the advantages and disadvantages of different
advertising media.
Describe media evaluation and selection techniques.
Contrast the four basic types of media scheduling.
Evaluate the different techniques that can be used for assessing
an advertising campaigns effectiveness.
Provide a justification for including public relations in the
marketing communication mix.
Elaborate on the nature and objectives of sales promotion.
Critically evaluate the most common forms of consumer sales
promotions.
Describe the most common forms of trade sales promotions.
Describe personal selling in terms of its nature and advantages.
Identify circumstances when personal selling, advertising or sales
promotion would be the most appropriate marketing
14
15
16
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18
communication element.
Describe in detail the different types of selling tasks.
List the steps in the selling process.
Describe the functions of sales management.
Provide a marketing-management solution related to any of the
above outcomes.

The Internet as advertising medium
As
with
any
well-thought-out
marketing
communication campaign, reaching the target market
with an online campaign is key. Online advertising
takes this many steps further, offering a variety of
additional targeting options, such as location-based
targeting, time of day, frequency capping, etc. Sites like
Facebook, which require registration and, therefore,
have a deeper understanding of their audience, have
the ability to offer far more precise targeting, such as by
location, age, gender, keywords, education,
workplaces, relationship status, interest in men or
women, and language. In addition, the following
targeting options have recently become available with
Facebook: connection retargeting (i.e. targeting
members of the advertisers groups and fan pages);
connection exclusion targeting (i.e. excluding those
who are already connected to the advertiser through

groups, etc.); multiple country targeting; birthday
targeting; and updated education targeting (e.g.
graduation year). Facebook may not be the right
environment for everyone. Dont advertise in this
environment for the sake of being there just because
its the latest buzz. It wont work for everyone. But, for
those with a clear understanding of their target market
and objectives, Facebook can achieve great returns.
SOURCE: Adapted from Advertising on Facebook. By digiVox. Available at
The Marketing Site, http://www.themarketingsite.com (accessed 29 June
2010)
QUESTIONS
1
2
Identify the key success factors for integrating Facebook into a small
firms marketing strategy.
Discuss which products you think could be effectively marketed to
university students using Facebook.
1. Introduction
The primary objective of all marketing communication is to
make potential buyers aware of the existence of a firm,
product or brand, with the purpose of leading to a sale
and, indeed, future sales. Advertising helps marketers
increase or maintain brand awareness and, subsequently,
market share. When consumers are highly loyal to a brand,
they may buy more of that brand when advertising is
increased. Advertising can also change the importance of a
brands attributes to consumers. By emphasising different

brand attributes, advertisers can change their appeal in
response to consumers changing needs or try to establish
an advantage over competing brands.
In Chapter 11, the nature of all the elements of a typical
integrated marketing communication strategy was
discussed. In this chapter, the steps required to implement
each of these elements are reviewed. In most, but certainly
not all, marketing strategies, advertising is the central
element of an integrated marketing communications
campaign.
2. Steps in creating an advertising

campaign
LO1
An advertising campaign is a series of related

advertisements focusing on a common theme, slogan and
set of advertising appeals. It is a specific advertising effort for
a particular product and it lasts for a defined period of time.
Managing advertising begins with understanding the steps
in developing an advertising campaign and then making the
important decisions relating to each step. The advertising
campaign process is set in motion by the marketing
communication plan (discussed in Chapter 11). As you may
recall, the marketing communication planning process
involves identifying the target market, determining the
overall communication objectives, setting the budget and
deciding on the marketing communication mix. Advertising,
which is usually part of the marketing communication mix,

is used to encode a selling message to the target audience.
The advertisement is then conveyed to the target audience,
or receivers of the message, via such advertising message
channels as broadcast or print media.
2.1 Formulating campaign objectives

The first step in developing an advertising campaign is to
formulate the advertising objectives. An advertising objective
identifies the specific communication task a campaign
should accomplish for a specified target audience during a
specified period of time. The objectives of an advertising
campaign depend on the overall objectives of the firm, the
firms marketing objectives and the objectives of the product
or brand being advertised. These objectives must all be
aligned in an integrated advertising campaign.
The DAGMAR approach (defining advertising goals for
measured advertising results) is one method of setting
objectives. According to this method, all advertising
objectives should precisely define the target audience, the
desired percentage change in some specified measure of
effectiveness (such as sales or brand awareness) and the
time frame in which that change is to occur.
The objectives of an advertising campaign for a new
BMW model, for instance, might be to entice a total of 10 000
potential buyers to test drive the vehicle within the first six
months of introduction as a result of mailing video
advertisements to a sample of the target audience. When
Cell C was launched, the objective of its advertising
campaign was to acquire an active, loyal customer base of

one million subscribers within 12 months. Not all
campaigns have measurable sales objectives, however.
Sometimes the objective is to effect behaviour change, as
with the antismoking campaigns in the past or Arrive Alives
road safety campaigns. Sometimes the objective is merely to
buy goodwill from people in order to avoid adverse
behaviour such as boycotting the firm or brand. Shell, for
instance, does this using advertisements that show how the
firm buries the pipelines transporting fuel to ensure that
they do not harm the environment.
2.2 Making creative decisions

The next step in developing an advertising campaign is to
make the required creative and media decisions normally
both at the same time. Creative work cannot be completed
without knowing which medium, or message channel, will
be used to convey the message to the target audience.
However, in this chapter, media decisions are addressed
after creative decisions.
In many cases, the advertising objectives dictate the
communication medium and the creative approach to be
used. For example, if the objective is to demonstrate how
fast a product operates, or how efficient a product is, then a
TV commercial that shows this action may be the best
choice. An insect repellent, such as Doom, showing how
cockroaches are killed within seconds, would be an
example. Many firms use infomercials on TV to demonstrate
the effectiveness of products such as car polish, vacuum
cleaners and cookware. Creative decisions include

identifying the products benefits, developing possible
advertising appeals, evaluating the advertising appeals,
selecting one with a unique selling proposition (a
competitive advantage) and executing the advertising
message. An effective advertising campaign follows AIDA or
other hierarchy of effects models, which were discussed in
Chapter 11.
2.3 Identifying product benefits

A well-known rule of thumb in the advertising industry is:
Sell the sizzle, not the steak. In other words, the goal in
advertising is to sell the benefits of the product, not its
attributes. An attribute is simply a feature of the product,
such as its easy-to-open package or a special fragrance. A
benefit is what consumers will receive or achieve by using
the product. A benefit should answer the consumers
question, Whats in it for me? Benefits may be such things
as convenience, pleasure, savings or pain relief. A quick test
to determine whether you are offering attributes or benefits
in your advertising is to ask So what? Consider this
example:
Attribute: The Gillette SensorExcel razor has twin blades

individually mounted on remarkably responsive springs
to automatically adjust to the curves and contours of a
mans face
So what?
Benefit: So that youll get a closer, smoother and safer
shave than ever before.
ACDelco car batteries are advertised as truly maintenancefree. For most parents, keeping their babys bottom dry is
very important. Pampers has consequently developed a
nappy that has a new improved core and super-absorbent
topsheet that absorbs wetness faster than ordinary diapers,
locking wetness away from your babys skin. LOrals
Elvive shampoo offers protection, nourishment and repair.
Marketing research, experience and intuition are usually
used to unearth the perceived benefits of a product and to
rank consumers preferences for these benefits.
Figure 12.1 The advertising campaign decision process
2.4 Developing and evaluating advertising

appeals
LO2
An advertising appeal identifies a reason for a person to buy

a product. It ought to be linked to the benefits associated
with using the product and is often also linked to the
products competitive advantage and/or positioning.
Developing advertising appeals a challenging task is
usually the responsibility of the creative people in an
advertising agency. Advertising appeals typically play on
consumers emotions, such as fear or love, or address some
need or want that the consumer has, such as a need for

convenience, the desire to save money or the need for
healthy eating. Knorr, for instance, advertises its Quick Light
and Tasty Soup in this way: staying in shape has never
been this easy. Spec-Savers uses fear as an appeal when it
says: Public warning: Ultra-violet radiation is harmful and is
known to cause the early onset of cataracts in one of its
print advertisements. Sanlam uses a fear appeal when one of
its advertisements says: Itll never happen to me
Businessman gunned down on N2. Both Sun City and the
Lost City often base their advertising campaigns on fantasy
themes. Advertising campaigns may also utilise more than
one advertising appeal simultaneously.
Choosing the best appeal from those developed normally
requires market research to help make a decision on an
appropriate appeal that will resonate with the target
audience. Criteria for evaluation include desirability,
exclusivity and believability. The appeal chosen must make
a positive impression on, and be desirable to, the target
audience. It must also be exclusive or unique, and
consumers, must be able to distinguish the advertisers
message from competitors messages.
2.4.1 Common advertising appeals

Common advertising appeals include the following:
Profit. Lets consumers know whether the product will

save them money, make them money or keep them from
losing money. A Sage Financial Services Funds
advertisement promises: 57 per cent over 12 months.
An OBrian (an investment firm) advertisement says:

Last year our clients experienced phenomenal bottomline growth.
Health. Appeals to those who are body-conscious or
who want to be healthy. An example is Schweppess soda
water, which is advertised as a diet drink that contains
only half a calorie.
Love or romance. Used often in selling cosmetics,
perfumes and chocolates, such as Cadburys Milk Tray.
Fear. Can centre on social embarrassment, growing old
or losing ones health. Fear appeals are often used to
discourage socially undesirable behaviour, such as tax
evasion or alcohol abuse. Because of its power,
advertisers should exercise caution in the use of fear
appeals as they may offend some. Examples of fear
appeals are AIDS awareness campaigns, and South
African Breweries anti-drunk-driving campaign.
Admiration. This is the reason that celebrity
spokespeople are used so often in advertising.
Woolworths and Sales House use the models Candice
Swanepoel and Naomi Campbell respectively to
advertise their range of products.
Convenience. Often used for fast-food restaurants,

microwave foods and do-it-yourself products. Bostik
advertises its Montage adhesive as a convenient product
that eliminates the need for nails and screws.
Fun and pleasure. The key to advertising holiday
destinations, beer, sporting equipment and many other
products. The airline Kulula is renowned for using
humour to highlight the airlines carefree approach to
communicating with its customers. From tongue-incheek advertising to the hilarious announcements that
are frequently made on board, Kulula continues to find
humorous ways of connecting with its passengers
without causing offense. This balance of humour and
professionalism has made Kulula a household name as
South African air travellers increasingly see the airline as
a friendly and accessible airline.
Vanity and egotism. Used most often for expensive or
conspicuous items, such as cars, clothing and cosmetics:
Clairol Nice and Easy hair colouring is advertised as:
Hair colour so natural, theyd think you were born with
it.
Environmental consciousness or consideration for
others. Centres on protecting the environment and
being involved in the community. When you opt for a
Nedbank Green Affinity bank or investment account or
insurance policy, Nedbank donates money on your
behalf to The Green Trust to fund environmental and
climate change projects, all at no cost to you. For the past
20 years they have donated over R100 million to The
Green Trust to fund environmental projects such as
saving endangered species like the rhino, conserving
water, helping establish community gardens and
implementing climate change initiatives.1
An important consideration in the choice of an appeal is that

the appeal should be believable. An appeal that makes
extravagant claims not only wastes money, but also creates
ill will for the advertiser. The advertising appeal selected for
the campaign becomes what advertisers call its unique
selling proposition (USP). The USP (or competitive

advantage) frequently becomes the campaigns slogan.
Unilevers Omo washing powder works extremely well in
cold water. As a result, it is marketed as cold water Omo.
Effective slogans often become so ingrained that
consumers can immediately conjure up images of the
product just by hearing the slogan. For example, most
consumers can easily name the firms and products behind
these memorable slogans, or even hum the jingle that goes
along with some of them:
Im loving it (McDonalds)
Lead the way (Toyota)
How can we help you? (FNB)
Today, Tomorrow, Together (Absa)
Moving forward (Standard Bank)
Make things happen (Nedbank)
So much more (DStv)
Just do it (Nike).
WEBSITE
Go to www.adslogans.co.uk and browse
through a database of more than 5 000
advertising slogans used both locally and
internationally.
2.5 Executing the message
LO3
Message execution is the way the advertisement portrays its

information. In general, the AIDA plan is a good blueprint
for executing an advertising message. Any advertisement
should immediately draw the readers, viewers or listeners

attention. The advertiser must then use the message to hold
consumers interest, create desire for the product or service
and ultimately motivate action: a purchase. The style in
which the message is executed is one of the most creative
elements of an advertisement. The choice of an executional
style often dictates which communication medium is to be
used to convey the message. Scientific executional styles
(the pain reliever most GPs recommend, for example) lend
themselves well to print advertising, where more
information can be conveyed. On the other hand,
demonstration and musical styles are more likely to be
found in broadcast advertising.
Injecting humour into an advertisement is a popular and
effective executional style (Nandos advertising is an
example). Humorous executional styles are more often used
in radio and television advertising than in print or magazine
advertising, where humour is less easily communicated.
Humorous advertisements are typically used for lower-risk,
routine purchases (Klipdrifts Vriendelike Frikkie Eish
campaign, for instance) than for higher-risk purchases or
those that are expensive, durable or flamboyant.2
2.5.1 Common executional styles

Common executional styles for advertising include the
following:
Slice-of-life. A popular style when household and

personal products are advertised. It depicts people in
normal, everyday settings, such as at the dinner table.
Print advertisements for John Deere lawnmowers feature

a man doing just that mowing the lawn. When the fifthgeneration Isuzu KB 4x4 was launched, the firm used a
documentary-style advertisement depicting the bakkies
role in rescuing a beached whale on the Cape coast.
Lifestyle. Shows how well the product will fit in with the
consumers lifestyle. Print advertising by Body Logic,
marketing leotards and other sports clothing to women,
features pictures of women exercising in a gymnasium.
Spokesperson/testimonial. May feature a celebrity,
company official, or typical consumer making a
testimonial or endorsing a product. There are many
examples of South African and international celebrities
endorsing locally produced or sold brands for example,
cricketer AB de Villiers and Lays Chips, golfer Trevor
Immelman and Rolex watches and Trevor Noah and Cell
C. Sometimes, however, ordinary people are featured in
testimonial advertisements, as it is believed that
ordinary consumers are better able to relate to them. In
the Bio-Oil advertisement on page 422 Nicole Petersen
provides a testimonial on the success of the product.
Fantasy. Creates a fantasy for the viewer built around
using the product. Hunters Dry used a fantasy campaign
where a thrill-seeker, refreshed from a supply of
Hunters, sets off in a hurricane from Thailand and
before he knows it he is in Australia, being met on the
beach by two aboriginals. Another example is the wellknown Bakers Biscuits TV commercials. In one of its
commercials, kids are shown through a forest, on a path
paved with biscuits towards an old ferry house.
Humour. Advertisers often use humour in their
advertisements, such as Vodacoms Player 23 Jan and

Elton campaign; and it is present in Nandos entire
advertising strategy.
Real or animated product symbols. This execution style
involves creating a character that represents the product
in advertisements, such as the Energizer bunny, the
Bakers man or the Oros man. An animated symbol is
also used very effectively by the advertisers of Mr Min
furniture polish.
Mood or image. This executional style builds a mood or
image around the product, such as peace, love or beauty.
Five Roses Tea and Cadbury chocolate often use a love
theme in their print advertisements.
Demonstration. Shows consumers the expected benefit
of a product or service. Many consumer products use
this technique. Washing powder firms are well known for
demonstrating how their products will clean clothes
whiter and brighter. Note how PPC cement
demonstrates the benefits of its cement.
Musical. Conveys the message of the advertisement
through song. Timex advertisements for its Indiglo watch
play Frank Sinatra singing Strangers in the Night.
Camels TV advertisements used to feature music from
the film The Good, the Bad and the Ugly.
Scientific. Uses research or scientific evidence to give a
brand superiority over competitors. Pain relievers, like
those produced by Bayer, use scientific evidence in their
advertisements.
2.6 Deciding which advertising media to

use
LO4
In South Africa there are about 1 300 magazine titles,

120 radio stations, 425 newspapers and 74 television
channels. A decision on which advertising media to utilise is
a complex one, and it depends on a number of factors. Each
medium has its own advantages and disadvantages.
MediaShop has analysed adspend trends covering a fiveyear period from 2008 to 2013 (March to February). They
concluded that whilst adspend is growing, the latest data
clearly indicates that the positive adspend trend seen in the
last couple of years is slowing down. A five year trend shows
that the total adspend for the period March 2012 to February
2013 has increased by only 6 per cent to R34,452 million.
This is after two years of good growth (18 and 12 per cent).3
2.6.1 Media types

Advertising media are channels that advertisers use for mass
communication. The five major advertising media are
newspapers, magazines, radio, television and outdoor
media (see Table 12.1). In recent years, however, alternative
media vehicles (such as the Internet and SMS) have
emerged that offer advertisers innovative ways to reach their
target audience and avoid advertising clutter.
Newspapers
The advantages of newspaper advertising include

geographic flexibility and timeliness. Because copywriters
(people who write the text used in advertisements) can
usually prepare newspaper advertisements quickly and at a
reasonable cost, local marketers can reach their target
audience almost daily. However, because newspapers are
generally a mass-market medium, they may not be the best
vehicle for marketers trying to reach a very narrow market
segment. For example, local newspapers are not the best
media vehicles for reaching purchasers of speciality steel
products or even tropical fish. These target consumers make
up very small, specialised markets. Newspaper advertising
also encounters a lot of distractions from competing
advertisements and news stories, and, therefore, a firms
advertisement in a newspaper may not be particularly
noticeable in such a cluttered environment. To
demonstrate, South Africa has over 400 newspapers targeted
at a variety of different markets and local communities.
Table 12.1 The advantages and disadvantages of traditional advertising media

Medium
Advantages
Disadvantages
Newspapers
Geographic selectivity and

flexibility; short-term advertiser
commitments; news value and
Little demographic
selectivity; limited colour
capabilities; low pass-
immediacy; year-round
readership; high individual
market coverage; co-op and
local tie-in availability; short
lead time.
along rate; may be

expensive.
Magazines
Good reproduction, especially

for colour; demographic
selectivity; regional selectivity;
local market selectivity;
relatively long advertising life;
high pass-along rate.
Long-term advertiser
commitments; slow
audience build-up; limited
demonstration capabilities;
lack of urgency; long lead
time.
Radio
Low cost; immediacy of

message; can be scheduled at
short notice; relatively no
seasonal change in audience;
highly portable; short-term
advertiser commitments;
entertainment carry-over.
No visual treatment; short

advertising life of message;
high frequency required to
generate comprehension
and retention; distractions
from background and
commercial clutter.
Television
Ability to reach a wide, diverse

audience; low cost per
thousand; creative
opportunities for
demonstration; immediacy of
messages; entertainment
carry-over.
Short life of message; some

consumer scepticism about
claims; high campaign
cost; long-term advertising
commitments; long lead
times required for
reproduction; commercial
clutter.
Outdoor
Repetition; moderate cost;

media flexibility; geographic
Short message; lack of

demographic selectivity;
selectivity.
high noise level, which

distracts audience.
Newspaper advertisements lend themselves to co-operative

advertising. The Alfa Romeo advert alongside is an example
of co-operative advertising in the form of a trade exchange.
With co-operative advertising, the manufacturer (for
instance, Ceres fruit juices) and the retailer (for instance,
Pick n Pay) share the costs of advertising the manufacturers
brand. One reason that manufacturers use co-operative
advertising is the impracticality of listing all their dealers in
national advertising. Also, co-operative advertising
encourages retailers to devote more effort to the
manufacturers product lines.
Magazines
Compared with the cost of other media, the cost per contact
in magazine advertising is usually high. However, the cost
per potential customer may be much lower because
magazines are often targeted at specialised audiences and
thus reach more potential customers. The most frequent
types of products advertised in magazines include branded
products, such as personal-care items, motor vehicles,
clothing, computers and, previously, cigarettes.
One of the major advantages of magazine advertising is
its market selectivity. Magazines are published for virtually
every market segment in South Africa. For instance, SA
Computer Magazine is a leading computer magazine; Living
and Loving targets a growing consumer segment; Sports
Illustrated is a successful all-round sporting publication;
YOU and Huisgenoot target the family market; Femina,

Cosmopolitan and Fair Lady the female market; and Weg the
top-end of the outdoor enthusiast, Afrikaans-speaking
market; Thandi and Bona target the black market; and
Camera and Image magazine is for the professional
photographer.
Radio
Radio has several strengths as an advertising medium, such
as selectivity and audience segmentation, a large out-ofhome audience, low unit and production costs, timeliness
and geographic flexibility. Local advertisers are the most
frequent users of radio advertising, contributing more than
three-quarters of all radio advertising revenue. Like
newspapers, radio also lends itself well to co-operative
advertising, and is especially popular with small businesses.
Long no more than an afterthought for many advertisers,
radio advertising is now enjoying a resurgence in popularity.
In total R4 934,5m was spend on radio advertising in 2012
(compared with R4 478,5m in 2011). This figure represents
14,7 per cent of advertising spend in 2012. 4 When
commercial and community radio are combined, the
penetration of radio is about 90 per cent of the population.
As people become more mobile and pressed for time, other
media, such as television and newspapers, sometimes
struggle to retain viewers and readers. But radio listening
has grown in step with population increases,5 mainly
because its immediate, portable nature meshes so well with
a fast-paced lifestyle. The ability to target specific
demographic groups is also a major selling point for radio
stations, attracting advertisers that are pursuing narrowly
defined audiences that are more likely to respond to certain
kinds of advertisements and products. Moreover, radio
listeners tend to listen habitually and at predictable times,
with the most popular radio listening hours during drive
time, when commuters form a vast captive audience.6
Television
South African firms and organisations spent R15 559,6m on

television advertising in 2012 compared to the R14 683,5m
spend on television advertising in 2011.7 An important
reason for this level of expenditure is that television is an
audiovisual medium and provides advertisers with many
creative opportunities. It also reaches a wide and diverse
market. However, television has its disadvantages.
Advertising time on television can be very expensive and
even more so during prime time. During the 2015 Super
Bowl match in the USA a 30-second television
advertisement cost the advertiser $4,5 million (about R50m)
but the game was watched by one billion people. In the
United States advertisers may spend anywhere from $100
000 to $500 000 or more for a 30-second spot during a
networks prime-time programmes.8 In South Africa a 30second advertisement on SABC 1 can vary from R1 000 (in
the midnight to a.m. slot) to R62 000 during the soap opera,
Skeem Saam. TV channels in South Africa tie their rates to
the size of the audience. M-Net, for instance, charges about
R3 500 per rating point (each point equivalent to 1 per cent
of the potential audience), whereas SABC charges about R4
500. Television advertising can also involve huge production
costs. The production cost for a professionally produced
national commercial in South Africa is about R2 million, but
it could be well worth it because television has a 79 per cent
penetration of the South African market.9
WEBSITE
See
http://www.sabc.co.za/wps/portal/SABC/SABCRATECAR
for the rate cards of the SABC.
The television audience in South Africa is becoming

increasingly fragmented in the middle class market segment
and it is no longer a matter of one size fits all for
advertisers. Although Digital Satellite Television (DStv) is a
must have amongst the emerging black middle class, (as it
is for the more established white middle class),
consumption patterns differ markedly between these two
groups.10 Research by the University of Cape Towns
Unilever Strategic Marketing Institute revealed that
notwithstanding having access to DStv, the black middle
class still favoured SABC1 as opposed to the white middle
class, who preferred to watch DStv. This finding suggests
that advertisers need to be circumspect about the selection
of channels on which they choose to flight their
advertisements.11
A relatively new form of television advertising is the
infomercial. The otherwise unprofitable mid-morning and
late-night slots on radio and television have become the
special domain of infomercials. Infomercials are an
attractive advertising vehicle for many marketers because of
the cheap air time and the relatively low production cost.
Advertisers say the infomercial is an ideal way to present
complicated information to potential customers or to
demonstrate the usage of products, which other advertising
vehicles usually do not allow time to do. Fitness and inhome training equipment, such as the Fitness Flyer, and
kitchen utensils are examples.
Outdoor media
Outdoor, or out-of-home, advertising is a flexible, low-cost
medium that may take a variety of forms. Examples include
billboards, skywriting, giant inflatables, bus stop shelters,

signs in sports arenas, illuminated moving signs in bus
terminals and airports, and advertisements attached to the
sides of cars, trucks and buses. Outdoor advertising reaches
a broad and diverse market. Therefore, it is normally limited
to promoting convenience products and selected shopping
products, such as cigarettes, business services and motor
vehicles.
The main advantage of outdoor advertising over other
media is that its exposure frequency is very high, yet the
amount of clutter from competing advertisements is very
low. Outdoor advertising also has the ability to be
customised to local marketing needs. For this reason,
retailers are often the largest outdoor advertisers.
To enhance the effectiveness of billboard advertising,
Primedia Outdoor has introduced a large-format scrolling
billboard on two sites in Sandton. The marketing manager,
Gary Nicholls, says their success lies in an ability to combat
site fatigue through movement. A US survey showed that
movement in billboards attracts almost five times more
attention than static displays. More than 90 per cent of
passers-by retained some impression of the billboard in
motion, whereas only 19 per cent took notice of the static
advertisements.12 In
South Africa, over a typical four-week period, billboards
have an 87,6 per cent penetration rate, bus shelters 47,9 per
cent and taxis/minibuses 80,3 per cent. In total, R1 546,1m
was spent on out of home advertising in 2012 (compared
with R11 373,3m in 2011). This figure represents an increase
of 4,6 per cent on the outdoor advertising spend in 2012.13
Some interesting tools have recently been developed to

measure the effectiveness of outdoor advertising by
recording traffic patterns and measure outdoor-advertising
audiences. A company called Postertrack uses a small device
installed under the drivers seat and which is plugged into
the lighter socket. The device records the vehicles
movements and relays the data to a central unit to be
analysed. The data are then compared with the location of
any outdoor display (e.g. posters, bus shelters, billboards).
Hits are recorded each time the vehicle passes a site.
Where some outdoor displays are visible from one side but
not the other, the device can work out whether the driver is
likely to view the poster. The system also records
information on passengers in the vehicle.14
Alternative media
To cut through the clutter of traditional advertising media,
advertisers are now exploring new ways to promote their
products (see Reader 56 Red Bull). The alternative vehicles
include the use of SMS (short message service) messages,
computer screen savers, CD-ROMs, interactive kiosks in
department stores, advertisements on rented DVDs, and
industrial theatre.
However, the most exciting alternative media today are
undoubtedly online computer services, such as the Internet
and the World Wide Web, and cellphones, SMS technology
and social media, such as Facebook. Compared to
broadcasting and publishing, online computer services and
the Internet are unique in that they facilitate direct
communication between individuals and firms, regardless
of distance and time. These new media vehicles allow
marketers and advertisers to make available full-colour

virtual catalogues and provide on-screen order forms, with
the advantage of eliciting customer feedback.15
In the United States, online computer service providers
such as America Online, CompuServe and Prodigy, can
transmit immediate, personalised advertisements through
modems to consumers computers. Viewers see teaser
advertisements that instruct them to punch a key on their
computer keyboard if they want more information. Viewers
can then browse through advertisements for almost any
product or service imaginable, make airline reservations or
check the stock market, order these products or services and
conduct banking transactions all from home. Advertisers
pay online providers to have their products or services
displayed.
READER 56 >> Red Bull

We have all heard of the energy drink Red Bull, which has had incredible
growth. The first-ever can of Red Bull went on sale in 1987 in Austria. Twentyfive years on, the product is available in 165 countries with 35 billion cans
sold so far. In 2012, the company recorded its best rise in turnover, moving to
4,9billion (about R68,7 billion) with South Africa as the main driving factor
behind this (52 per cent increase in sales in 2011). Behind this incredible rise
is a story of pioneering marketing strategy and the innovative integration of
generating content and then using it to communicate the brand values.
Whereas no one will want to spend much time watching videos and photos
about a drink, people will want to spend hours engaging with interesting and
exciting content of extreme sports. With this in mind, Red Bull has created
strong affiliations with extreme sports that strategically generate key content
such as photos, video clips and movies. Some of their most prominent
platforms are websites, social media (their main Facebook page has more
than 38 million followers and their YouTube channels have amassed over 300
million views), sponsorships (racing car teams and other extreme sports),
ownerships (sports teams and extreme events) as well as traditional
publishing (their own music label, movies and magazine).
Every marketing action and communication is integrated and done with a
view of generating content that enhances the brand. According to Werner
Brell, RBMH managing director, You can show up with some cash and sponsor
an event, sure, but audiences wont admire you for one-off hits. Whenever we
did any event, or signed an athlete or executed a project, everything has been
put on film or photographed. Stories have been told; its part of the DNA of
the brand. Every action is planned and aimed at the overall story of the
brand. Sponsorships and events have a carefully crafted content strategy
aimed at creating unique visuals and stories that stay in the online earned
social system for months and years after the event.
SOURCE: Naser, A. 2013. Red Bull gives youcontent marketing! Bizcommunity, 11 June 2013. Available
from http://www.bizcommunity.com/Article/196/423/94733.html#comments (Accessed on 23 August
2014)
The Internet is essentially a free-for-all computer network of

individuals and organisations that are linked together into a
web via modems and phone lines. Advertisers have flocked
in record numbers to produce their own home pages or
websites on the Internet in the hope that the information
superhighway will become the next mass medium. As an
indication of the growing importance of the Internet as an
advertising medium, 94 per cent of CEOs of leading South
African advertising agencies indicated in a recent survey
that they do online advertising for their clients. The
penetration of the Internet in South Africa ranges from 51,9
per cent among the white population (in a four-week
period), to 16,3 per cent among the black population.16 In

total, R861,5 million was spent on Internet advertising in
2012 compared with R754,2 million in 2011.17
Online media pose a daunting challenge for advertisers
because consumers have more control over the marketing
relationship than they have with traditional advertising
media. With traditional media, consumers passively view
commercials during their favourite sitcom or avoid
commercials by pushing a button on a remote-control
device. Surfers on the Internet, however, generally have to
find the marketer rather than vice versa. More importantly,
the receivers of the online advertising message are able to
respond to advertising via chatrooms and the like as
opposed to being passive receivers of information. The
relative ease with which electronic media can draw a
response from consumers has led to several attempts to
spoof brands on channels such as YouTube.
Another challenge for online and Internet advertisers is
measuring the effectiveness of their electronic
advertisement or website. Although there are methods
already in use that can count the number of visitors to an
advertisers website, what advertisers dont know is how
their site ranks compared with that of their competition.
Also lacking are the kinds of in-depth demographic and
psychographic information about web-page users that
television, magazines, radio and newspapers provide about
their viewers and subscribers.18
A useful tool for understanding online markets is Google
Analytics. To start, you set up a profile where you provide
the web addresses of the pages or sites you want to track.
You then receive a JavaScript code to paste into each of the

pages you want to monitor. You also need to specify the goal
for the tracking, for instance, to monitor how many users
reach the cash-out point in the products page. More
complex monitoring can also be done to include a number
of pages to help identify the weak areas in a marketing
strategy or sales campaign. After configuration, the pages
are left alone for a minimum period of a day and can then be
tracked. The longer the statistics are accumulated, the better
the overall view of the performance of pages and strategies.
When the information is required, you log in and retrieve
the specific reports.
Advertising on Facebook
Facebook has not only taken the world by storm, but is
also one of the most popular social networking
advertising platforms in South Africa today. As with all
media environments, however, marketing a brand or
service in an environment such as Facebook needs a
sound strategy. If not, marketers are at risk of throwing
money at something that will yield little or no return.
Having a clear understanding of the targeting options
available and considering the target market and
objectives will go a long way to ensure that the best
possible results are achieved.
Many comments have been made in the media
regarding the failure of advertising campaigns on
Facebook. These comments, however, are based solely

on the low click-through rates achieved. It is important
to take heed of the fact that one cannot evaluate online
campaigns on click-through rates alone, and the
following should be considered: what was the
objective? Was any additional targeting, such as age,
gender and location, implemented? What was the
return on investment (e.g. value of business acquired
versus marketing investment)?
Click-through rates cannot, and do not, determine
the success or failure of an online campaign. In the
Facebook environment, it is true to say that firms have
seen lower click-through rates across their clients
campaigns. However, returns have proven higher than
average. The reason for this is that the cost of
advertising on Facebook is generally far lower than
comparable environments. The lower cost per ad
impression ensures not only greater reach, but, if
targeted correctly, should also mean a lower cost of
conversion. In addition, carefully thought-out targeting
and bidding strategies can make all the difference to
the success success being measured by cost per
conversion or return on investment. When analysing
the success of any digital campaign, be it web media,
mobile, search or social networking, it is of vital
importance to assess the whole picture. Facebook
currently has close to 1,9 million South Africans users,
and represents 0,72 per cent of the global audience.
This may not be an impressive percentage at first
glance, but considering that the online population in
South Africa is just over 6 million, this shows just how
significant the reach is locally. Not only a playground

for the young and trendy, the majority of Facebook
users are between the ages of 18 and 44, with a slightly
female bias.
SOURCE: http://www.marketingupdate.co.za/?IDStory=18468 (Accessed
25 June 2010)
WEBSITE
For more information, visit Google
Analytics:
http://www.google.com/analytics.
2.7 Media evaluation and selection

considerations
LO5
The advertising objectives and the type of advertising a firm

plans to use strongly influence the selection of the
advertising media to be used. An important element in any
advertising campaign is the media mix, that is, the
combination of communication media to be used. Decisions
about the media mix are normally based on several factors,
the most important being the cost per contact, reach and
frequency. Other important factors include target audience
considerations, flexibility of the medium, noise level and the
lifespan of the medium.
Cost per contact is the cost of reaching one member of the
target audience. Naturally, as the size of the audience
increases, so does the total cost. The standard criterion for
comparing media is cost per thousand (abbreviated as CPM
M is the Roman numeral for 1 000). Advertisers calculate

CPM by dividing the price of using the medium by the size of
the audience, in thousands. For example, if the price of a
television spot is R50 000 and the projected audience size is
five million viewers, then the CPM is R10. CPM enables an
advertiser to compare media channels, such as television
versus radio or magazine versus newspaper or more
specifically the Sunday Times versus Rapport. An advertiser
who is considering whether to spend money on local
advertising on either TV or radio spots would consider the
CPM of each. The advertiser may then pick the
communication channel with the lowest CPM to maximise
advertising punch for the cost.
Reach refers to the number of different target consumers
who are exposed to an advertisement at least once during a
specific period, usually four weeks. If 60 000 out of 100 000
radio listeners hear a commercial for the VW Polo in Cape
Town at least once during a four-week period, the
commercials reach would be 60 per cent of the total 100 000
listeners. The media plans for product introductions and
attempts at increasing brand awareness usually emphasise
reach. Nevertheless, high reach levels do not necessarily
mean high degrees of brand awareness or advertising recall.
It is not unusual to find that a campaign has achieved 90 per
cent reach, but that only 25 per cent of the target audience
remembers the advertisement. Reach is a measurement of
potential. That is, a 90 per cent reach means that 90 per cent
of an audience has an opportunity to see or hear a message.
Frequency is the number of times an individual is exposed
to a message. Average frequency is used by advertisers to
measure the intensity of a specific mediums coverage. For

example, Este Lauder might want an average exposure
frequency of three for its Nutritious moisturiser radio
advertisements. In other words, among all the radio
listeners who heard the advertisement, they each heard it an
average of three times. Because the typical advertisement is
short-lived and because only a small portion of an
advertisement may be perceived at one time, advertisers
regularly repeat them. They want consumers to remember
the message. Retention tends to peak somewhere between
the third and fifth message perceived by the receiver.
Additional exposures (over-exposure) tend to be screened
out and may create a negative reaction. The advertisement
then loses its effectiveness.
>>Strategy
Media selection also concerns itself with matching the
advertising medium with the products target market. If
marketers are attempting to reach teenage females,
they might select Blush magazine. If they are trying to
reach female consumers over 50, they might choose
Garden and Home. In between these age groups,
magazines such as Cosmopolitan (with a readership
likely to be under 30 years of age) would be
appropriate. If young mothers are the target market,
Living and Loving may be most effective.
A communication mediums ability to reach a precisely
defined market is its audience selectivity. Some
communication media like newspapers and television,

appeal to a wide cross-section of the population. Others
such as Brides and Homes, SA Golf Digest, SA Cricket Action,
Architectural Digest and Radio Pulpit appeal to very
specific groups and, therefore, have a high degree of
audience selectivity. The flexibility of a medium can be
extremely important to an advertiser. In the past, because of
printing schedules, paste-up requirements, and so on, some
magazines required final advertising copy several months
before publication. Therefore, magazine advertising has not
been able to adapt as rapidly as audio and audiovisual
media to changing market conditions. Although this is no
longer the case thanks to electronic advertising images and
desk-top publishing, the lead time on magazines is still
considerably longer. Radio, on the other hand, provides
maximum flexibility. Usually, the advertiser can change the
advertisement on the day it is aired, if necessary.
Noise level refers to the level of distraction to the target
audience in a medium. For example, to understand a
televised promotional message, viewers must watch and
listen carefully. But they often watch television with others,
who may well provide distractions. Noise can also be
created by competing advertisements, as when a street is
lined with too many billboards or when a television
programme is cluttered with competing advertisements.
Nielsen estimates total television advertising spent for
soccer events programming in 2010 was about $265 million.
By 2013, it jumped 43 per cent to $378 million,19 suggesting
high levels of noise and clutter. By contrast, direct mail is a
private medium with a low noise level. No other advertising
media or news stories compete for direct-mail readers

attention.
Communication media have either a short or a long
lifespan. Lifespan means that messages can either quickly
fade or persist as tangible copy to be carefully studied. For
example, a radio commercial may last less than a minute.
However, listeners cant replay the commercial. One way
advertisers overcome this problem is by repeating radio
advertisements regularly. On the other hand, a consumer
magazine has a relatively long lifespan. A person may read
several articles, put the magazine down, and pick it up a
week later to continue reading. In addition, magazines and
catalogues often have a high pass-along rate, which refers to
when one person reads the publication and then gives it to
someone else to read.
2.8 Media scheduling
LO6
After choosing the media for the advertising campaign,

advertisers must schedule the advertisements. A media
schedule designates the medium or media to be used (such
as magazines, television or radio), the specific vehicles (such
as YOU magazine, the Top Billing TV show or the Top 20
Countdown radio show) and the insertion dates of the
advertising. There are four basic types of media schedules:
Products in the latter stages of the product life cycle,

which are typically advertised on a reminder basis, use a
continuous media schedule. A continuous schedule
allows the advertising to run regularly throughout the
advertising period.
With a flighted media schedule, the advertiser may
schedule the advertisements heavily every other month
or every two weeks to maximise its impact with an
increased frequency and reach at specific times. For
example, Ster Kinekor might schedule television
advertising on Wednesday and Thursday nights, when
moviegoers are deciding which films to see that
weekend.
A third option is a variation on the pulsing media
schedule that combines continuous scheduling with
flighting. With this method, continuous advertising is
heavier during the best sale periods. For instance, a retail
department store may advertise on a year-round basis,
but place more advertising during holiday sale periods,
such as Easter, Christmas and back-to-school times.
Certain times of the year call for a seasonal media
schedule. Seasonal products, like Vicks Medinite and
Coppertone suntan lotion, which are used more during
certain times of the year, tend to follow a seasonal
strategy.
Advertisers will also schedule their advertising differently

when unusual events may interfere with the impact of their
advertising. In the three months leading up to the 2010
Soccer World Cup, many advertisers cut back on advertising
expenditure owing to clutter. A reason cited for the cutback included the fact that there will be too much noise
from the main sponsors and our message will get diluted.20
Unfortunately, many firms do not always get their
scheduling right. Ornica Media estimates that up to 14 per
cent of television commercials in South Africa are

incorrectly flighted (i.e. they are scheduled in the wrong
time slot, the wrong channel or are not flighted at all),
resulting in an estimated R650 million of wastage each year.
2.9 Evaluating the advertising campaign
LO7
Evaluating an advertising campaign can be the most

demanding task facing advertisers. How do advertisers know
whether a campaign led to an increase in sales or market
share, or raised awareness of the product? The advertising
agency Ogilvy South Africa claims to have increased
Volkswagens market share from 9 per cent to 20,9 per cent,
increased sales of Ever Fresh milk and Castrol GTX by 16 per
cent and 35 per cent respectively and turned Carling Black
Label into South African Breweries number-one brand.
Dulux believes that its Any colour you can think of
campaign increased sales by 8,2 per cent in a paint market
that was declining by 3 per cent at the time. KFCs milkshake
campaign featuring little Amy increased sales of its
milkshakes by 500 per cent. First National Banks
Steve/Beep bank campaign led to the opening of 1.3
million new bank accounts in 2012.
Most advertising campaigns attempt to create an image
for a product or service rather than expecting consumer
action, so their real effect is often unknown. So many
variables shape the effectiveness of an advertisement that, in
many cases, advertisers must guess whether their money
has been well spent. Despite this uncertainty, however,
marketers spend a considerable amount of time studying
advertising effectiveness and its probable impact on sales,

market share and awareness. Testing advertising
effectiveness can be done either before or after the
campaign.
2.10 Pre-tests
Before a campaign is launched, marketing managers use
pre-tests to identify the best advertising appeal, layout and
media vehicle. Common pre-tests include the following:
Consumer jury tests. The consumer jury test, or focusgroup interview, uses a panel of consumers from the
target market. They preview several advertisements and
examine the unfinished advertisements, or storyboards.
Next, panel members rank the advertisements by
perceived effectiveness and explain their rankings and
their reactions to each advertisement. Focus groups may
also play an important role in developing the advertising
appeal and selecting an appropriate slogan.
Portfolio or unfinished-rough tests. The purpose of the
portfolio test is to evaluate print advertising. Before
marketing managers select a final advertising appeal and
layout, they let a sample of consumers read several
dummy magazines, complete with stories and different
versions of the advertisement. Next, the consumers are
asked which advertisements they remember (unaided
recall). Then they respond to questions about specific
advertisements (aided recall). Similarly, an unfinishedrough test measures the effectiveness of proposed
television commercials. An unfinished rough, such as a

rough videotape of a TV commercial, is shown to
consumers, who are then asked to recall the message.
Physiological tests. To avoid the bias sometimes
encountered in other tests, some marketers have turned
to physiological testing. Consumers have involuntary
physical reactions to advertisements, such as increased
heart rates, changing pupil sizes and breathing.
Physiological tests measure these human responses,
using galvanic skin-response tests, eye-movement
experiments and pupil-dilation measurements as
indicators of awareness and interest in advertisements
(see Reader 57 Eye-tracking your advertisements).
2.11 Post-tests
After advertisers have run a campaign, they often conduct
tests to measure its effectiveness. Several monitoring
techniques can be used to assess whether the campaign has
met its original objectives. Even if a campaign has been
highly successful, advertisers still typically conduct a postcampaign analysis. They consider how the campaign could
have been made more effective and what factors contributed
to its success. The effectiveness of a campaign is usually
assessed using one of the following tests:
Recognition tests. Recognition (or readership) tests are

normally used to measure the effectiveness of magazine
advertising. Consumers are asked about their advertising
readership and then grouped into three categories: those
who noted the advertisement, those who can link the
firms name with it and those who read at least 50 per

cent of it.
READER 57 >> Eye-tracking your advertising balance

creativity with effectiveness
TV is the most expensive medium in which to advertise, although at the same
time potentially one of the most successful if the advertising campaign is
properly noticed and understood, of course! With the aid of eye-tracking
analysis, a viewers perception of a TV commercial can be objectively
measured and optimised. Understanding how the consumer interacts with your
advertising is critical in ensuring its success. Yet traditional forms of testing
tell only part of the story. The ability to measure eye gaze adds value to
behavioural research and analysis because human behaviour and thought are
reflected in where people look. It is also a precise and robust method for
defining the exact position of a person or the presence of eyes.
Eye-tracking is a general term for techniques that measure the point of
gaze where you are looking or determine the eye/head position. Modern
eye-tracking methodology allows researchers to measure advertisements
ability to break through clutter, gain consideration and hold attention. By
tracking exactly where consumers look as they watch a programme or read an
advert for the first time, a wealth of new information becomes accessible,
including the following: what does the customer pay attention to in the
advertisement? Is the customer distracted by other elements? Are there
differences in perception among different target groups? Do they pay attention
to the graphics? How long do they focus on a specific segment? What do they
ignore? The key feature of this methodology is the capacity to capture details
that otherwise would be lost without compromising the integrity of the
research.
SOURCE: Matlali, L. 2008. Eye-tracking your advertising balance creativity with effectiveness. Available,
http://promptresearchinsights.com (accessed 29 June 2010)
Recall tests. A recall test can be used with

advertisements presented using almost any medium,
from television to billboards. Unlike recognition tests,
recall tests do not show respondents the advertisement.
Instead, to measure unaided recall, respondents are
asked to remember the commercial or advertisement.
This measure indicates how much information the target
consumers learnt. Aided recall provides cues about the
advertisement to jog interviewees memories. An
implied assumption of recall tests is that consumers who
can recall a specific products advertisement are more
likely to buy the product. An advertiser should not
completely rely on this assumption,
however. Consumers may recall an advertisement
because of its style, yet have no intention of ever using
the product. Advertisement recall research has shown
that many brands with the best-remembered
commercials do not necessarily lead to higher sales.21
Attitude measures. Often attitude measures are
incorporated into recall and recognition tests.
Interviewers may ask consumers whether a promotion
seems believable, convincing, dull, imaginative,
informative, funny, realistic, and so on. They may also
ask to what degree, if any, the advertisement affects the
interviewees desire to use or purchase the product.
Audience size measures. Audience measures are
generally done by the same research firms that gauge
advertising effectiveness. Organisations such as AMPS,
SAARF, the Audit Bureau of Circulations and Nielsen
Media Research audit the circulation figures of
magazines and newspapers and measure radio and

television audience sizes.
Sales and market share changes. The impact of an
advertising campaign on a firms sales and market share
is another method used to assess the success of a
campaign. However, one has to keep in mind that factors
other than the campaign itself may also influence sales,
such as changes in economic conditions (e.g. interest
rates) and competitive activity. In both the 2009 and
2014 elections, the highest-reported television spender
was the IEC, which between January and May 2014 had
R24 million allocated to promoting the fair election
process. This was followed by the Democratic Alliance
with R16 million (up nearly 400 per cent from 2009) and
the ANC, with R15 million (up 190 per cent from 2009).22
In a first major study by Nielsen, linking radio
advertising to retail sales, data revealed that for every
dollar spent on advertising, there was an average sales
return of $6 for those who were exposed to the ads in the
prior 28-day period. Another key finding was that radio
delivers a strong consumer sales response close to the
time of purchase the closer the exposure to purchase,
the higher the response. For example, a snack food
brands ad delivered the day before purchase increased
the brand share by 9 percent while messages delivered
28 days prior to purchase increased share by only 3.4
percent.23 This example suggests that advertising is a
very potent tool at the disposal of the marketing
manager.
WEBSITE
Visit the Audit Bureau of Circulations

website, www.abc.org.za, to gain a better
understanding of its methodology in
measuring the circulation of published
titles.
The digital revolution rewrites the
advertising fairytale
As consumers embrace a new digital world, with its
plethora of exciting channels of interaction and
entertainment, ranging from social networking and
instant messaging to video on demand, businesses are
being forced to find new ways to keep their advertising
and brand communication relevant. Advertising group
Ogilvy refers to a new age of engagement supplanting
the age of interruption. Whereas the old paradigm was
characterised
by
30-second
advertisements
interrupting evening television viewing, the new digital
era sees the consumer in control and, therefore, calls
for creating relationships and engaging in more
meaningful dialogue. Speaking at the Ogilvy Verge
Digital Africa Conference held in Johannesburg in
2008, Patou Nuytemans, OgilvyOneWorldwides digital
director for Europe, Africa and the Middle East, said the
digital revolution had put the consumer in control.
Digital technology has revolutionised every aspect
of our lives, from how we behave, to how we
communicate, to how we maintain relationships, and,
ultimately, how we view the world, she said, adding

that the percentage of people embracing digital
technology is increasing. While, for example, five years
ago 40 per cent of Europeans were apprehensive about
new technology, today 85 per cent of them are keen to
provide themselves with the latest innovations. She
added that, with a blog created every half second, we
have lost track of just how big the Internet is. In
addition, free voice-over-Internet-protocol application
Skype now has a user base of more than 100 million,
she said. [Skype] is already responsible for 7 per cent of
the worlds long-distance minutes. The upsurge in
digital technology means that consumers are now given
more media options in an increasingly media-centred
life. It is the consumer who decides whether he gets his
news by reading his favourite newspaper, or maybe
checking out his blog, or going to a news website, or
flipping through his RSS feed or even downloading the
news podcast and listening on his MP3 player, she
said. It is the consumer who decides. It is the
consumer who is in control.
Firms that want to promote their brands also have to
face the reality that, for many audiences, the reign of
television has come to an end, with a digital
technology-embracing public watching video on
websites such as YouTube. In addition, technology
such as TiVo in the United States and MultiChoices
PVR decoder in South Africa allows TV viewers not only
to skip ads (with US viewers expected to be skipping
through $27 billion worth of ads by the end of 2009,
according to Nuytemans), but also to watch what they
want at the time of their own choosing, thus

undermining the very concept of prime-time TV. New
web and IPTV offerings are having a similar effect. The
PVR certainly shows that when the consumer is in
control, it becomes increasingly hard for media and
advertisers to reach them, Nuytemans commented.
However, research has shown that the advent of the
PVR in South Africa (and other countries) does not
necessarily mean the slow death of television
advertising, contrary to what Nuytemans suggests.
Notwithstanding that consumers fast forward (known
as zapping) through an advertisement, they still retain
a fair amount of the advertisements message, but the
extent of this recall is determined by a number of
factors such as whether they have seen the advert
before and the nature of the advertisement. Also, what
may affect the propensity of consumers to zap an
advert would be the nature of the programmes, with
South Africans preferring to watch the news and soap
operas live, and therefore less likely to zap the
advertisements. This suggests that marketers need to
consider the nature of the programmes during which
the advertisement is aired in planning their
communications strategy.
SOURCE: Adapted from Scott, I. 2010. Customer is king. Available,
http://www.iweek.co.za (accessed 29 June 2010); Beneke, J., De Lame, S.,
Simpson, V. and van der Merwe, K. 2011. Marketing in the PVR era - An
exploratory study into changes in viewing habits and brand recognition of
young adults in South Africa. International Marketing Review, Volume 7
Issue 1, pp 54-71; OConnell, A. 2010. Advertisers: Learn to Love the DVR.
Harvard Business Review, April 2010, p. 22; Du Plessis, E. 2009. Digital
Video Recorders and Inadvertent Advertising Exposure. Journal of
Advertising Research 49 (June 2009), pp 236-239.
3. Public relations
LO8
Public relations (often referred to as PR) is the element in the

marketing communication mix that evaluates public
attitudes, identifies issues that may elicit public concern and
executes programmes to enhance public understanding and
encourage acceptance. Like advertising and sales
promotion, public relations is a vital link in a progressive
firms marketing communication mix. Marketing managers
plan solid public relations campaigns that fit into their
overall marketing plans and focus on targeted audiences.
These campaigns strive to maintain a positive image of the
firm in the eyes of the public. Before launching public
relations programmes, managers evaluate public attitudes
and the firms actions. Then they create programmes to
capitalise on the factors that enhance the firms image and
minimise the factors that could generate a negative image.
Many people associate public relations with publicity.
Publicity is the effort to capture media attention for
example, through articles or editorials in publications or
through human-interest stories on radio or television
programmes. Most firms usually initiate publicity by using a
media release to further their public relations plans. For
instance, in response to negative publicity on the impact of
bottled water on the environment, SA National Bottled
Water Association published the following information:
Bottled water as a consumer product in South Africa

constitutes only 1,3% of the total beverage industry (by
volume)
Bottled water represents less than one-tenth of 1% of an
average consumers overall environmental footprint
Consumption of water of all types (both bottled and tap)
accounts for 41% of beverage consumption, while
producing only 12% of the associated impact on climate
change in comparison, the combination of milk, coffee,
beer, wine and juice provide just 28% of the volume of
beverages consumed, but are associated with 58% of the
climate change impact
Water in all its forms is the best beverage option for
the environment. Tap is best, and bottled water has the
lightest environmental footprint of all packaged
beverages and one that can be reduced by 25 per cent
simply by recycling the bottle.
A firm that is about to introduce a new product or open a

new shop (Swedish retailer H&M, for instance, plans to
enter the South African market) may send media releases to
the media in the hope that the story will be published or
broadcast.
Public relations departments may perform some or all of
the following functions:
Press relations. Placing positive, newsworthy

information in the news media by means of media
releases to draw attention to a product, a service, or a
person associated with the firm or institution. When a
university appoints a new vice-chancellor, it will send
out a media release to various members of the media

introducing the new appointee to the media and their
readers.
Product publicity. Publicising specific products or
services.
Corporate communication. Creating internal and
external messages to promote a positive image of the
firm or institution.
Public affairs. Building and maintaining national or
local community relations.
Lobbying. Attempting to influence legislators and
government officials to promote or oppose legislation
and regulation. Before the advertising of tobacco
products was banned, the tobacco industry tried to
prevent the legislation by means of lobbying.
Employee and investor relations. Maintaining cordial
relationships with employees, shareholders and others
in the financial community. When firms have to deal
with striking workers, for example, they often issue
media reports so that the public and investors have some
understanding of what is happening during negotiations.
Crisis management. Responding to unfavourable
publicity or a negative event. The petroleum company
BP was forced into crisis management when one of its oil
drills exploded off the Gulf of Mexico in 2010, which led
to an oil spill that caused severe environmental damage.
3.1 Public relations tools

Several tools are commonly used by public relations
professionals, including new-product publicity, product

placement, customer-satisfaction phone lines, consumer
education, event sponsorship and issue sponsorship. A
relatively new tool employed by public relations
professionals in increasing numbers is Internet websites.
Three public relations tools new-product publicity, event
sponsorship and issue sponsorship will be examined more
closely.
3.1.1 New-product publicity

Publicity is instrumental in introducing new products and
services. Publicity can help advertisers explain whats
different about their new products by prompting free news
stories or positive word-of-mouth about them. During the
introductory period, an especially innovative new product
often needs more exposure than conventional, paid
advertising affords. Public relations professionals write
media releases in an effort to generate news about their new
product. They also jockey for exposure of their product or
service at major events, such as the Rand Easter Show or on
popular television and news shows. For instance, sports
captains of sport teams often wear the cap of the teams
sponsor when they are interviewed on television.
3.1.2 Event sponsorship

Public relations managers can sponsor events or community
activities that are sufficiently newsworthy to ensure media
coverage. At the same time, these events also reinforce
brand identification. Pick n Pay sponsors the Red Cross
Childrens Hospital Fund; Steinhoff sponsors university
rugby; First National Bank sponsors schools rugby; and

Oceana Fishing sponsors the National Sea Rescue Institute,
Absa sponsors the Klein Karoo National Arts Festival. Sport,
music and arts events remain the most popular categories
for event sponsors. It is estimated that South African firms
spend about R7 billion on various sponsorships per year of
which about 80 per cent goes to sport and only 10 per cent to
music events. For instance Standard Bank sponsors the Joy
of Jazz festival and MTN the SA Music Awards.24
As these figures suggest sports sponsorship is particularly
popular in South Africa. Despite the impact of the global
economic downturn on sports sponsorship, the local
industry still reported higher growth in 2013 than the
international sector. South Africas sports sponsorship
investment weighed in at R7,5 billion in 2013, what pundits
call a relatively conservative period. The number included
direct sponsorship of teams and events, as well as broadcast
rights and leverage. Based on research by BMi the company
forecasted the sector to grow to R4,9 billion in direct spend
on rights fees in 2013, but that growth in the sector was
higher than expected and, at 8,6 per cent, better than the
previous two years. If they include the R2,5 billion-plus
sponsors also spent on leveraging their sponsorships (this
includes all expenditures sponsors incur to promote,
advertise and stage their sponsorship/events), the overall
market was worth over R7,5 billion in 2013, according to
BMis research.25
3.1.3 Issue sponsorship

Firms can also build public awareness and loyalty by
supporting their customers favourite issues. Education,

healthcare and social programmes are the ssues that get
the largest share of corporate sponsorship. Firms often
donate a percentage of their sales or profits to a worthy
cause that their target market is likely to favour. For
example, Oceana Fishing sponsors the Animal Rescue
Organisation, which provides veterinary services in
communities that do not have permanent animal hospitals
or clinics. Regardless of the nature of the sponsorship, it is
important that it is integrated with other promotional
activities, particularly advertising (see Reader 58 Secrets of
sponsorship).
READER 58 >> Secrets of sponsorship

So youve invested R10 million in sponsorship rights to a major event. You can
now sit back and bask in the goodwill created, right? Wrong! The rule of
thumb at MasterCard, a world leader in sponsorship, is that you have to spend
three to four times as much on advertising and promoting your sponsorship as
you do buying the sponsorship rights. If you cant do that, you need to think
carefully about whether you should be in it, says MasterCard Internationals
Anna Zanghi. The MasterCard philosophy is fewer, bigger, better. We want a
handful of global sponsorships that align themselves with our brand.
MasterCard has exclusive rights in its category to World Cup soccer and
sponsors the Jordan Formula One motor-racing team. These two events are
alongside the Olympics as the three biggest global sponsorship events.
Sponsorship is treated as a solid business opportunity with three primary
objectives: building brand preference from the card and reinforcing brand
awareness; creating a business-building platform for member banks and
merchants; providing cardholders with added value the priceless
experience, which is reinforced in the worldwide advertising campaign.
We have a global budget for the properties, and each region contributes
to this. Then regionally we decide how to leverage the international events as
well as local events. We think global and act local, says Zanghi. The results
show a card usage (brand preference) and new-card acquisition. Most people
have more than one card. We want them to use ours.
SOURCE: Secrets of sponsorship. Financial Mail, 16 March 2001
3.2 Managing unfavourable publicity

Although most marketers try to avoid unpleasant situations,
crises do happen. Intel, for example, faced this reality after
consumers became aware of an obscure flaw in its Pentium
chip. A while ago, Pick n Pay had to admit that some
products on some of its shelves had been tampered with.
New Zealand firm Fonterra was embarrassed by revelations
that bacteria were found in some of its products sold in
China. In South Africas free-press environment, publicity is
not easily controlled, especially in a crisis. Crisis
management is the co-ordinated effort to handle the effects
of unfavourable publicity, ensuring fast and accurate
communication in times of emergency.
Good public relations staff is perhaps more important in
bad times than in good (see Reader 59 Response to disaster
can compound or alleviate it). For example, critics
chastised Malaysian Air recently when one of its planes
disappeared, saying the airline was slow and uncooperative
with family members who wanted information about
survivors, and that calls from the media went unanswered.
The airlines chief executive was also late in reassuring
families and the public that his airline was doing all it could.
All public relations professionals learnt a valuable lesson

from this blunder: a firm must have a communication policy
firmly in place before a disaster occurs, because timing is
uncontrollable.
After the BP oil spill in the Gulf of Mexico in 2010, US
President Barack Obama criticised the firms involved for not
accepting responsibility for the accident. He said they were
publicly trading blame executives of BP and Transocean
and Halliburton [suppliers to BP were] falling over each
other to point the finger of blame to somebody else.26
How should firms at the wrong end of negative publicity
respond? A rapid response to a crisis can generally minimise
the damage to the firms image. For major threats to
reputational damage, marketers are urged not to waste
critical time that could be spent addressing and ending the
problem. Some general guidelines for handling a crisis
situation are:
Start early. The worst damage to a firms or products

reputation tends to occur immediately after the problem
becomes public knowledge
Establish credibility with the public. The spokesperson
during a crisis should be a senior executive, preferably
the chief executive officer
READER 59 >> Response to disaster can compound or

alleviate it
General Motors (GM) and Malaysia Airlines are both in trouble, but one is
giving a lesson on how to handle a fatal crisis while the other is offering a
master class on how not to. There is a glaring contrast in the behaviour, and
ability to cope with public criticism, of Mary Barra, GMs CE, and Ahmad
Jauhari Yahya, the CE of Malaysia Airlines although Ms Barra has a simpler
task. Both face the most critical corporate challenge how to respond when
your customers die because they used your product or service.
The GM accident victims were a dozen drivers or passengers of faulty
compact cars. In Malaysia Airlines case, the presumed victims are the 239
people on board missing flight MH370.
Ms Barra, who took over as GMs boss in January, has so far reacted in an
exemplary manner. She has stepped up to take personal responsibility,
admitted that GM is to blame and apologised; emphasised her sorrow as a
mom with a family of my own and promised not only to make amends but to
use the crisis as a turning point for GM. Mr Ahmad oversaw the blunder in
which some families were informed of deaths by text message. Having
emphasised in a statement that he responded as parent, as brother, as a
son, he relapsed into defensive corporate-speak in a BBC Radio interview.
Describing the criticism as unfair, he insisted that his airline had given
beyond what I call the standard scenario. Thanks a bunch would be the
mildest response of anyone who has lost a loved one in what was far from a
standard scenario.
SOURCE: Gapper, J., 2014. Response to disaster can compound or alleviate it,
Business Day, 1 April, p. 8
WEBSITE
See how GEPF handles unfounded

rumours about pension payments
(http://www.gepf.gov.za/index.php/pressreleases/articl
of-benefits-rumour-hoax).
Avoid the no comment response

Make a team effort. Rely on senior management, public
relations professionals, attorneys, quality-control experts

and manufacturing and marketing personnel. No single
approach will work for every crisis, but outlining some
type of crisis management plan before problems arise
will help minimise the damage.
4. Sales promotion
LO9
In addition to using advertising, public relations and

personal selling, marketing managers can use sales
promotion to increase the effectiveness of their promotional
efforts. Sales promotions are those marketing
communication activities, other than advertising, personal
selling and public relations, in which a short-term incentive,
such as a lower price or added value, motivates consumers
or members of the distribution channel to purchase a
product or service immediately.
Advertising offers the consumer a reason to buy; sales
promotion offers an incentive to buy. Both are important,
but sales promotion is usually cheaper than advertising and
easier to measure. A major national TV advertising
campaign may cost more than R1 million to create, produce
and place. However, a newspaper coupon campaign or
promotional contest may cost only about half as much. It is
hard to establish exactly how many people buy a product as
a result of seeing a TV advertisement. With sales
promotions, however, marketers often know the precise
number of coupons redeemed or the number of competition
entries processed. For instance Spurs Bottomless Ribs and
Buffalo Wings promotion increased its sales by 16,5

percent.27 Another good example of a very successful
promotion is one conducted by the seafood restaurant chain
Ocean Basket. To celebrate its fifteenth birthday, Ocean
Basket put its signature dish feesh and chips on the
menu at its 1995 price: R9,99. Advertising agency Joe Public
flighted a commercial 80 times the previous day, placed an
ad in the Sunday Times and got Tweeting to galvanise
customers. The results surpassed all expectations, as 76 000
people jammed the chains 133 outlets.28
Sales promotion is usually targeted at either of two
distinctly different markets. Consumer sales promotion is
targeted at the ultimate consumer market. Trade sales
promotion, on the other hand, is directed at members of the
marketing channel, such as wholesalers and retailers.
WEBSITE
Standard Bank says: Access our website
and experience true banking
convenience. Is that true? See
http://www.standardbank.co.za
4.1 The objectives of sales promotion

Sales promotion usually works best in affecting behaviour,
not attitudes. Immediate purchase (or at least trial) is the
purpose of a sales promotion, regardless of the form it takes.
Therefore, it seems to make more sense when planning a
sales promotion campaign to target consumers according to
their general behaviour. For instance, is the consumer loyal
to your product or to your competitors? Does the consumer
switch brands readily in favour of the best deal?

The objectives of a promotion depend on the general
behaviour of target consumers. For example, marketers who
are targeting loyal users of their product do not want to
change these consumers behaviour. Instead, they try to
reinforce existing behaviour or increase product usage. An
effective tool for strengthening brand loyalty is frequentbuyer programmes that reward consumers for repeat
purchases, such as the Clicks Club Card or First National
Banks e-Bucks. Other types of promotions are more
effective with customers who tend to switch brands or with
those who are loyal to a competitors product. Money-off
coupons, free samples or eye-catching displays in a shop
will often entice shoppers to try a different brand.
4.2 Tools for consumer sales promotion
LO10
Marketing managers must decide which consumer sales

promotion tools to use in a specific campaign. The tools and
methods chosen must suit the objectives of the promotion to
ensure the success of the overall marketing communication
plan. Popular tools for consumer sales promotion are
coupons, premiums, loyalty marketing programmes,
competitions, samples and point-of-purchase displays.
4.2.1 Coupons
A coupon is a certificate that entitles consumers to an
immediate price reduction when they buy the product (see
the Glad advertisement). Consumers receive coupons by
direct mail; through the media, as in a free-standing insert in
newspapers; on the products package; through co-operative

advertising, which presents a manufacturers coupon that
can be redeemed only at a particular retailer; and through
coupon-dispensing machines in shops. Coupons are a
particularly good way to encourage product trial and
repurchase. Nestl used coupons that offered a R2 discount
to stimulate trial of its new Encore brand, for instance. When
Glad first introduced its non-stick baking and cooking
paper, it offered a R1 discount coupon to buyers.
4.2.2 Premiums
A premium is an extra item offered to the consumer, usually
in exchange for some proof that the promoted product has
been purchased. Premiums reinforce the consumers
purchase decision, increase consumption and may
persuade non-users to switch brands. Premiums like free
cellphones and umbrellas are often available when
consumers buy products such as motor vehicles and
banking services. Premiums can also include more of the
product but at the usual price, such as two-for-the-price-ofone and bonus packs or packages that include more of the
product an approach often used by the marketers of
cosmetics, grocery items and magazines.
4.2.3 Loyalty marketing programmes

The objective of loyalty marketing programmes is to build
long-term, mutually beneficial relationships between a firm
and its key customers. Popularised by the airline industry
using frequent-flyer programmes, loyalty marketing enables
firms to strategically invest sales promotion money in
activities designed to capture greater profits from customers
already loyal to the product or firm.29 A study concluded that
if a firm retains only an additional 5 per cent of its customers
each year, profits will increase by at least 25 per cent. Whats
more, improving customer retention by a mere 2 per cent
can reduce costs by as much as 10 per cent.
The MD of Rapp Collins, Brian Hopkins, relates his
experience with loyalty marketing programmes as follows:
At the beginning of 1996, 10 per cent of our business was
retention-based; now its 85 per cent. So we have [more
than] doubled our income in a year and have fewer, better

clients. Most companies lose 20 to 25 per cent of their
customers each year. But 90 per cent of profits come from
loyal customers. So 90 per cent of adspend goes on external
media [other than direct marketing] to recruit new
customers, but most wont be profitable.30
4.2.4 Competitions
Competitions are generally designed to create interest in a
product or service, often to encourage brand switching.
They are promotions in which participants use their skill or
ability to compete for prizes. A consumer competition
usually requires entrants to answer questions, complete
sentences or write a paragraph about the product and
submit proof of purchase. Crosse & Blackwell mayonnaise
sponsored a competition in which contestants had to do no
more than complete the phrase: & Blackwell. When
setting up a competition, sales promotion managers must
make sure that the award or prize will appeal to the target
market and adhere to legislative requirements.
4.2.5 Samples
Consumers generally perceive a certain amount of risk when
trying new products they had not bought before. Many are
afraid of trying something they may not like (such as a new
food item) or spending too much money and getting little
reward. Samples allow the customer to try a product, such as
shampoo or a new blend of coffee, without the risk factor.

However, from a firms perspective, samples can be very
expensive. As a general rule, then, free samples of a product
should be offered only when two conditions exist. First, the
benefits of the new product must be clearly superior to those
of existing products. Second, the item must have a unique
new attribute that the consumer must be able to experience
(e.g. superior taste).
Sampling can be accomplished by mailing the sample
directly to the customer, delivering the sample door-todoor, demonstrating or sampling the product at a retail
outlet, or packaging the sample with another product.
Sampling at special events is a popular, effective and highprofile promotional method that permits marketers to
piggyback onto fun-based consumer activities such as
sports events, fairs and festivals, and beach events.
4.2.6 Point-of-purchase displays

A point-of-purchase display is a promotional display set up
in-store to build traffic, advertise a product or induce
impulse buying. One major advantage of point-of-purchase
displays is that they offer manufacturers a captive audience
in shops. Research by the Point-of-Purchase Advertising
Institute indicates that more than 70 per cent of purchase
decisions are made in-store.31 Therefore, point-of-purchase
displays work better for impulse products those products
bought without prior decision by the consumer than for
planned purchases.
4.3 Tools for trade sales promotion

LO11
Whereas consumer promotions pull a product through the

channel by creating and stimulating demand, trade
promotions push a product through the distribution
channel (see Chapters 10 and 13). When selling to members
of the distribution channel, manufacturers use many of the
same sales promotion tools used in consumer promotions
such as competitions, premiums and point-of-purchase
displays. Several trade sales promotion tools, however, are
peculiar to manufacturers and intermediaries:
Trade allowances. A trade allowance is a price reduction

offered by manufacturers to intermediaries, such as
wholesalers and retailers. The price reduction or rebate
is given in exchange for doing something specific, such
as allocating shelf space for a new product or buying
something during special periods. For example, a local
retailer, such as Spar, may receive a special discount for
running its own promotion on Liquifruit juice.
Push money. Intermediaries receive push money as a
bonus for pushing the manufacturers brand through the
distribution channel. Often the push money is directed
towards a retailers salespeople. For example, the
manufacturer may offer R500 push money to an
electronics stores sales force for every television of its
brand sold. This practice, however, may foster more
loyalty to the manufacturer than to the retailer. When
Coca-Cola launches a new product, such as Play, the
firm may pay waiters a certain amount for each unit sold
in a certain period.
Training. Sometimes a manufacturer will train an
intermediarys staff if the product is rather complex as
frequently occurs in the computer and

telecommunications industries. For example, if a large
department store purchases an NCR computerised cashregister system, NCR may provide free training so that
the salespeople can learn how to use the new system.
Free merchandise. Often a manufacturer offers retailers
free merchandise in lieu of quantity discounts. For
example, a breakfast cereal manufacturer may throw in
one case of free cereal for every 20 cases ordered by the
retailer.
In-store demonstrations. Manufacturers can also
arrange with retailers to perform an in-store
demonstration. For example, food manufacturers often
send representatives to grocery stores and supermarkets
to let customers sample a product, such as a new cold
meat or sausages, while shopping. Cosmetics firms also
send their representatives to department stores and even
airports to promote their beauty aids by performing
facials and makeovers for customers.
Trade promotions are popular among manufacturers
for many reasons. Trade sales promotion tools help
manufacturers gain recruit intermediaries for their
products, obtain wholesaler and retailer support for
consumer sales promotions, build or reduce dealer
inventories and improve trade relations. Car
manufacturers, for example, annually sponsor dozens of
car shows for their dealers.
5. Personal selling
LO12
Personal selling is the final element of a typical integrated

marketing communication mix. It is a form of direct
communication between a sales representative and one or
more prospective buyers in an attempt to guide them to a
purchase situation. It offers several advantages over other
elements of the marketing communication mix:
Personal selling has the capacity to provide a detailed

explanation or demonstration of the product. This is
especially important for complex or new products and
services.
The sales message can be varied according to the
motivations and interests of each prospective customer.
Moreover, when the prospect (potential buyer) has
questions or raises objections, the salesperson is there to
respond immediately by providing explanations and
information.
Personal selling costs can be controlled by adjusting the
size of the sales force (and resulting expenses) in oneperson increments. Advertising and sales promotion,
however, must often be purchased in fairly large
amounts.
Perhaps the most important advantage is that personal
selling is considerably more effective than other forms of
promotion in obtaining a sale and gaining a satisfied
customer.
5.1 Contrasting personal selling with other

forms of marketing communication
LO13
Given certain customer and product characteristics,

personal selling might work better than other forms of
marketing communication. Generally speaking, personal
selling becomes more important as the number of potential
customers decreases, as the complexity of the product
increases and as the value of the product grows (see Table
12.2). When there are relatively few potential customers, the
time and travel costs incurred by personally visiting each
potential buyer are justifiable. Of course, the product or
service that is being sold must be of sufficient value to
absorb the expense of a sales call a mainframe computer, a
management consulting project or the construction of a new
building are good examples. For highly complex products,
such as business jets or private communication systems, a
salesperson is needed to assess the prospective customers
needs, explain the products basic advantages and propose
the exact features and accessories that will meet the clients
needs. Conversely, advertising and sales promotion more
effectively and economically promote a product when the
number of potential buyers is large, the product is less
complex, the buyers are dispersed and the product is low in
value and highly standardised (for instance, toothpaste or
tea).
5.2 Sales tasks
LO14
Personal sales tasks are generally classified into three basic

categories: order getting, order taking and sales support.
Order getters, who actively seek prospective buyers and try
to persuade them to buy, may be members of a firms sales
force or independent sellers. Order takers handle either

inside ordering or field ordering. Inside order takers take
orders over the counter, on the sales floor, over the
telephone or by mail. Field order takers, on the other hand,
visit clients to service accounts, check inventory, take new
orders and deliver and stock merchandise for customers.
Sales support positions include missionary sales
representatives, technical specialists and selling teams.
Missionary sales representatives provide a variety of
promotional services to support company sales efforts.
Technical specialists help the sales force by describing,
designing and installing products.
Marketers that practise relationship selling have begun to
form sales teams to meet their clients needs. A selling team
is a combination of sales and non-sales staff whose primary
objective is to establish and maintain strong customer
relationships.
Table 12.2 Personal selling and advertising/sales promotion: A comparison
Personal selling is more

effective if:
Advertising or sales promotion

is more effective if:
The product has a high value
The product has a low value
It is a custom-made product
It is a standardised product
There are few customers
There are many customers
The product is technically

complex
The product is simple to

understand
Customers are concentrated in

one area
Customers are geographically

dispersed
Examples: Insurance policies;

photocopiers; aeroplane engines
Examples: Soap; T-shirts; tinned

tuna
5.3 Steps in the personal-selling process
LO15
Although personal selling may sound like a relatively simple

task, completing a sale actually requires several steps. The
sales process, or sales cycle, is simply the series of steps a
salesperson goes through to sell a particular product or
service. This sales process or cycle may be unique for each
product or service, depending on the product/services
features, the characteristics of the customer segments and
the internal processes in place within the firm, such as how
sales leads are generated.
Some sales take only a few minutes, but others may take
months or even years to complete, especially when

customised products or services are involved. Irrespective of
whether a salesperson spends a few minutes or a few years
on a sale, the following are the seven basic steps in the
personal selling process:
Step 1: Generating sales leads

Step 2: Qualifying sales leads
Step 3: Doing a needs assessment
Step 4: Developing and proposing solutions
Step 5: Handling objections
Step 6: Closing the sale
Step 7: Following up.
Like other forms of promotion, these steps of selling follow

the AIDA concept (see Chapter 11). Once a salesperson has
identified a prospect with the required authority and
financial means to buy, he or she tries to get the prospects
attention. A thorough needs assessment should be turned
into an effective sales proposal, and the presentation should
generate interest. After developing the customers initial
desire (preferably during the presentation of the sales
proposal), the salesperson seeks action in the closing stage
(step 6) by trying to get an agreement to buy. Follow-up after
the sale, the final step in the selling process, not only lowers
cognitive dissonance (see Chapter 3), but may also open up
opportunities to discuss future sales. Effective follow-up will
also lead to repeat business, whereupon the process may
start all over again from the needs-assessment step.
Traditional selling and relationship selling follow these
same basic steps. What is different between the two selling
methods is the relative importance placed on key steps in

the process. Traditional selling efforts focus on generating as
many leads as possible, making presentations and closing
sales that is, getting the customers signature on the order
form. Minimal effort is placed on asking questions to
identify customer needs and wants or matching these needs
and wants to the benefits of the product or service. By
contrast, salespeople practising relationship selling
emphasise their up-front investment in the time and effort
needed to uncover each customers specific needs and
wants, and match them as closely as possible to the product
or service offering. By doing his or her homework up front,
the salesperson creates the conditions necessary for a
relatively straightforward close of the sale.32
Lets analyse each step of the selling process. These steps
apply both to the selling of consumer goods, such as
televisions, and to business-to-business selling.
5.3.1 Generating leads

Initial groundwork must precede communication between
the potential buyer and the salesperson. Lead generation, or
prospecting, is the identification of those firms and people
most likely to buy the sellers product. These firms or people
become sales leads or prospects. Naturally, not everyone
is a prospect for a firms product, nor are all prospects
equally likely to buy. It is important for the relationship
salesperson to attract the right kind of customer for the
relationship. Sales leads are secured in several different
ways:
Advertising and other media are the most effective ways

of securing leads.
Internet websites. Many sales professionals secure
valuable leads from their firms websites. Web surfers
who visit a firms site often have the opportunity to
submit a request to have a salesperson follow up with
more information about the firms products or services.
Favourable publicity also helps create leads. Readers
often call or write to publications and television stations
to enquire about products or firms they have read about
in the media.
Direct-mail and telemarketing programmes have
become popular ways of generating sales leads. This type
of lead generation usually starts with a list of potential
clients with desirable characteristics, such as a particular
occupation. For instance, if a medical-equipment
manufacturer is trying to sell a new piece of equipment
used in heart surgery, the sales process may start with a
list of all cardiologists in South Africa. The
manufacturers may send direct-mail letters or
brochures, usually with a detachable coupon to be
returned or a toll-free number to be called for more
information, or an email address to send enquiries to.
Cold calling is a form of lead generation whereby the
salesperson approaches potential buyers without any
prior knowledge of the prospects needs or financial
status. This method is usually used with consumer-type
goods, such as encyclopaedias.
Referrals and networking are ways to generate a lead is
through a referral a recommendation from a customer
or business associate. Networking is the method of using
friends, business contacts, co-workers, acquaintances

and fellow members in professional and civic
organisations to find out about potential clients. For
example, an insurance agent may rely heavily on
networking with neighbours, members of his or her
church or members of community organisations to
identify new prospects.
Trade shows and conventions are another good source
of leads. Because these events are designed around the
interests of a specific product or industry, most of the
leads generated are very likely prospects.
The firms internal records of past client purchases are
another excellent source of leads.
5.3.2 Qualifying sales leads

When a prospect shows interest in learning more about a
product, the salesperson has the opportunity to follow up, or
qualify, the lead. Personally visiting unqualified prospects
wastes the salespersons valuable time and the firms
resources. Lead qualification, which is particularly
important in business-to-business selling situations, means
assessing whether the prospect has three things:33
A recognised need. The most basic criterion for

determining whether or not someone is a prospect for a
product is whether there is a need that is not being
satisfied. Preliminary interviews and questioning can
often provide the salesperson with enough information
to determine if there is a need.
Buying power. Buying power involves both the authority
to make the purchase decision and access to funds to pay

for it. To avoid wasting time and money, the salesperson
needs to identify the purchasing authority before making
a presentation. An organisation chart can provide
valuable clues. In some cases, purchasing authority rests
with a committee. The salesperson must then identify
the most influential committee members. In other
situations, buying authority may rest with regional or
headquarters management, who may be located
elsewhere.
Receptivity and accessibility. The prospect must be
willing to see and be accessible to the salesperson. Some
prospects simply refuse to meet with salespeople.
Others, because of their stature in their organisation, will
only deal with a salesperson or sales manager with a
similar standing.
5.3.3 Doing a needs assessment

The salespersons ultimate goal in a needs assessment is to
find out as much as possible about the prospects situation.
The salesperson should decide how to maximise the fit
between what he or she can offer and what the prospective
customer wants. As part of the needs assessment, the
consultative salesperson must know everything there is to
know about:34
The product or service. Product knowledge is the

cornerstone for conducting a successful needs
assessment. In other words, the consultative salesperson
must be an expert on his or her product or service. How
and where is it made? What are the technical

specifications and do they meet the customers
requirements? What are the products features and
benefits, and what benefits can they provide the
customer? What are the pricing and billing procedures?
What kinds of warranty and service support are
provided? How does the products performance
compare with the competitions product?
The customers and their needs. When it comes to
customers, the salespeople should know more about
them than they know about themselves. Thats the secret
to relationship and consultative selling: the salesperson
acts not only as a supplier of products and services, but
also as a trusted consultant and adviser. The professional
salesperson doesnt just sell products. He or she brings
to each client business-building ideas and solutions to
problems. For the customer, consulting a professional
salesperson is like having another vital person on the
team at no cost.
The competition. Who are the competitors and what is
known about them? What are their products and services
like and how do they compare? What are their
advantages and disadvantages? What are their strengths
and weaknesses? Salespeople must know as much about
their competitors products as they know about their
own.
The industry. Knowing the industry involves active
research on the part of the salesperson. This means
attending industry and trade-association meetings,
reading articles published in industry and trade journals,
keeping track of legislation and regulation that affect the
industry, being aware of product alternatives and

innovations from domestic and foreign competition and
having a feel for economic and financial conditions that
may have an impact on the industry.
5.3.4 Developing and proposing solutions

Once the salesperson has collected the appropriate
information about the customers needs and wants, the
salesperson then develops a solution, or possibly several
solutions, in which the salespersons product or service
solves the customers problems or meets a specific need.
These solutions are normally presented to the customer in
the form of a sales proposal given at a sales presentation. A
sales proposal is a written document or professional
presentation that outlines how the firms product or service
will meet or exceed the customers needs. The sales
presentation is the formal meeting in which the salesperson
has the opportunity to present the sales proposal. Because
the salesperson often has only one opportunity to present a
sales proposal, the quality of both the sales proposal and the
presentation can make or break the sale. The salesperson
must be able to present the proposal and handle any
customer objections confidently and professionally.
Prospects take note of body language, voice patterns, dress
and body type. In fact, they are more likely to remember
how salespeople physically present themselves than what
they actually say.35
5.3.5 Handling objections

Rarely does a prospect say Ill buy it immediately after a
presentation. Often, there are objections raised or perhaps

questions about the proposal and the product. One of the
first lessons that every salesperson learns is that objections
to the product should not be taken personally or as an insult.
Instead, a salesperson should view objections as requests for
information. A good salesperson handles objections calmly
and considers them a legitimate part of the purchase
decision. Anticipating specific objections, such as concerns
about price, is the best way to prepare for them.
WEBSITE
How do J. Crew and Lands End use the
Internet in the order-taking process?
www.jcrew.com
www.landsend.com
5.3.6 Closing the sale

At the end of the presentation, the salesperson should ask
the customer how he or she would like to proceed. If the
customer shows signs that he or she is ready to purchase
and that all questions have been answered and objections
met, then the salesperson can try to close the sale. Closing
requires courage and skill. Naturally, the salesperson wants
to avoid rejection, and asking for a sale carries with it the
risk of a negative answer. A salesperson should keep an
open mind when asking for the sale and be prepared for
either a yes or a no. Often, if the salesperson has developed a
strong relationship with the customer, only minimal efforts
are needed to close a sale.
5.3.7 Following up
Unfortunately, many salespeople have the attitude that
making the sale is all thats important. Once the sale is
made, they can forget about their customers. If salespeople
believe that, they are wrong. Their responsibilities do not
end with making the sales and placing the orders. One of the
most important aspects of their jobs is follow-up. They must
ensure that delivery schedules are met, that the goods or
services perform as promised, and that the buyers
employees are properly trained to use the products. Most
businesses depend on repeat sales, and repeat sales depend
on thorough and continued follow-up by the salesperson.
Finding a new customer is far more expensive than retaining
an existing one. When customers feel abandoned, cognitive
dissonance surfaces (see Chapter 1) and repeat sales
decline.
6. Sales management
LO16
There is an old adage in business that nothing happens until

a sale is made. Without sales there is no need for
accountants, production workers or even a CEO. Sales
management is one of marketings most critical specialities.
Effective sales management stems from a highly successorientated sales force that accomplishes its mission
economically and efficiently. Poor sales management can
lead to unmet profit objectives or even to the bankruptcy of
the firm. Although the sales managers basic job is to
maximise sales at a reasonable cost and simultaneously
maximise profits, he or she also has many other important

responsibilities and decisions to make. The tasks of sales
management are to:
Define sales objectives and the sales process

Design the sales organisation
Develop the sales force
Direct the sales force
Evaluate the sales force.
The following sections analyse each of these tasks in more

detail.
6.1 Defining sales objectives and the sales

process
Effective sales management begins by formulating sales
objectives. Management is also responsible for prescribing
the process salespeople follow to realise the desired sales
objectives most efficiently.
6.1.1 Setting strategic sales objectives

Like any marketing objective, sales objectives should be
stated in clear, precise and measurable terms and should
always specify a time frame for their fulfilment. Overall sales
objectives are usually stated in terms of the desired sales
volume (in rands), market share or profit level. For example,
a life-insurance firm may have an objective to sell R10m
worth of new life insurance policies annually, to attain a 12
per cent market share or to generate R5 million in profits.
Individual salespeople are also assigned objectives in the

form of targets. A sales target is simply a statement of the
salespersons sales objectives, which is usually based on
sales volume alone, but sometimes includes key accounts
(those with greatest potential), new accounts, repeat sales
and specific products. In addition, quotas can be based on
activity or on financial objectives. A sales representative for
a cellphone firm, for example, may have a sales quota of R5
000 worth of equipment or five new cellular systems per
week, or she may have the objective of completing a certain
number of sales calls per week. See Table 12.3 below for
Woolworths strategic objectives and indicators for 2013, as
linked to sales targets. The Woolworths strategy is crafted
around seven objectives in support of their vision: to be a
world leader in retail brands that appeal to people who care
about quality, innovation and sustainability.
6.1.2 Defining the sales process

Without a keen understanding of the sales process, a sales
manager will never be successful no matter how well
defined the sales objectives or how good the sales
representatives are. Having talented and hard-working
salespeople are not enough. Managers must put systems in
place to help them win. An important responsibility of the
sales manager, therefore, is to identify the most effective and
efficient sales process to follow in selling each different
product, brand and service. A sales manager should
formally define the specific procedures that salespeople go
through to do their jobs what they need to do to get from
step-to-step in making a sale. Without a formal sales process
to follow, sales representatives are often reactionary, rather

than proactive, to customer needs.
6.2 Designing the sales organisation

Because personal selling is so costly, no sales department
can afford to be disorganised. Therefore, structuring the
sales department or sales force and determining the size of
the sales force are essential prerequisites for successful
selling.
6.2.1 Designing the sales force structure

Sales departments are most commonly organised into the
following five types, or combinations of them:
Geographic organisation. A common method for
organising the sales force is assigning a salesperson to a
particular geographic area called a sales territory for
instance, a region, province, city or other trading area. A
consumer-product firm (for example, Unilever or
National Brands) with a large number of closely related,
non-technical products may use this type of structure.
Geographically structured sales departments are most
appropriate when customers are widely dispersed or
when there are large regional differences in customer
buying behaviour. For example, sales of sea-rescue
equipment in Gauteng would not warrant the creation of
separate sales territories, but they would in coastal
regions.
Table 12.3 Woolworths strategic objections and indicators
SOURCE: Woolworths Holdings Limited 2013 Integrated

Report, p. 4
Product organisation. Another common method is

structuring the sales organisation by the product or
brand that the salesperson sells. Structuring the sales
force in this manner is most appropriate when products
are complex, the differences between them are great and
the products or product groups are important enough to
justify special attention. A sales force organised by
product has greater knowledge of and expertise in
specific product categories. Pharmaceutical firms are a
good example of this structuring method. For instance,
Adcock Ingram may allocate responsibility for all its
generic medicines to a certain section of the sales force
and all critical-care products such as intravenous
solutions to another section.
Functional organisation. A sales department organised

by function focuses on needed sales activities, such as
account development or account maintenance. This
structure offers specialisation and efficiency in
performing selling activities and is best for firms selling
only a few, or very similar, products to relatively few
target markets. Eskoms sale of electricity to
municipalities is an example.
Market organisation. Using this approach, the sales
force is divided by customer groups, or target markets. A
market organisation is most appropriate when customer
needs and product purchases vary considerably from
one target group to another. This method is also used
when there is a specific need to identify and solve
different customer problems. Pharmaceutical firms are a
good example of this structuring method. For instance,
the pharmaceutical firm Aspen may structure its sales
force into three divisions for three different customer
groups: one for pharmacies, one for hospitals and one
for general practitioners.
Eastman Kodak reorganised its sales force after
realising it was over-extending its sales representatives.
Required to be familiar with more than 60 types of film
for commercial laboratories, wedding and portrait labs
and professional resellers, Kodak representatives found
it difficult to call on such diverse groups of customers
with such diverse needs. After careful analysis, Kodak
realigned its sales force into nine distinct groups based
on market segments: three for commercial services and
six for portrait/wedding and photographers/resellers
accounts. Salespeople were then assigned territories
based on the technical knowledge and marketing skills

that would be required for different market segments.
Being able to focus on one type of customer means that
sales representatives can pay more attention to market
trends and help solve customer problems.36
Key account organisation. Many firms have taken the
market-orientated structure one step further, to an
individual client or account level. This trend has
occurred in conjunction with the increased emphasis on
relationship selling. Using this method, the firm
normally assigns one salesperson or a team of
salespeople to a client to provide better, more
personalised customer service. By reorganising the sales
force around customers, many firms hope to improve
customer service, encourage collaboration with other
departments in the firm and unite salespeople into
customer-focused sales teams. Telkom sells most of its
services to a few large customers, such as the
government, parastatals and a few large corporate
customers key accounts to which special salespeople
may be assigned to offer a specialised service.
6.2.2 Deciding on the size of the sales force

When it comes to designing the sales organisation, another
task is to decide on the ideal size of the sales force. Sales
managers use several methods to determine the number of
salespeople needed. Using the workload approach, the sales
manager divides the total time required to cover a particular
sales territory by the selling time required by each
salesperson. The major advantage of the workload approach
to decide on the size of the sales force is its simplicity.

Successful application of the technique depends, however,
on the sales managers ability to estimate the ideal
frequency of calls and the number of potential customers.
Another disadvantage is that the workload approach fails to
consider either the cost of increasing the sales force or the
costs and profits associated with each sales call.
A second method for deciding on the optimal size of the
sales force is the incremental productivity approach.
According to this method, a manager should increase the
number of salespeople as long as the additional sales
increase is greater than the additional increase in the selling
cost. Firms with good internal records know the cost of
training a salesperson. This cost, plus field expenses and the
salary of a new sales employee, can be compared with the
revenue generated by the additional sales activities.
EXAMPLE >> Avon cosmetics uses a direct-marketing approach and

employs a sales force of 8 000 sales representatives, but wants to increase that
to 40 000 to ensure proper market coverage.37 It is interesting to note the
differences between life assurance firms when it comes to the size of their sales
forces. Old Mutual has a sales force of about 5 460, whereas Sanlams sales
force is about 2 500. Liberty Life is converting its intermediaries to franchises,
while Momentum relies entirely on independent brokers for its business.38
6.3 Developing the sales force

6.3.1 Recruiting the sales force
Sales force recruitment should be based on an accurate,
detailed description of the sales task. The sales manager

should then develop the job description to match the sales
force objectives. From the job description, the sales
manager should build a profile of the ideal candidate for the
job. The profile may include such things as the candidates
level of education, employment background, level of
experience, stability of employment history, ability to work
unsupervised and to travel, knowledge of sales techniques
and previous sales training, level of verbal and written
communication skills, organisational skills and previous
remuneration.
Aside from the usual characteristics specified in the
candidate profile, what traits should sales managers look for
in applicants? What traits help ensure that a recruit will
become an effective salesperson? The most important
quality of top performers is that they are driven by their own
goals. That is, they usually set personal goals higher than
those set for them by management. Moreover, they are
achievement-orientated, they talk about their sales
accomplishments and they are self-confident. Effective
salespeople are also self-competitive: they keep close tabs
on their own performance and compare it with their
previous performance. They are optimistic, highly
knowledgeable about the products they sell and are
assertive. They also know how to listen to customers and are
team players who support their colleagues.
6.3.2 Training the sales force

After the sales recruit has been hired and given a brief
orientation, training begins. A new salesperson generally
receives instruction in five major areas: company policies

and practices; selling techniques; product knowledge;
industry and customer characteristics; and non-selling
duties, such as compiling market information reports. A
good training programme boosts confidence, improves
morale, increases sales and builds better customer relations.
Classroom instruction may last several days to allow the
trainee to study the firms policies, and several weeks or
months for actual sales techniques. Trainees are taught
everything from how to prospect for new potential clients to
how to service the account after the sale. Firms that sell
complex products, such as medical imaging equipment and
pharmaceutical products, generally offer the most extensive
training programmes.
6.4 Directing the sales force

Directing the sales force requires the special skills of the
sales manager. The ideal sales manager must possess
analytical skills while also playing the role of motivator and
cheerleader. Although the sales managers job in reality will
include many more duties than discussed in this section,
directing the sales force generally encompasses
remuneration planning, motivating salespeople to reach
their goals and effective leadership.
6.4.1 Remuneration planning

Only good planning will ensure that remuneration attracts,
motivates and retains good salespeople. Remuneration
needs to be competitive enough to attract and motivate the
best salespeople. The three basic payment methods for

salespeople are commission, salary and combination plans.
A typical commission plan gives salespeople a specified
percentage of their sales revenue. However, if the plan is a
straight-commission system, the salesperson receives no
pay at all until a sale is made. As a result, management often
lack control over sales representatives who are paid a
straight commission. In addition, straight-commission
salespeople normally have little loyalty to the firm and are
reluctant to perform non-selling activities that do not
generate commissions. Firms with limited resources and
those selling high-priced items usually use commission
plans for at least part of the remuneration package.
As its name suggests, a straight-salary system
remunerates salespeople with a fixed salary regardless of
their productivity. Whereas compiling information reports,
servicing accounts, calling on smaller customers and
performing other non-selling tasks are undesirable to the
commissioned salesperson, the salaried salesperson can
tolerate these tasks. A straight-salary plan works effectively
when customers require an extensive amount of post-sale
service or the firm is focused on relationship-selling
techniques. In addition, in the case of firms that use a team
approach or rely on missionary sales representatives, it may
be hard to tell who actually closed a sale. Although it offers
maximum control, a disadvantage of the straight-salary
system is that it may give salespeople little incentive to
produce new sales.
To have the best of both worlds, most firms offer a
combination system that offers a salesperson a base salary
plus an incentive usually a commission or a bonus.

Combination systems have benefits for both the sales
manager and the salesperson. The salary portion of the plan
helps the manager control the sales force while the incentive
provides motivation. For the salesperson, a combination
plan offers an incentive to excel while minimising the wide
swings in earnings that may occur when the economy surges
or contracts.39
WEBSITE
Visit the McCarthy Motor Holding website,
www.mccarthy.co.za. Do you think the site
will be of assistance to vehicle
salespeople?
6.4.2 Motivating the sales force with effective sales

leadership
Perhaps the most critical, and often most difficult,
component of the sales managers job is to be an effective
leader and teacher to his or her sales force. Successful sales
representatives are not necessarily born: more often they are
made, sculpted, moulded and shaped under the careful
tutelage and direction of their sales manager. An effective
sales manager inspires his or her salespeople to realise their
goals by means of clear and enthusiastic communication.
He or she has a clear vision and commitment to the mission
of the firm and the ability to instill pride and earn the respect
of his or her employees. Effective sales leaders continuously
increase their knowledge and skills base, and encourage
others to do the same. Devoting time to honing sales skills
and learning new techniques is strongly advocated.
6.5 Evaluating the sales force

The final task for sales managers is evaluating the
effectiveness and performance of the sales force. To evaluate
the sales force, the sales manager needs feedback, namely
regular information from salespeople. Call-record reports or
real-time information fed into a central database from
individual sales representatives automation software can
give managers a fairly good idea of activities, such as the
number of sales proposals presented and the number of
accounts closed.
Such information helps the sales manager to monitor a
salespersons progress through the sales cycle and identify
where breakdowns may be occurring. By knowing the
number of prospects an individual salesperson has in each
step of the sales cycle process and identifying where
prospects are falling out of the sales cycle, a manager can
evaluate how effective a salesperson may be at lead
generation, needs assessment, proposal generation,
presenting, closing the sale and following up.
Knowledge of where a salesperson is losing prospects
tells a manager what sales skills may need to be reassessed
or where retraining is required. For example, if a sales
manager notices that a salesperson has many interested
prospects at the beginning of the sales cycle, but seems to
get few past the needs assessment stage, he or she may
recommend that the salesperson brush up on listening or
information-collection skills. Likewise, if a salesperson
seems to be letting too many prospects fall by the wayside
after presenting proposals, he or she may need to help with
developing proposals, handling objections or closing sales.

Managers can also evaluate salespeople using
performance measures such as sales volume, contribution
to profit, calls per order, sales or profits per call or the
percentage of calls achieving specific goals (such as sales of
products that the firm is heavily promoting). Qualitative, or
subjective, methods may also be used to evaluate the sales
force. Examples of subjective criteria include the
salespersons knowledge of the firm and its products,
customers and competitors, and his or her sales tasks.
<<< LOOKING BACK

There are more than two million Facebook users in South
Africa. The major benefit of using Facebook for advertising
is its ability to target specific audiences, which makes
Facebook an attractive advertising medium for many
advertisers. However, the use of Facebook as an advertising
medium is one that should be used with care. To use
Facebook successfully the objectives of the campaign and
the target audience must be clearly specified. How the
success of the campaign will be measured must also be
clarified. But, as was pointed out in Marketing in practice
The Internet as advertising medium at the beginning of the
chapter, it wont work for everyone. For those with a clear
understanding of their target market and the objectives of
the proposed campaign, Facebook can be a valuable
advertising medium.
In this chapter the implementation of the four most
important elements of a marketing communication mix was
discussed. The way in which they are effectively integrated

will, however, determine the eventual success of the
marketing communication strategy.
SUMMARY
1
The advertising campaign process. An advertising

campaign is a series of related advertisements focusing
on a common theme and common goals. The
advertising campaign process consists of several
important steps. Advertising managers first set specific
campaign objectives. They then make creative decisions,
often with the aid of an advertising agency, centred on
developing advertising appeals. Once creative decisions
have been made, media are evaluated and selected.
Finally, the overall campaign is assessed using various
forms of testing.
Different advertising appeals. An advertising appeal
identifies a reason for a person to buy a product.
Developing advertising appeals is a challenging task.
They typically play off consumers emotions, such as fear
or love, or address some need or want the consumer has,
such as a need for convenience or healthy eating or the
desire to save money. Advertising campaigns may focus
on one or more advertising appeals.
Different message-execution styles:
Slice-of-life is popular when advertising household
and personal products. It depicts people in normal
settings, such as at the dinner table
Lifestyle shows how well the product will fit in with
the consumers lifestyle

Spokesperson/testimonial may feature a celebrity,
company official, or typical consumer making a
testimonial or endorsing a product
Fantasy creates a fantasy for the viewer built around
use of the product
Humour advertisers often use humour in their
advertisements
Real or animated product symbols characters are
created that represent the product in advertisements
Mood or image. This message-execution style builds
a mood or image around the product, such as peace,
love or beauty
Demonstration shows consumers the expected
benefit. Many consumer products use this technique
Music conveys the message of the advertisement
through song
Scientific evidence uses research or scientific
evidence to give a brand superiority over
competitors.
4 Advantages and disadvantages of different advertising media:
Medium
Advantages
Disadvantages
Newspapers
Geographic selectivity and

flexibility; short-term advertiser
commitments; news value and
immediacy; year-round
readership.
Little demographic
selectivity; limited colour
capabilities; low passalong rate; may be
expensive.
Magazines
Good reproduction, especially for

colour; demographic selectivity;
regional selectivity; local market
selectivity; relatively long
advertising life; high pass-along
rate.
Long-term advertiser
commitments; slow
audience build-up;
limited demonstration
capabilities; lack of
urgency; long lead time.
Radio
Low cost; immediacy of

message; can be scheduled at
short notice; relatively no
seasonal change in audience;
highly portable.
No visual treatment;
short advertising life of
message; high frequency
required to generate
comprehension and
retention.
Television
Ability to reach wide, diverse

audience; low cost per thousand;
creative opportunities for
demonstration.
Short life of message;

some consumer
scepticism about claims;
high campaign cost.
Outdoor
Repetition; moderate cost;

media flexibility.
Short message; lack of

demographic selectivity.
Media evaluation and selection techniques. Media
evaluation and selection is a crucial step in the

advertising campaign process. Advertising managers
choose the advertising media mix on the basis of the
following variables: cost per thousand (CPM), reach,
frequency, characteristics of the target audience,
audience selectivity, geographic selectivity, flexibility,
noise level and lifespan. After choosing the media mix, a
media schedule designates when the advertisement will
appear and the specific media vehicles it will appear in.
6 Three basic types of media scheduling. A continuous
schedule allows the advertising to run steadily
throughout the advertising period. A flighted media
schedule allows the advertiser to schedule the
advertisements heavily every other month or every two
weeks to achieve a greater impact through increased
frequency and reach at those times. Certain times of the
year call for a seasonal media schedule.
7 Techniques for assessing an advertising campaigns
effectiveness. Testing advertising effectiveness can be
done either before or after the campaign. Pre-tests, such
as consumer jury tests, portfolio or unfinished-rough
tests, and post-tests, such as recognition tests and recall
tests, may be applied.
8 The role of public relations in the marketing
communication mix. Public relations is a vital part of a
firms marketing communication mix. A firm needs to
foster good publicity to enhance its image and promote
its products.
9 The objectives of sales promotion. Sales promotions
are those marketing communication activities, other
than advertising, personal selling and public relations, in
which a short-term incentive, such as a lower price or

added value, motivates consumers or members of the
distribution channel to purchase a good or service
immediately. The main objectives of a sales promotion
are to increase trial purchases and encourage repeat
purchases. Sales promotion is also used to encourage
brand switching and build brand loyalty. Sales
promotion supports advertising activities.
10 The most common forms of consumer sales
promotion. Consumer forms of sales promotion include
coupons, premiums, loyalty marketing programmes,
competitions, sampling and point-of-purchase displays.
11 The most common forms of trade sales promotion.
Manufacturers employ many of the same sales
promotion tools used in consumer promotions, such as
sales contests, premiums and point-of-purchase
displays. In addition, manufacturers and channel
intermediaries use several special promotional
strategies: trade allowances, push money, training
programmes, free merchandise, store demonstrations,
and meetings, conventions and trade shows.
12 Personal selling. Personal selling is direct
communication between a sales representative and one
or more prospective buyers in an attempt to influence
each other in a purchase situation. Personal selling
allows salespeople to explain and demonstrate a product
thoroughly. Salespeople have the flexibility to tailor a
sales proposal to the needs and preferences of individual
customers. Personal selling is more efficient than other
forms of promotion because salespeople target qualified
prospects and avoid wasting efforts on unlikely buyers.
13 Circumstances in which either personal selling or

advertising/promotion will be the most appropriate
promotional tool. Generally speaking, personal selling
becomes more important as the number of potential
customers decreases, as the complexity of the product
increases and as the value of the product grows. When
there are relatively few potential customers, the time and
travel costs of personally visiting each prospect are
justifiable, but the products or service must be of
sufficient value to absorb the expense of a sales call. For
highly complex products, a salesperson is needed to
determine the prospective customers needs, explain the
products basic advantages and propose the exact
features and accessories that will meet the clients needs.
Conversely, advertising and sales promotion more
effectively and economically promote a product when
the number of potential buyers is large, the product is
less complex, the buyers are dispersed and the product is
low in value and highly standardised.
14 The different types of selling tasks. Sales tasks are
generally classified into three basic categories: order
getting, order taking and sales support. Order getters,
who actively seek prospective buyers and try to persuade
them to buy, may be members of a firms sales force or
independent sellers. Order takers handle either inside
ordering or field ordering. Inside order takers take orders
over the counter, on the sales floor, over the telephone or
by mail. By contrast, field order takers visit customers to
service accounts, check inventory, take new orders and
deliver and stock merchandise to customers. Salessupport positions include missionary sales
representatives, technical specialists and selling teams.

Missionary sales representatives provide a variety of
promotional services to support corporate sales efforts.
Technical specialists help the sales force by describing,
designing and installing products.
15 The steps in the selling process. The selling process is
composed of seven basic steps:
Generating sales leads
Qualifying sales leads
Doing a needs assessment
Developing and proposing solutions
Handling objections
Closing the sale
Following up.
16 The functions of sales management. Sales management
is a critical area of marketing that encompasses several
important functions. Sales managers set the firms
overall sales objectives and define the sales process most
conducive to achieving those goals. They design the sales
force by establishing a sales force structure based on
geographic, product, functional or customer variables,
and determining the size of the sales force. Managers
develop the sales force through recruitment and
training. Sales management directs the sales force
through remuneration planning, motivation and
effective sales leadership. Finally, sales managers
evaluate the sales force through feedback from
salespeople and other methods of determining their
performance.
DISCUSSION AND WRITING

QUESTIONS
1
What is an advertising appeal? Provide some examples of

advertising appeals that you have recently observed in
the media.
You are the advertising manager of a health magazine,
and one of your biggest potential advertisers has
questioned your rates. Write a letter to the firm
explaining why you believe your audience selectivity is
worth the extra expense for advertisers.
Discuss how different forms of sales promotion can
erode or build brand loyalty. If a firms objective is to
enhance customer loyalty to its products, which salespromotion techniques would be most appropriate?
What does sales follow-up entail? Why is it an essential
step in the selling process, particularly from the
perspective of relationship selling? How does it relate to
cognitive dissonance?
STRATEGY READER >> Customer is king

Sports-shoe maker Nike has created a prime example of the new kind of
advertising, which is not only driven by the rise of digital technology, but also
embraces it. In the traditional advertising sense, Nike markets shoes. In the
new paradigm, Nike has created the worlds biggest running club. Nike
Techlab general manager, Michael Tchao, says the Nike+iPod idea started
when the question was asked: How do we turn information into inspiration?
Because we are at our best when we maximise that emotional connection we
have with the consumer. He adds that much sports technology over the past
ten years has all the glamour and excitement of an electrocardiogram linked
with Microsoft Excel. However, Nike saw an increasing number of its users
engaging in the digital community. The company considered how to connect
physical activity to digital communities, and how to build deeper relationships.
After a survey indicated that mobile music was important to many runners (75
per cent of respondents ran with music, while 45 per cent would not run
without music), Nike+iPod was born.
Nike and iPod manufacturer, Apple, teamed up to create a connection
between the two products. A sensor in the Nike+ shoe communicates with an
iPod nano to record all details of a run or walk, including distance, average
speed, total time, calories burnt, and so on. The details are then uploaded
onto the Nike+ community website and displayed in graphic form, where past
runs are also stored so that progress can be monitored. Users can also set up
personal goals, challenge other users around the world and participate in
forum discussions. The concept has even allowed people to participate
virtually in world-famous marathons without being present physically.
Ultimately, while Nike is still in the business of selling shoes and Apple is still
in the business of selling hardware, the new way of marketing means their
customers are buying into a running club with a virtual personal trainer.
SOURCE: Scott, I. 2010. Customer is king. Available from
http://www.iweek.co.za (accessed 29 June 2010)
QUESTIONS
1
Describe how social media can be used to create virtual communities.
KEY CONCEPTS
Advertising appeal: reason for a person to buy a product.
Advertising campaign: series of related advertisements focusing on a common
theme, slogan and set of advertising appeals.
Advertising objective: specific communication task that a campaign should
accomplish for a specified target audience during a specified period.

Advertising response function: phenomenon in which spending for advertising
and sales promotion increases sales or market share up to a certain level, but
then produces diminishing returns.
Advocacy advertising: form of advertising in which a firm expresses its views on
controversial issues or responds to media attacks.
Audience selectivity: ability of an advertising medium to reach a precisely
defined market.
Cold calling: form of lead generation in which the salesperson approaches
potential buyers without any prior knowledge of their needs or financial status.
Competitive advertising: form of advertising designed to influence demand for
a specific brand.
Consumer sales promotion: sales promotion activities targeted at the ultimate
consumer.
Continuous media schedule: media scheduling strategy used for products in the
latter stages of the product life cycle, in which advertising is run steadily
throughout the advertising period.
Co-operative advertising: arrangement in which the manufacturer and the
retailer split the costs of advertising the manufacturers brand.
Cost per contact: cost of reaching one member of the target market.
Cost per thousand (CPM): standard criterion for comparing media, computed
by dividing the price of a single advertisement by the audience size in thousands.
Coupon: certificate that entitles consumers to an immediate price reduction
when they buy the product.
Crisis management: co-ordinated effort to handle the effects of unfavourable
publicity or of an unexpected, unfavourable event.
Field order taker: someone who visits existing customers regularly, checks
inventory, writes up new orders and then delivers and stocks the product for
customers.
Flighted media schedule: media scheduling strategy in which advertisements
are run heavily every other month or every two weeks to achieve a greater impact
with an increased frequency and reach at those times.
Follow-up: final step of the selling process, in which the salesperson ensures
that delivery schedules are met, the goods or services perform as promised and
the buyers employees are properly trained to use the products.
Frequency: number of times an individual is exposed to a given message during
a specific period.
Frequent-buyer programme: loyalty programme in which loyal consumers are
rewarded for making multiple purchases of a particular product or service.
Incremental productivity approach: method of determining the optimal sales
force size in which salespeople are added as long as the total sales increase is
greater than the increase in selling cost.

Infomercial: advertisement of 30 minutes or longer that more closely resembles
a TV talk show than a sales pitch.
Inside order taker: someone who takes orders from customers over the counter,
on the sales floor, over the telephone or by mail.
Lead generation (prospecting): identifying those firms and people most likely to
buy the sellers offerings.
Lead qualification: determining a sales prospects authority to buy and ability
to pay for the product or service.
Loyalty marketing programme: promotional programme designed to build
long-term, mutually beneficial relationships between a firm and its key
customers.
Media mix: combination of media to be used for a promotional campaign.
Media schedule: designation of the media, the specific publications or
programmes and the insertion dates of advertising.
Medium: channel used to convey a message to a target audience.
Needs assessment: determining the customers specific needs and wants and the
range of options a customer has for satisfying them.
Networking: process of finding out about potential clients from friends, business
contacts, co-workers, acquaintances and fellow members in professional and
civic organisations.
Order getter: someone who actively seeks buyers for a product.
Personal selling: direct communication between a sales representative and one
or more prospective buyers in an attempt to influence each other in a purchase
situation.
Pioneering advertising: form of advertising designed to stimulate primary
demand for a new product or product category.
Point-of-purchase display: promotional display set up at the retailers location
to build traffic, advertise the product or induce impulse buying.
Product advertising: form of advertising that touts the benefits of a specific
product or service.
Pulsing media schedule: media scheduling strategy that uses continuous
scheduling throughout the year coupled with a flighted schedule during the best
sales periods.
Push money: money offered to channel intermediaries to encourage them to
push products i.e. to encourage other members of the channel to sell the
products.
Quota (sales target): statement of the individual salespersons sales objectives,
usually based on sales volume.
Reach: number of target consumers exposed to a commercial at least once
during a specific period, usually four weeks.
Referral: recommendation to a salesperson from a customer or business

associate.
Relationship selling (consultative selling): sales practice of building,
maintaining and enhancing interactions with customers in order to develop
long-term satisfaction through mutually beneficial partnerships.
Sales presentation: face-to-face explanation of the sales proposal to a
prospective buyer.
Sales process (sales cycle): the steps a salesperson goes through to sell a
particular product or service.
Sales promotion: offer of a short-term incentive in order to induce the purchase
of a particular product or service.
Sales proposal: a formal written document or professional presentation that
outlines how the salespersons product or service will meet or exceed the
prospects needs.
Sales territory: particular geographic area assigned to a salesperson.
Sampling: promotional programme that allows the consumer the opportunity to
try the product or service for free.
Seasonal media schedule: media scheduling strategy that runs advertising only
during times of the year when the product is most likely to be used.
Straight commission: method of remuneration in which the salesperson is paid
a certain percentage of sales.
Straight salary: method of remuneration in which the sales-person receives a
salary regardless of sales productivity.
Trade allowance: price reduction offered by manufacturers to intermediaries,
such as wholesalers and retailers.
Trade sales promotion: sales promotion activities targeted at a channel
member, such as a wholesaler or retailer.
Unique selling proposition: desirable, exclusive and believable advertising
appeal selected as the theme for a campaign.
Workload approach: method of determining the optimal sales force size in
which the total time required to cover the territory is divided by the selling time
available to one salesperson.
REFERENCES
1
The quarterly review of sustainability in South Africa. 2011. Available from

http://www.trialogue.co.za/wp-content/uploads/2013/03/3.4.2.3SR_Issue6_Complete.pdf (Accessed 25 August 2014).
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effect of humor in different advertising media. Journal of Advertising
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Adspend declines in real terms. 8 May 2013. Available from
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Ibid.
AMPS figures on South African Advertising Research Foundation. Available,
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Radio: No longer an advertising afterthought. 1995. Standard & Poors
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Killoran, E. 2014. Super Bowl Ads 2014: What does $4 million really buy you.
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See http://www.sabc.co.za/wps/portal/SABC/SABCRATECARDTV#;
Ibid.
In your face. 2002. Ad Focus, supplement to Financial Mail, 24 May 2002, p.
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The Future of Media. Blueprint. 2013. Available from
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Postertrack provides many answers. Business Day, 5 June 2001, p. 6
Berthon, P., Pitt, L.F. & Watson, R.T. 1996. The World Wide Web as an
advertising medium: Toward an understanding of conversion efficiency.
Journal of Advertising Research, January/February 1996, pp. 4354.
The Future of Media. Blueprint. 2013. Available from
Ibid.
Freeman, L. 1996. Internet visitors: Traffic jam makes buyers Web wary.
Advertising Age, 22 July 1996, pp. S1415.
Steinberg, B. As World Cup Popularity Grows, So Does U.S. 11 June 2014.
Interest In Soccer. Available from http://variety.com/2014/tv/news/asworld-cup-popularity-grows-so-does-u-s-interest-in-soccer-1201218306/
Naidoo, S. 2010. Spenders sit it out. Financial Mail, 14 May 2010, p. 22.
Bird, L. 1994. Loved the ad. May (or may not) buy the product. The Wall
Street Journal, 7 April 1994, p. B1.
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Available from http://grubstreet.co.za/2014/06/27/politics-tv-2014-electionad-spend-and-ratings/ (Accessed 25 August 2014).
23 Wood, L. Is Radio the New Black? How Big Data Is Giving Traditional Media
New Power. Available from
http://www.marketingmagnified.com/2014/June/feature#bio (Accessed 25
August 2014).
24 da Silva, I.S. 2011. Sport sponsorship: Is it worth it? Is it overpriced?
Bizcommunity, 25 August; Mokgata, Z. 2010. Music volume going up.
Financial Mail, 10 December, p. 54.
25 Nevill, G. Weighing in on sports sponsorship. 16 April 2014. Available from
http://themediaonline.co.za/2014/04/weighing-in-on-sports-sponsorship/
26 Obama slams oil companies. Sunday Times business section, 16 May 2010, p.
1.
27 Moorad, Z. 2013. Spurs profit leaps 35.3% as aggressive promotions pay off.
Business Day, 8 March, p. 17.
28 More fishy business. Finweek, 16 September 2010, p. 50.
29 Lacek, M. 1995. Loyalty marketing no ad budget threat. Advertising Age, 23
October 1995, p. 20.
30 Conlon, G. 1996. True romance. Sales and Marketing Management, May
1996, pp. 8590.
31 Badham, D. 2012. Point of purchase: New Sell Point. Special Report,
Financial Mail, 30 November 5 December, p. 96.
32 Brooksbank, R. 1995. The new model of personal selling: Micromarketing.
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D.W. Jr. 1994. Relationship selling: The personalization of relationship
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33 Jolson, M.A. & Wotruba, T.R. 1992. Selling and sales management in action:
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Sales Management, fall, pp. 5966.
34 Adapted from Kimball, B. 1994. Successful selling. American Marketing
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35 Cohen, A. 1994. Delivering the right pitch. Sales & Marketing Management,
September 1994, p. 44; Brewer, S. 1994. How to present so prospects listen.
Personal Selling Power, April 1994, p. 75.
36 Campanelli, M. 1995. Managing territories: A new focus. Sales & Marketing
Management, September 1995, pp. 5658.
37 Koenderman, T. 1997. The Avon Lady comes calling in SA too. Financial
Mail, July 11 1997, pp. 8788.
38 Accent on keeping customers satisfied and coming back. Financial Mail, 5
March 1999, p. 140.

39 Head, R.G. 1992. Restoring balance to sales compensation. Sales & Marketing
Management, August 1992, pp. 4853.
CHAPTER
13
Pricing concepts and setting the

right price
LEARNING OUTCOMES
Discuss the importance of pricing decisions to the economy and

to the individual firm.
2 List and explain various pricing objectives.
3 Explain the role of demand in price determination.
4 Contrast the different cost-orientated pricing strategies.
5 Demonstrate how the product life cycle, competition, distribution
and promotion strategies, and perceptions of quality can affect
price.
6 Illustrate the procedure for setting the right price.
7 Consider the legality and ethics of certain pricing strategies.
8 Explain how discounts, geographic pricing and other special
pricing tactics can be used to fine-tune the base price.
9 Critically evaluate the use of product-line pricing.
10 Explain the role of pricing during periods of inflation and
recession.
above outcomes.
If the price is right, the wine is too
To demonstrate the power of marketing, researchers in
California showed you can increase a persons
enjoyment of wine by just sticking a higher price on it,
according to a study by the California Institute of
Technology. Economics professor, Antonio Rangel, and
his team asked 21 volunteers to sample five different
bottles of Cabernet Sauvignon and rate their taste
preferences.
All they were told was the price of the wine. The
researchers also presented two of the wines twice, once
with the true price tag, and again with a fake one. The
tasters passed off a $90 bottle of Cabernet Sauvignon as
a $10 bottle, and a $5 bottle as one worth $45. Subjects
were given brain scans during the tests to see how the
brain was reacting to the taste. The study found that
inflating the wine price genuinely boosted a persons
experience of drinking it, as shown by the neural
activity. They consistently said the pricier wines tasted
better and the brain scans backed them up.
SOURCE: If the price is right, the wine is too. Cape Times electronic edition,
25 February 2008
QUESTIONS
1
2
Why do consumers rate more expensive wine as tastier?

Is the conclusion true in other product categories as well? In other
words, do consumers generally associate higher-priced products with
higher quality?
1. Introduction
In Chapter 1 we referred to the value-adding activities that
marketers typically perform. We said that marketing creates
utility by overcoming certain gaps. One such gap is the gap
between what a seller and a buyer may see as value, known
as separation in value. Buyers and sellers often disagree
about the value of a product. Manufacturers want to sell
their products at the highest possible price and the buyers
want to pay as little as possible. Consequently, marketers
have to convince buyers that their products represent value
(or value for the money spent), otherwise they will not buy.
Using the pricing mechanism, marketers establish a
monetary value for a product that will recover the
manufacturers production cost plus some profit margin,
while also representing a realistic price that the target
market will be prepared to pay. In other words, marketers
establish an equilibrium price between manufacturers (who
want as high a price as possible for their products) and
buyers (who want to pay as little as possible).
Pricing decisions have an important impact on a firms
revenue and profitability and, therefore, its survival
prospects. If a firm charges too high a price it may lose the
sale. On the other hand, excessive discounting reduces
profitability. In addition, too low a price is often interpreted

as a sign of poor quality.
Price means one thing to the consumer and another to
the seller. To the consumer, it is the cost of something. To
the seller, price is revenue, the primary source of profits. In
its broadest sense, price allocates resources in a free-market
economy. With so many ways of looking at price, its no
wonder that marketing managers find the task of setting
prices a demanding one.
2. The importance of price to marketing

managers
LO1
Price is what is given up in an exchange to acquire a product

or service. Normally, price is the money exchanged for the
product or service, but price can relate to anything with
perceived value, not just money. When products and
services are exchanged for something other than money, it is
called barter trade. For example, if you exchange this book
you are reading for an economics textbook at the end of the
semester, you have engaged in a barter exchange. The price
you paid for the economics book was this textbook.
Price is the key to revenue, which, in turn, is the key to a
firms profit. Revenue is the price charged to customers,
multiplied by the number of units sold. Revenue is what pays
for every activity of the firm: production, finance, sales,
distribution and so on. Whats left over (if anything) is profit.
Managers usually strive to charge a price that will earn the
firm a fair profit.

To earn a profit, managers must choose a price that is not
too high or too low a price that equals the perceived value
to target consumers. If a price is set too high in consumers
minds, the perceived value will be less than the cost and
sales opportunities will be lost. Therefore, marketing
managers cannot ignore the perceptions of consumers
created by the other elements of the marketing mix, i.e. the
product, communication and distribution components.
Pricing cannot be viewed in isolation and should be blended
with the other elements of the marketing mix to create a
perception of exceptional value.
EXAMPLE >> A good example of price perceptions is the beer market,

in which the proliferation of brands available is indicative of the increasingly
discerning and demanding tastes of South Africans. Local consumers are no
longer prepared merely to accept the brand which has stood the test of time.
Many new, predominantly European and Irish beers, in addition to what is known
as craft beers, are sold at a significant premium to the local brand leaders.
Although niche market segments remain relatively small, the profitability is
disproportionately high and provides marketers with further proof of the
increasing complexity of pricing.
Many purchasers of cars, sports goods, CDs, tools, wedding
gowns and computers are buying used, or pre-owned,
items because they believe these goods offer them better
value for their money. Pricing a new product too high may
give a potential buyer an incentive to consider alternatives,
such as pre-owned products, or they may simply not buy at
all. At one stage, two of South Africas biggest fleetmanagement firms, for instance, said that they do not buy
Ford cars anymore because they do not represent value.

Residual values are lousy, spare parts are expensive and
dealer service is not the best, they said.1 Lost sales mean lost
revenue.
Conversely, if a price is too low, although it may be
perceived as great value for the consumer, the firm loses the
revenue it could have earned. Setting prices too low may not
even attract as many buyers as managers may think. One
study surveyed more than 2 000 shoppers at national chains
in the United States and found that more than 60 per cent
intended to buy full-price items (non-discounted) only.2
Therefore, retailers that place too much emphasis on
discounts may not be able to meet the expectations of
customers who prefer full-price items.
From a marketing perspective, the most important aspect
of pricing is that it is an important means of differentiating
and positioning a product. In other words, pricing is a
means of building a competitive advantage. In many
industries such as grocery retailing pricing is the most
important means of building a competitive advantage,
particularly where products are very similar and other
means of differentiation are difficult or simply not possible.
Setting the right price is one of the most demanding, yet
most significant, tasks of the marketing manager. In recent
years, this function has become even more demanding with
new technology driving down costs, increasing price
transparency, the impact of e-commerce and globalisation.
Importantly, it is no longer adequate for managers to follow
trends in their local markets because South African
consumers are becoming increasingly globally aware and
accessible to foreign firms (as well as other new entrants

into the market). For example, in South Africa, Kulula and
Mango entered the airline market with a low-cost business
model, capturing much of the leisure travel market, which
led to losses for South African Airways.
>>Strategy
Making mistakes with pricing can be costly. A few years
ago, Samcor/Ford cut prices aggressively to increase its
market share. Its Mazda and Mitsubishi models gained
market share as a result, but the action led to most
vehicle manufacturers, including Samcor (owners of
the Ford brand), losing millions of rands.3 In 2005 a
price war broke out between Ster-Kinekor and Nu
Metro which led to heavy losses for both firms,
although the reduced prices did result in slightly
improved attendance figures. The opposite is also true.
SA Breweries incredible success in South Africa can be
attributed to how it manages its costs, and therefore its
prices. It has expanded the beer market continuously
by keeping price increases below the inflation rate for
more than 25 years.4
3. Pricing objectives
LO2
To survive in highly competitive markets, firms need pricing

objectives that are specific, attainable and measurable.
Realistic pricing objectives then require periodic monitoring

to assess the effectiveness of the firms strategy. For
convenience, pricing objectives can be divided into three
categories: profit-orientated, sales-orientated and status
quo.
3.1 Profit-orientated pricing objectives

A profit-oriented pricing strategy involves setting prices for
products that will guarantee a profitable sale. The cost of
manufacturing each product is calculated and then a
percentage for profit is added. There are some strategies and
issues you should review before setting prices in this
manner. While profits are the goal of any business, setting
prices based on profit goals can present some problems,
namely (1) customers dont care about your costs, (2)
competitors costs, and (3) what the market will bear. Profitorientated objectives can be subdivided into profit
maximisation, satisfactory profits and target return on
investment.
3.1.1 Profit maximisation as pricing objective

Profit maximisation means setting prices so that total
revenue is as high as possible relative to total costs. (A more
theoretically precise definition and explanation of profit
maximisation appears later in this chapter.) Profit
maximisation does not always signify unreasonably high
prices, however. Price and profits both depend on the type
of competitive environment in which a firm trades, such as a
monopoly position (i.e. being the only seller) or selling in a
much more competitive environment (see Chapter 4 for a

description of the four types of competitive environments).
And keep in mind that a firm cannot charge a price higher
than the products perceived value. Furthermore, it is
unfortunately true that many firms do not have the
accounting data available that they need for setting prices at
levels to maximise profits. It may appear obvious that a firm
should keep producing and selling products or services as
long as revenues exceed costs, yet it is often hard to set up an
accurate accounting system to determine the exact point of
profit maximisation.
3.1.2 Satisfactory profits as pricing objective

Satisfactory profits can be described as a reasonable level of
profits. Rather than maximising profits, many firms strive for
profits that are satisfactory to shareholders and
management in other words, a level of profits consistent
with the level of risk the firm faces. In a risky industry (such
as micro-lending, for instance), a satisfactory profit may be
35 per cent. However, in a relatively low-risk industry (such
as grocery retailing), it may be as low as 7 per cent.
3.1.3 Target return on investment as pricing objective

The most common profit objective is target return on
investment (ROI), sometimes called the firms return on total
assets. ROI measures the overall effectiveness of
management in generating profits with its available assets.
The higher the firms return on investment, the more
profitable it is. Many firms use target ROI (also called return
on equity) as their main pricing objective. For instance,
South African Airways aims for a profit margin of 7,5 per

cent.5
Return on investment (ROI) is calculated as follows:
Assume that in 2015 Crawfords Cosmetics had assets of

R4,5 million, net profits of R550 000, and a target ROI of 10
per cent. The actual ROI was therefore:
As you can see, the ROI for Crawfords cosmetics exceeded

its target of 10 per cent, which indicates that the firm
prospered in 2015. Is this conclusion justified? Comparing
the 12,2 per cent ROI with the industry average provides a
more meaningful picture. Any ROI needs to be evaluated in
terms of the competitive environment, risks in the industry
and prevailing economic conditions. Generally speaking,
firms pursue ROIs in the 10 to 30 per cent range. For
example, most major pharmaceutical firms strive for a 20
per cent ROI. The healthcare group Netcare averages
between 19 and 25 per cent.6 In other high volume
industries, however, such as the grocery industry, a return of
under 5 per cent is common and acceptable. Pick n Pays
profit margins are sometimes as low as 2,8 per cent for some
products.
A firm with a target ROI can predetermine its desired
level of profitability. The marketing manager can use the

standard, such as 10 per cent ROI, to determine whether a
particular price and marketing mix are feasible. In addition,
however, the manager must weigh the risk of a given
strategy even if the return is in the acceptable range.
3.2 Sales-orientated pricing objectives

Sales-orientated pricing objectives are either based on
market share, or on rand values or unit sales. When SterKinekor slashed its cinema prices by 50 per cent (to R14) in
2005, it expected cinema attendance to increase from 16,5
million to a staggering 26 million a sales-orientated
objective.
The effective marketing manager should be familiar with
the following pricing objectives.
3.2.1 Market share

Market share is a firms product sales as a percentage of total
sales for that industry. Tiger Brands is a firm that offers
generous trading terms to retailers and combines that with
price discounting in product categories such as maize meal
(Ace), dog food (Dogmor) and tomato sauce (All Gold) to
buy market share.7
Sales can be reported in rand values or in units of
product. It is very important to know whether market share
is expressed in revenue or units because the results may be
different. Consider, for example, four firms competing in an
industry with 2 million total unit sales and total industry
revenue of R4 million (see Table 13.1). Firm A has the largest
unit market share at 50 per cent, but it has only 25 per cent
of the revenue market share. By contrast, firm D has only a
15 per cent unit share but the largest revenue share, namely
30 per cent. Usually, market share is expressed in terms of
revenue and not units.
Many firms believe that maintaining or increasing market
share is an indicator of the effectiveness of their marketing
mix. Larger market shares have indeed often meant higher
profits, thanks to greater economies of scale, market power
and ability to compensate top-quality management. For
example, South African Airways aggressively cut its fares
towards the end of 2009 to win back the market share it had
lost to carriers such as Mango and Kulula during that year.
Conventional wisdom also says that market share and
return on investment are strongly related. For the most part
they are, but this is not always the case.
Some firms with relatively low market shares such as
Mercedes-Benz (about 10 per cent) and Kulula (about 20 per
cent), however, survive and even prosper despite their low
market shares. On the other hand, because of extreme
competition in some industries, many market share leaders
do not reach their target ROI and can actually lose money.
South African Airways, for instance, dominates the local
airline market in terms of passenger numbers, yet has lost
millions of rands over many years. In fact, it had to be
recapitalised by the government several times while other
airlines traded profitably.
Table 13.1 Two ways of measuring market share (units and revenue)
3.2.2 Sales maximisation as pricing objective

Rather than striving for market share, sometimes firms try to
maximise sales. The objective of maximising sales ignores
profits, competition and the marketing environment as long
as sales are rising. If a firm is short of funds or faces an
uncertain future, it may try to generate a maximum amount
of cash in the short run. Managements task when pursuing
this objective is to calculate which pricequantity
relationship generates the greatest cash revenue. Sales
maximisation can also be effectively used on a temporary
basis to sell off excess inventory.
It is not uncommon, for example, to find Christmas cards,
surfboards and Weber braais discounted at 50 to 70 per cent
off retail prices after the holiday season. In addition,
management can use sales maximisation for year-end sales
to clear out old models before introducing the new ones.
Computer software firms and motor vehicle manufacturers
use this strategy regularly. The prices of video recorders
(VCRs) dropped sharply as new DVD and personal video
recorder (PVR) technology became accepted as the
recording technologies of choice. However, even this price
reduction has not been able to sustain demand for this

product and many manufacturers have stopped producing
the VCR as a standalone product. When the sales of
international recording artists, such as Beyonc, Travis and
Celine Dion, dropped by almost 11 per cent, Sony South
Africa dropped the prices of imported CDs from about R150
to under R100 in an effort to stimulate sales.8
The sales maximisation objective is strongly influenced
by the prevailing competition in a market. In short, in a very
competitive market sales maximisation may be impossible
to realise. Several firms, including Afrihost and iBurst have
made life difficult for Telkom in the Internet market. Small
ISP Afrihost effectively fired the first shots in 2009 by
undercutting per gigabyte ADSL prices, starting the pricing
skirmish. In 2009, the average price was R70/GB; Afrihost
dropped it to R29/GB and Wireless G was offering R14/GB at
the beginning of 2010. Now, like the rest of the world, South
Africa can finally enjoy unlimited Internet access
something that is going to have a dramatic impact on the
country. In April 2010, iBurst introduced a free three-month
trial for current iBurst Wireless subscribers, enabling
subscribers to use the Internet for free between midnight
and 8 a.m. when all traffic is zero-rated and, therefore, does
not count towards customers monthly bandwidth
allocation. Having free Internet access at these late hours is
very useful to people synchronising their online backups,
doing large file transfers or for late-night surfing sessions.
iBurst has consistently differentiated itself in the wireless
market by bringing its pricing down to stay in line with
wireline technologies.9
However, the maximisation of sales should never be a

long-term objective because sales maximisation may mean
little or no profitability. Without profits, no firm can survive
over the long term.
WEBSITE
Visit the Kraft pantry. What does Maxwell
House emphasise in its web advertising,
and how? www.kraftfoods.com
3.3 Status quo pricing objectives

Status quo pricing is an attempt to maintain existing prices
or to meet the competitions prices. This third category of
pricing objectives has the major advantage of requiring little
planning. It is essentially a passive policy. These industries
usually have fewer price wars than those with direct price
competition. Often, firms competing in an industry with an
established price leader simply meet the competitions
prices. In other cases, managers regularly visit competitors
outlets to ensure that their prices are competitive.
EXAMPLE >> Toyota dominates the South African passenger motor

vehicle market. Consequently, all other manufacturers follow Toyotas pricing. No
competitor dares announce a price increase unless it is to follow Toyota. Telkom,
on the other hand, is finding it increasingly difficult not to charge status quo
prices in markets where it faces competition (for example, international calls).
And when Cell C entered the cellular phone market, it had to charge fees very
similar to those of Vodacom and MTN. These are examples of status quo pricing.
4. The demand determinant of price
LO3
After marketing managers have established pricing

objectives, they must set specific prices to reach those
objectives. The price they set for each product depends
mostly on two factors: the demand for the product or service
and the cost to the seller of that product or service. When
pricing objectives are mainly sales-orientated, demand
considerations usually dominate. Other factors, such as
distribution and promotion strategies, the stage of the
product life cycle and perceived quality can also influence
pricing decisions.
An example of the latter is Glen Carlou Vineyards, which
raised the prices of some of its red wines by between 60 and
70 per cent at one stage. We felt our price was far too low for
a quality product, said a spokesperson for Glen Carlou.10
Also, Minute Maid has made it clear that its fruit juices will
be premium-priced to match their consistently premium
quality and taste.11
An excellent illustration of how demand for a product can
influence pricing occurred in the building industry. During
the recession of 2008 manufacturers of building bricks faced
a declining demand, which led to a huge surplus. They
responded by selling the stock of bricks below cost and
extending their annual production shutdown. The
unprecedented surplus was been blamed on the slowdown
in the residential building sector. High interest rates, more
stringent requirements for credit and economic uncertainty
caused a severe drop in building activity. In addition, local
authorities passed fewer building plans, all of which were
factors that all lead to the production surplus.12

Another example of the impact of supply and demand on
prices was the prevailing price of tea on world markets in
2010. Droughts in India, Sri Lanka and Kenya reduced the
supply of tea and, as a result, tea prices jumped from $2,40
to $3,50 per kilogram.13
4.1 The nature of demand

Demand is the quantity of a product that will be sold in the
market at various prices for a specified period. The quantity
of a product that people buy will largely depend on its price.
The higher the price, the fewer goods or services consumers
will demand. Tiger Brands, a fast-moving consumer goods
company, for instance, warned in 2006 that its profits would
be lower in 2007 because the firm had to increase its prices
because of, among other things, higher fuel prices and
above-inflation wage increases. Conversely, the lower the
price, the more products or services consumers will
demand. Clover, on the other hand, facing declining
demand for its milk products, had to lower its prices.
Figure 13.1 Demand curve for popcorn
READER 60 >> How fuel prices are calculated in South

Africa
The petrol retail price is regulated by government, and adjusted every month.
The calculation of the new price is done by the Central Energy Fund (CEF) on
behalf of the Department of Energy (DOE). The petrol pump price is composed
of a number of price elements and these can be divided into international and
domestic elements. The international element, or Basic Fuel price (BFP), is
based on what it would cost a South African importer to buy petrol from an
international refinery and to transport the product to South Africa.
Components of the BFP include: international petroleum market spot
prices, freight cost to bring the product to South African ports, insurance
costs, ocean loss allowance, cargo costs, coastal storage, and stock financing
cost. To arrive at the final pump price in the different pricing zones
(magisterial district zones) certain domestic transport costs, government
imposts, taxes and levies, and retail and wholesale margins need to be added
to the international price. These include:
Transport costs (Zone differential). Keeping in mind the import principle
used, this element recovers the cost of transporting petroleum products

from the nearest coastal harbour (Durban, Port Elizabeth, East London,
Mossel Bay or Cape Town) to the inland depot serving the area or zone.
This is the only element where values differ per pricing zone, and is the
reason why the petrol price is not the same for the whole country.
Delivery costs (Service differential). This element compensates marketers
for actual depot related costs (storage and handling) and distribution
costs from the depot to the end user at service stations.
Wholesale (Marketing) margin. Money paid to the oil company through
whose branded pump the product is sold, to compensate for marketing
activities.
Retail margin. The retail margin is fixed and is determined on the basis of
actual costs incurred by the service station operator in distributing petrol.
Equalisation Fund levy. The statutory fund levy is a fixed monetary levy.
Fuel tax and Customs and Excise levy. This is tax levied by Government.
Road Accident Fund (RAF). The Road Accident Fund receives a fixed value
which is used to compensate third party victims in motor accidents.
Slate levy. A levy paid by the motorists recovering money owed to the oil
companies, due to the time delay in the adjustment of the petrol pump
price.
SOURCE: South African Petroleum Industry Association (SAIPA). Industry Overview - Fuel Price. Available
from http://www.sapia.co.za/industry-overview/fuel-price.html (Accessed on 25 August 2014)
Table 13.2 Demand schedule for popcorn
Price per packet (R)
Packets demanded per week
3,00
35
2,50
50
2,00
65
1,50
85
1,00
120
This trend is illustrated in Figure 13.1, which graphs the

demand per week for popcorn at a local retailer at various
prices. This type of graph is called a demand curve. The
vertical axis shows different prices of popcorn, measured in
rands per package. The horizontal axis measures the
quantity of popcorn that will be demanded (D) per week at
each price. For example, at a price of R2,50, a total of 50
packets will be sold per week; at R1,00, consumers will
demand 120 packets. Table 13.2 shows the demand
schedule charted in Figure 13.1.
The demand curve in Figure 13.1 slopes downward and
to the right, which indicates that the demand for popcorn
increases as the price is lowered. In other words, if popcorn
manufacturers put a larger quantity on the market, then
their hopes of selling all of it will be realised only by selling it
at a lower price.
One reason why more is sold at lower prices than at
higher prices is that lower prices attract new buyers. This
fact might not be so obvious with popcorn, but consider the

example of fillet steak. As the price of fillet steak drops lower
and lower, some people who have not been buying fillet
because it is too expensive will probably start buying it
rather than relatively cheaper cuts, such as T-bone steak. It
is for this reason that the South African motor industry has
seen growth of 64 per cent in the last few years in the entrylevel (relatively cheaper) end of the passenger vehicle
market, compared with only 12 per cent for luxury vehicles
during the same period. And with each reduction in price,
existing customers may buy extra amounts. In other words,
if the price of fillet steak falls low enough, some people will
buy more than they have bought in the past.
Supply is the quantity of a product that will be offered to
the market by a supplier or suppliers at various prices for a
specified period. Figure 13.2 illustrates the resulting supply
curve (S) for popcorn. Unlike the falling demand curve, the
supply curve for popcorn slopes upwards and to the right. At
higher prices, popcorn manufacturers obtain more
resources (corn, flavourings, salt) to produce more popcorn.
If the price consumers are willing to pay for popcorn
increases, producers can afford to buy more ingredients.
Output tends to increase at higher prices because
manufacturers can sell more popcorn and earn greater
profits. The supply schedule in Table 13.3 shows that at
R1,50, suppliers are willing to place 85 packets of popcorn
on the market, but that they will offer 140 packets if buyers
are prepared to pay R3 for a packet.
Figure 13.2 Supply curve for popcorn
An alternative approach used by consumers is to trade down

that is, they buy cheaper versions of a product, such as noname brands or cheaper models.
Table 13.3 Supply schedule for popcorn
Price per packet (R)
Packets demanded per week
3,00
140
2,50
130
2,00
110
1,50
85
1,00
25
4.2 How demand and supply determine prices

Lets combine the concepts of demand and supply to see

how competitive market prices are determined. So far, the
premise is that if the price is X, then consumers will
purchase Y amount of popcorn. How high or low will prices
actually go? How many packets of popcorn will be
produced? How many packets will be consumed? The
demand curve cannot predict consumption, nor can the
supply curve alone forecast production. Instead, we need to
consider what happens when supply and demand interact
as shown in Figure 13.3.
Figure 13.3 shows that at a price of R3, consumers would
demand only 35 packets of popcorn. But suppliers stand
ready to place 140 packets on the market at this price (see
the data from the demand and supply schedules Tables
13.2 and 13.3). If they do, they would create a surplus of 105
packets of popcorn. How does a marketer eliminate a
surplus? By lowering the price. For example, in 2002 (during
the downturn in the airline industry in the aftermath of
9/11) there was an excessive amount of under-utilised
capacity in the airline industry. Flights on routes between
South Africa and Europe often had large numbers of seats
unoccupied. As a result, airfares were very low, and at one
stage you could fly to London for as little as R300.
Figure 13.3 Equilibrium price of popcorn
Figure 13.3 shows that at a price of R1 each, 120 packets

would be demanded by the market, but at that low price
only 25 packets would be placed on the market. A shortage
of 95 units would be created in this way. If a product is in
short supply and consumers want it, how do they entice the
retailer to part with one unit? They offer more money that
is, they pay a higher price. In other words, a monetary
reward is offered to manufacturers and retailers by the
market (consumers) as an incentive to place more packets of
popcorn on the market.
Now let us examine a price of R1,50. At this price, 85
packets are demanded and 85 are supplied. When demand
and supply are equal, a state called price equilibrium is
reached. A temporary price below equilibrium say R1
results in a shortage, because at that price the demand for
popcorn is greater than the available supply. Shortages put
upward pressure on price. But as long as demand and
supply remain the same, temporary price increases or
decreases tend to return to equilibrium. At equilibrium,
there is no inclination for prices to rise or fall.

An equilibrium price may not be reached quickly,
however. Prices may fluctuate during a trial-and-error
period as the market for a product or service moves towards
equilibrium. But sooner or later, demand and supply will
settle into proper balance at a price at which manufacturers
are prepared to produce and buyers perceive sufficient value
to purchase.
4.3 Elasticity of demand

To understand the concept of demand analysis, you must
understand the concept of elasticity. Elasticity of demand
refers to consumers responsiveness or sensitivity to changes
in price. Elastic demand occurs when consumers buy more
or less of a product when the price changes. Conversely,
inelastic demand means that an increase or a decrease in
price will not significantly affect demand for the product.
Elasticity (E) over the range of a demand curve can be
measured by using this formula:
If E is greater than 1, demand is elastic

If E is less than 1, demand is inelastic
If E is equal to 1, demand is unitary.
Unitary elasticity means that an increase in sales exactly

offsets a decrease in prices so that total revenue remains the
same.
Elasticity can be measured by observing these changes in
total revenue:
If price goes down and revenue goes up, demand is

elastic
If price goes down and revenue goes down, demand is
inelastic
If price goes up and revenue goes up, demand is inelastic
If price goes up and revenue goes down, demand is
elastic
If price goes up or down and revenue stays the same,
elasticity is unitary.
Figure 13.4 shows a very elastic demand curve. Decreasing

the price of a Sony DVD player from R1 000 to R800
increases sales from 1 200 units to 4 000 units. As a result,
revenue increases from R1 200 000 to R3 200 000. The price
decrease results in a large increase in sales and revenue.
Figure 13.5, on the other hand, shows a completely
inelastic demand curve. A local museum dropped its
entrance fee from R20 to R10, but visitor figures remained at
400 000 annually. Decreasing the price by 50 per cent did
not encourage more people to visit the museum. Demand is,
therefore, completely inelastic not sensitive to price
changes. As a result, it also follows that the museum could
increase prices (within a reasonable range) without
negatively affecting visitor figures.
Figure 13.4 Elasticity of demand for Sony DVD players
Figure 13.5 Elasticity of demand for museum tickets
Figure 13.6 presents the demand curve and Table 13.4 the
demand schedule for Overaltan suntan lotion. Let us follow
the demand curve from the highest price to the lowest and
examine what happens to elasticity as the price decreases.
Figure 13.6 Demand for Overaltan suntan lotion
Table 13.4 Demand schedule for Overaltan suntan lotion
4.3.1 Inelastic demand

The initial decrease in the price of Overaltan (see Table 13.4)
from R5 to R2,25 results in a decrease in total revenue of
R969 (R5 075 R4 106). When both price and total revenue
fall, demand is inelastic. The decrease in price is much
greater than the increase in suntan lotion sales (810 bottles).
Demand is therefore not very elastic (flexible) in the price
range R5 to R2,25. When demand is inelastic, sellers can
raise prices (within reason) and increase total revenue.
Often, items that are relatively inexpensive (such as
convenience products) tend to have inelastic demand.
The increasing complexity of pricing in new niche
markets is evident in the growing price sensitivity on basic
commodities and known-value items, whereas price

thresholds are less pronounced in other value-added
categories. Woolworths food divisions success and its
reputation for quality, coupled with the increasing
popularity of specialist shops, is an indication of changing
consumer lifestyle dynamics, allowing markets to charge a
premium price.
4.3.2 Elastic demand

In the example of Overaltan suntan lotion, shown in Table
13.4, when the price is dropped from R2,25 to R1, total
revenue increases by R679 (R4 785 R4 106). An increase in
total revenue when the price falls indicates that demand is
elastic. Lets measure Overaltans elasticity of demand when
the price drops from R2,25 to R1 by applying the following
formula:
Because E is greater than 1, the demand for Overaltan can

be described as elastic.
4.3.3 Factors that affect elasticity

Several factors affect elasticity of demand, including the
following:
Availability of substitutes. When many substitute

products are available, the consumer can easily switch
from one product to another, making demand elastic.
When substitutes are not available, the opposite is true.
Before the launch of Neotel, Telkom could increase the
rates on fixed-line telephones almost at will. When
Neotel arrived on the scene the situation changed. Even
with Vodafone acquiring Neotel recently the importance
of substitutes for price-setting in the fixed-line operators
is apparent. The impact on demand as a result of this
price increase was negligible because there were no
direct substitutes that consumers could use. However, as
cellphones became popular things changed rapidly.
Price relative to purchasing power. If a price is so low
that it is an inconsequential part of an individuals
budget, demand will be inelastic. For example, if the
price of salt doubles, consumers will not stop putting salt
on their eggs, because salt is cheap anyway. The demand
for salt is, therefore, inelastic, because it makes up a
small part of a households budget.
Product durability. Consumers often have the option of
repairing durable products instead of replacing them,
thereby prolonging their useful life. For instance, if a
person had planned to buy a new car and the prices

suddenly began to rise, he or she might elect to fix the
old car and drive it for another year. In other words,
people are sensitive to the price increase, and demand is
elastic.
A products other uses. The greater the number of
different uses for a product, the more elastic demand
tends to be. If a product has only one use, as may be true
of a new medicine, the quantity purchased probably will
not vary as price varies. A person will consume only the
prescribed quantity, regardless of price. On the other
hand, a product like steel has many possible
applications. As its price falls, steel becomes more
economically viable in a wider variety of other,
alternative applications, thereby making demand
relatively elastic.
5. The cost determinant of price
LO4
Sometimes firms minimise or ignore the importance of

demand and decide to price their products largely or solely
on the basis of cost. For instance, South Africas largest
cement maker, Pretoria Portland Cement (PPC), increased
cement prices by 15 per cent in 2009 as high energy costs
(fuel and electricity) put pressure on operating margins.14 A
problem with cost pricing, however, is that prices
determined strictly on the basis of cost may be too high for
the target market, thereby reducing or even eliminating
sales. Alternatively, cost-based prices may be too low,
causing the firm to earn a lower return than it should.

However, costs should generally be part of any price
determination, if only as a floor below which a product or
service must not be priced in the long run. Budget airline
Kulula, for instance, can compete on price because it has
succeeded in driving its operating costs down by focusing on
a no-frills offering.
In price-sensitive markets and industries, such as the
aviation industry, costs are of particular importance (see
Reader 61 Cheap airlines lose sight of the real cost factors).
Budget airline Kulula, for instance, can compete on price
because it has succeeded in driving its operating cost down
by 30 per cent by leasing fuel-efficient McDonnell-Douglas
MD82 aircraft.
Cost as a determinant of selling price may seem simple,
but it is actually a multifaceted concept, especially for
manufacturers. Variable costs are those costs that change
with changes with the level of production. An example of a
variable cost is the cost of materials. The more units (motor
vehicles, for instance) produced, the greater the material
costs (such as steel). By contrast, a fixed cost does not
change as output is increased or decreased. Examples
include rent and equipment costs. If Firestone leases a
machine for R200 000 per month, the cost of the machine is
fixed, whether it manufactures one tyre or 300 000 tyres.
In order to compare the cost of production with the
selling price of a product, it is helpful to calculate costs per
unit, or average costs. Average variable cost (AVC) equals
total variable costs divided by quantity of output. Average
total cost (ATC) equals total costs divided by output. As
plotted on the graph in Figure 13.7, AVC and ATC are

basically U-shaped curves. By contrast, average fixed costs
(AFC) decline continually as output increases, because total
fixed costs are constant.
Marginal cost (MC) is the change in total costs associated
with a one-unit change in output. Table 13.5 shows that,
when output rises from seven to eight units, the change in
total cost is from R640 to R750; therefore, MC is R110.
All the curves illustrated in Figure 13.7 have definite
relationships:
AVC plus AFC equals ATC

MC falls for a while and then turns upwards, in this case
when the fourth unit is produced. At that point,
diminishing returns set in, meaning that less output is
produced for every additional rand spent on variable
input
MC intersects both AVC and ATC at their lowest possible
points
When MC is less than AVC or ATC, the incremental cost
of producing one more unit will continue to pull the
average costs down. Conversely, when MC is greater
than AVC or ATC, it pulls the averages up, and ATC and
AVC begin to rise
The minimum point on the ATC curve is the lowest cost
point for a fixed-capacity firm, although it is not
necessarily the most profitable point.
Costs can be used to set prices in various ways. The first

method discussed here, mark-up pricing, is relatively
simple. The other three profit maximisation pricing, break"****** DEMO - www.ebook-converter.com*******"
even pricing and target-return pricing make use of the

more complicated concepts of cost.
READER 61 >> Cheap airlines lose sight of the real cost

factors
The quickest way to make a small fortune is to start with a large one, Richard
Branson once said. With an airline price war pending, commentators are
questioning how sustainable small airlines might be in South Africa. Linden
Birns, a director of consultancy PlaneTalking, says a distinction needs to be
made between low-cost and low-fare airlines. He says there are four main
differences:
Low-cost operators, such as Southwest Airlines in the United States and
EasyJet and Ryanair in Europe, operate from secondary airports situated in
densely populated areas, serving a specific catchment area. In South Africa,
airports such as these dont exist, with the exception of Lanseria, which can
handle large jets, and Rand Central for smaller jets.
Low-cost operators have a high utilisation of equipment with fast turnabout times, ensuring as many flights as possible per aircraft, per day.
Low-cost airlines tend to have a lean, flat management structure; ticketing
and marketing is by Internet and telephone; they focus on flights of under
three hours.
To ensure long-term sustainability, operating costs need to be costeffective. Aircraft that are 2030 years old are not fuel-efficient and have high
maintenance costs.
Stewart Cochrane, marketing manager of British Airways, which owns
Kulula.com, says a huge saving is in airline bookings conducted through the
Internet, compared with service carriers use of Galileo and Amadeus data
software systems. Tony Twine, a senior economist at Econometrix, supported
this, saying that the only way to build a sustainable business in airlines is to
continuously have cheaper fixed costs and variable costs than ones
competitor. One example of continuous innovation is the discount airline

Ryanair which has posted stellar profits in recent years, mainly due to their
unconventional business model. In addition to cutting costs wherever
possible, it has tried the strategy of giving away some of their seats for free
all the passengers would have to pay is airport taxes and other levies. Rather
than charge for seats the airline has tried to generate revenue from other
sources. For example Ryanair charges for such services as snacks, checked in
luggage, drinks and, controversially, even considered charging for the use of
the toilet. In addition, the airline generates alternative streams of revenue by
selling a variety of goods such as digital cameras and MP3 players during its
flights as well as selling advertising space on the inside and outside of its
planes. Ryanair also has agreements with car hire companies and
accommodation establishments in terms of which the airline earns
commission when its passengers make use of their partners services. All of
this means that 20 per cent of Ryanairs turnover is from sources other than
the sale of seats.
SOURCE: Adapted from Emdon, C. 2004. Cheap airlines lose sight of the real cost factors. Sunday Times
(Business Times), 23 November 2004, p. 3; Massey, R. and West, K. 2008. Ryanair offers free tickets,
Mail Online. 16 January 2008. Available from: http://www.dailymail.co.uk/travel/article599552/Ryanair-offers-free-tickets.html (Accessed 25 August 2014); Capel, K. 2006. Wal-Mart with
Wings, Bloomberg Business Week, 27 November 2006. Available from
http://www.businessweek.com/stories/2006-11-26/wal-mart-with-wings (Accessed on 25 August 2014)
Figure 13.7 A hypothetical set of cost curves
Table 13.5 A hypothetical cost schedule
5.1 Mark-up pricing

Mark-up pricing, the most popular method used by
wholesalers and retailers to determine a selling price, does
not directly analyse the costs of production. Instead, markup pricing is the cost of buying the product from the
producer, plus amounts for profit and expenses not
otherwise accounted for.
The total cost determines the selling price. A retailer, for
example, adds a certain percentage to the cost of the
merchandise received to arrive at the retail price. An item
that costs the retailer R1,80 and is sold for R2,20 carries a
mark-up of 40c, which is a mark-up of 22 per cent of the cost
(40c R1,80 100%). Retailers tend to discuss mark-up in
terms of its percentage of the retail price in this example,
18 per cent (40c R2,20 100%). The difference between the
retailerss cost and the selling price (40c) is known as the
gross margin.
5.2 Profit maximisation pricing

Manufacturers tend to use more sophisticated methods of
setting prices than intermediaries, such as wholesalers and
retailers. One method is profit maximisation, which occurs
when marginal revenue equals marginal cost. You learnt
earlier that marginal cost is the change in total costs
associated with a one-unit change in output. Similarly,
marginal revenue (MR) is the extra revenue associated with
selling an extra unit of output. As long as the revenue of the
last unit produced and sold is greater than the cost of the last
unit produced and sold, the firm should continue
manufacturing and selling the product.
Table 13.6 shows the marginal revenues and marginal
costs for a hypothetical firm, using the cost data from Table
13.5. The profit-maximising quantity, where MR = MC, is six
units. You might ask, If profit is zero, why produce the sixth
unit? Why not stop at five? In fact, you would be right. The
firm, however, would not know that the fifth unit would
produce zero profits until it determined that profits were no
longer increasing. Economists suggest producing up to the
point where MR = MC. If marginal revenue is just one cent
greater than marginal costs, it will still increase total profits.
Table 13.6 Point of profit maximisation
Note: * Profit maximisation occurs between unit quantities 5 and 6
5.3 Break-even pricing

Now lets take a closer look at the relationship between sales
and cost. Break-even analysis determines what sales volume
must be reached before the firm breaks even (i.e. its total
costs equal total revenue) and no profits are earned. Clearly,
no firm can earn a lower level of income than what it pays
out as expenses for a sustained period of time. During the
recession of 2009, international business-class air travel
dropped by 20 per cent in Korea, 12 per cent in Japan and 6
per cent in the United States. To survive (over the short
term), many airlines dropped their prices to below breakeven point a situation that was described as
unsustainable. The fall in passenger numbers has led to
increased competition for an ever-diminishing pool of
travellers, forcing some airlines to sell their tickets at below
cost. By December 2009 average premium fares were down 6
per cent, said the International Air Transport Association
(IATA). With average fares and fuel surcharges now falling

significantly, we estimate that revenues from premium
passengers were down by at least a quarter in January,
wreaking significant damage to network airline yields and
profitability.15
The typical break-even model assumes a given fixed cost
and a constant average variable cost. Suppose that the
Campus Coffee Shop, a hypothetical firm, has fixed costs of
R2 000 and that the cost of labour and materials for each
unit (cup of coffee) produced is 50c. Assume that it can sell
up to 6 000 units of its product at R1,00 without having to
lower its price. Figure 13.8 illustrates Campus Coffee Shops
break-even point. As Table 13.7 indicates, the Campus
Coffee Shops average variable costs increase by 50c every
time a new unit is produced, and total fixed costs remain
constant at R2 000 regardless of the level of output.
Therefore, 4 000 units of output give The Campus Coffee
Shop R2 000 in fixed costs and R2 000 in total variable costs
(4 000 units 50c), or R4 000 in total costs.
Revenue is also R4 000 (4 000 units R1), giving a net
profit of zero at the break-even point of 4 000 units. Note
that once the firm gets past the break-even point, the gap
between total revenue and total cost gets wider and wider,
because both functions (total revenue and total cost) are
assumed to be linear. The formula for calculating breakeven quantities is simple:
Fixed cost contribution is the price minus the average

variable cost. Therefore, for the Campus Coffee Shop:
Therefore, the Campus Coffee Shop must sell 4 000 cups of

coffee (its break-even quantity) to ensure that it does not
make a loss.
The advantage of break-even analysis is that it provides a
quick estimate of how much the firm must sell to break even
and how much profit can be earned if a higher sales volume
is produced. If a firm is operating close to the break-even
point, it may want to see what can be done to reduce costs or
increase sales. Moreover, in a simple break-even analysis, it
is not necessary to compute marginal costs and marginal
revenues, because price and average cost per unit are
assumed to be constant. And because accounting data for
marginal cost and revenue are frequently unavailable, it is
convenient not to have to depend on that information.
However, break-even analysis is a tool with several major
limitations. Sometimes it is hard to know whether a cost is
fixed or variable. For example, if an employee has a
guaranteed-employment contract, is the resulting expense a
fixed cost? Are middle-management salaries fixed costs?
More important than cost determination, however, is the
fact that simple break-even analysis ignores demand. For
example, how does the Campus Coffee Shop know it can sell
4 000 cups of coffee at R1? Could it sell the same 4 000 units
at R2 or even R5? Obviously, this information would
profoundly affect the firms pricing decisions.
EXAMPLE >> A break-even analysis is a very important tool at the

disposal of marketing managers. It often guides their decision-making not only on
pricing, but also on product-related decisions. Under pressure from the
government, in 2004 South African banks started marketing bank services to the
traditionally unbanked section of the population. These accounts, known as
Mzansi accounts, however, do not break even. Banks report an average loss of
R4,70 per month per active Mzansi account. Consequently, as one might expect,
the future of this initiative is uncertain.16
Figure 13.8 Costs, revenues and break-even point for the Campus Coffee Shop
Table 13.7 Costs, revenues and break-even point for the Campus Coffee Shop
Note: * = break-even point
6. Other determinants of price
LO5
Other factors in addition to demand and cost can influence

price. For example, the stage of the products life cycle, the
competition, and the products distribution strategy,
promotion strategy and perceived quality can all affect
pricing.
6.1 Stages in the product life cycle

As a product moves through its life cycle (see Chapter 9), the
demand for the product and the competitive conditions
tend to change. These changes have an impact on marketing
managers pricing decisions:
Introductory stage. Management usually sets prices

high during the introductory stage to recover the firms
development costs as quickly as possible, and then
gradually lowers the price. When cellphones were first
launched some models cost more than R4 000. Setting
the price will, however, depend on the price elasticity of
demand.
Growth stage. Prices generally begin to stabilise as the
product enters the growth stage. There are several
reasons for this stabilisation. First, competitors have
entered the market, increasing the available supply.
Second, the product has begun to appeal to a broader
market, often lower-income groups. Finally, economies
of scale lower costs, and the savings can be passed on to
the consumer in the form of lower prices. As cellphone
operators began expanding the market (by offering payas-you-go options), the prices of handsets dropped quite
dramatically.
Maturity stage. Maturity usually brings further price
decreases as competition increases and inefficient, highcost firms drop out of the market. Distribution channels
become a significant cost factor, however, because of the
need to offer wide product lines for highly segmented
markets, extensive service requirements and the sheer
number of dealers necessary to absorb high-volume
production. The manufacturers that remain in the
market towards the end of the maturity stage typically
offer similar prices. The prices of comparable televisions
today are almost the same regardless of the brand or
manufacturer.
Decline stage. The final stage of the life cycle may see
further price decreases as the few remaining competitors
try to salvage the last vestiges of demand. When only one
firm is left in the market, prices are fairly static. Usually
only the most efficient firms remain, and they have
comparable costs. At this stage, price increases are
usually cost-initiated, not demand-initiated. Nor do
price reductions in the late phase of maturity stimulate
much demand. Because demand is limited and
manufacturers have similar cost structures, the
remaining competitors will probably match price
reductions.
WEBSITE
What are the FAQs (frequently asked
questions) for Levis? How does Levis
address the price issue? Log on to

www.levi.com to find the answers
6.2 The competition

Competition varies during the product life cycle, of course,
and so at times it may strongly affect pricing decisions. A
near-monopoly competitive situation allows higher prices,
and vice versa.
EXAMPLE >> Until recently, Telkom had a monopoly in the fixed-line

telephone market in South Africa. This situation changed with the introduction of
mobile phones and Internet-based services such as Skype. Similarly, the price of
broadband and telephony has dropped by as much as 40 per cent (peak-time
rates) as competition has intensified. The average selling price of bandwidth on
Telkoms digital subscriber line was about R70 per gigabyte in 2009, but has
dropped to less than R10 per gigabyte in 2010 on certain packages.17
>>Strategy
For Telkom, pricing is a key element of its value
proposition. Telkoms pricing strategy is aimed at
improving its competitiveness in areas where
competition is expected to intensify and where
arbitrage opportunities exist. Telkoms strategy to
counter pricing pressures is as follows:
Actively offer value-based calling plans and bundles
to extend value and savings to its customers
Reduce international and long-distance rates to
reduce arbitrage opportunities
Rebalance standard/off-peak local rates, to better

align these with international norms and improve its
competitive position
Reduce and rebalance national and international
data prices to improve its competitive position.
6.3 Distribution strategy

An effective distribution network can often overcome other
minor flaws in the marketing mix. For example, although
consumers may perceive a price as being slightly higher
than normal, they may buy the product anyway if it is being
sold at a convenient retail outlet, such as a KwikSpar.
Adequate distribution for a new product can often be
attained by offering a larger-than-usual profit margin to
intermediaries, which means higher prices.
6.4 Marketing communication

Price is often used as a promotional tool to increase
consumer interest. The weekly grocery section of the
newspaper, for instance, advertises many products with
special low prices offered by retailers, such as Shoprite
Checkers, Pick n Pay and Spar (see the KwikSpar
advertisement, right).
7. The relationship between price and quality

In the absence of other cues, consumers tend to rely on a
high price as an indicator of good quality when there is

considerable uncertainty involved in the purchase decision.
Reliance on price as an indicator of quality seems to exist for
most products, but it reveals itself more strongly for certain
items than for others. Among the products that benefit from
this phenomenon are coffee, aspirin, salt, floor wax,
shampoo, clothing, furniture, perfume, whisky and many
services. If the consumer obtains additional information
for instance, about the brand or the shop then reliance on
price as an indicator of quality decreases.18 In the absence of
other information, consumers usually assume that prices
are higher because the products contain better materials,
because they are made more carefully, or, in the case of
professional services, because the provider has more
expertise. In other words, consumers assume that you get
what you pay for. Knowledgeable retailers take these
consumer attitudes into account when devising their pricing
strategies. Prestige pricing means charging a high price to
help promote a high-quality image. Nescaf Gold coffee
costs about R80 for a 200-gram jar. However, at that price
you can buy three 250-gram tins of Ricoffy. Nescaf Gold
coffee is, therefore, nearly three times more expensive than
Ricoffy.
A successful prestige-pricing strategy requires a retail
price that is reasonably consistent with consumers
expectations. For example, no one who goes shopping at a
boutique expects to pay cheap prices. In fact, demand for
boutique products would fall drastically at low prices. Nor
would a consumer expect to pay less for a Parker pen than
for a Bic pen. Similarly, consumers also expect private or
generic brands to be cheaper than national brands.
However, if the price difference between a private brand and

a nationally distributed manufacturers brand is too great,
consumers tend to believe that the private brand is inferior.
On the other hand, if the savings are not big enough, there is
little incentive to buy the private brand. Private brands
generally offer retailers better profit margins, but also give a
stamp of uniqueness and differentiation to a retail chain,
and by building brand loyalty it can build its customer base.
>>Strategy
Clicks has had its own exclusive brands, such as
Safeway household appliances, Payless detergents, Flirt
tights and Baby Care for many years, and these have
become well accepted. More recently, the firm has
successfully moved into Clicks branded toiletry
products and other categories, such as stationery, and a
cosmetic range called Clique. About 18 per cent of all
Clicks products are own brands, which significantly
reduces costs and enhances Clickss profit margins. In
the case of Pick n Pay it is 14 per cent19. Discom is
following the same route and has a number of its own
brands, such as Saveon for cleaning aids, toiletries and
household products; Dynamic small electrical
products, such as irons, toasters, kettles and hairdryers;
a Universal range of stationery and kitchenware; a Miss
Mod cosmetics range; and Razzmatazz tights. About 10
per cent of the products on its shelves are the retailers
own brands.
EXAMPLE >> To get the price-quality relationship right is very

important, but not always easy, as the retailer Woolworths can attest. Woolworths
(in terms of its clothing) has had to deal with problems such as pricing perceived
as too high; lack of focus on the classic customer; too many out-of-stock
situations; and being too aggressive with its fashion ranges (in effect, starting to
compete with boutiques). When consumers perceive Woolies clothing as
expensive, what they are really saying is that the quality isnt commensurate with
the price. And Woolworths accepts that at times it has neglected the classic, or
traditional, Woolies customer. Many customers believe that Woolworths offers
classic fashions at reasonable prices. Every so often, the offering has included
significantly more expensive lines. This alienates the traditional customer.
Conversely, customers who like the more expensive items are disappointed when
they are withdrawn.20
8. How to set a price on a product
LO6
Setting the right price on a product is a four-step process

(see Figure 13.9):
1
2
3
4
Formulate the pricing objectives

Choose a price strategy to help determine a base price
Fine-tune the base price with pricing tactics.
The first three steps are discussed below and the fourth step
is discussed later in the chapter.
8.1 Formulating pricing objectives

The first step in setting the right price for a product is to
formulate pricing objectives. Keep in mind that pricing
objectives can be divided into three categories: profitorientated, sales-orientated and status quo objectives. These
objectives are derived from the firms overall objectives.
A good understanding of the market and of the consumer
can sometimes tell a manager very quickly whether an
objective is realistic. For example, if firm As objective is a 20
per cent target return on investment (ROI), and its product
development and implementation costs are R5 million, the
market must be rather large or must support the price

required to earn a 20 per cent ROI. In other words, the
objective may be unrealistic. Assume that firm B has a
pricing objective that all new products must reach at least 15
per cent market share within three years after their
introduction. A thorough study of the environment may
convince the marketing manager that the competition is too
strong and that the market-share objective cannot be met.
Figure 13.9 Steps for setting the price of a product
When Coca-Cola launched Bibo, its flavoured drink for

children, it was marketed at R1 per unit. The firm was
determined to keep Bibo affordable. However, Coca-Cola
soon realised that its ROI objectives would not be reached,
and had to increase the price of Bibo.
All pricing objectives have trade-offs that managers must
consider. A profit-maximisation objective may require a
bigger initial investment than the firm can commit to.
Reaching the desired market share often means sacrificing
short-term profit, because without careful management,
long-term profit objectives may not be met. Meeting the
competition is the easiest pricing objective to implement.
However, can managers really afford to ignore demand and
costs, the life-cycle stage and other considerations? When
formulating pricing objectives, managers must consider
these trade-offs in light of the expected demand from the
target market and the environment in which the product or
brand will be marketed.
8.2 Estimate demand, costs and profits

Total revenue is a function of price and quantity demanded,
which depends on elasticity. After establishing pricing
objectives, managers should estimate total revenue at a
variety of prices. Next, they should determine corresponding
costs for each price. They are then ready to estimate how
much profit, if any, and how much market share can be
earned at each possible price. This information will become
the heart of the developing price strategy. Managers can
study the options in light of revenues, costs and profits. In
turn, this information can help determine which price can

best meet the firms pricing objectives.
8.3 Choose a price strategy

The basic, long-term pricing framework for a product or
service should be a logical extension of the pricing
objectives. The marketing managers chosen price strategy
defines the initial price and gives direction for price
movements over the length of the product life cycle.
Therefore, the price strategy sets a competitive price in a
specific market segment, based on a well-defined
positioning strategy. For example, a car maker like
Mercedes-Benz sets a base price for each of its models, but
each dealer has some freedom or discretion in setting the
final selling price.
A firms freedom in pricing a new product and devising a
price strategy depends on the prevailing market conditions
and the other elements of the marketing mix. For example, if
a firm launches a new item resembling several others
already on the market, its pricing freedom will be restricted.
To succeed, the firm will probably have to charge a price
close to the average market price. By contrast, a firm that
introduces a totally new product with no close substitutes
and a clear competitive advantage will have considerable
pricing freedom.
READER 62 >> The new pricing paradigm?

In the music industry where theft (also known as music piracy) is the norm (it
is estimated that South African artists and recording companies lose about
R500 million per year) it is strange to think that a feasible pricing strategy is
to allow consumers to pay whatever they feel is appropriate.
The indie band, Radiohead made waves in 2007 when it bypassed
traditional distribution channels and offered its In Rainbows album for
whatever fans wanted to pay, known as a pay what you want (PWYW) pricing
strategy. In Rainbows was downloaded 1,8 million times, generating $2,26
(about R20,20) per album, a turnover of $4,1 million (about R41 million),
over the three months over which the special offer ran. Although 60 per cent
of the consumers opting for the free download, Radiohead claimed it actually
made more money off the release than any other album as it did not have to
incorporate costs of production, inventory, shipping or cuts to the middleman
into the price. However this strategy has not worked for all bands and Nine
Inch Nails free provision of its new album, The Slip, resulted in lower revenues
from the albums digital sales. However, PWYW is still alive in the music
industry and Mavaru.com is an mp3 marketplace for indie bands where every
album is PWYW.
Although some industries may feasibly use PWYW pricing model, it is
probably only feasible for products which either target a particular niche (such
as indie bands), can be digitally downloaded (such as music/games) or
services (such as restaurants). It will be very difficult to run a promotion
(incorporating a PWYW pricing strategy) with physical goods that carry
production, inventory and opportunity cost of giving away product that could
be sold to others.
SOURCES: Bourreau, M., Dogan, P. and Hong, S., 2014. Making Money by Giving It for Free: Radioheads
Pre-Release Strategy for In Rainbows, Harvard Kennedy School Faculty Research Working Paper Series., 4
June 2014 Available https://research.hks.harvard.edu/publications/getFile.aspx?Id=1073 (Accessed on
25 August 2014); Bustos, L. 2011. Is Pay-What-You-Wish Pricing Wishful Thinking? Get Elastic, 18th April
2011. Available from http://www.getelastic.com/name-your-own-price/ (Accessed on 25 August 2014);
Lephaka P. 2014. On-going piracy battle in the SA music industry, SABC News Electronic version. 25
January 2014. Available from
http://www.sabc.co.za/news/a/98e1b80042afbc67b6fefe56d5ffbd92/On-going-piracy-battle-in-theSA-music-industry (Accessed on 25 August 2014)
The three basic strategies for setting a price on a product or

service are price skimming, penetration pricing and status
quo pricing.
8.3.1 Price skimming

Price skimming denotes a high price in relation to the prices
of competing products or brands. The term price skimming
is derived from the phrase skimming the cream off the top.
Firms often use this strategy for newly-introduced products
when the product is perceived by the target market as
having unique advantages. In the United States, Radius
Corporation produces unique oval-headed toothbrushes
made of black neoprene that look like a scuba-diving
accessory. Radius uses a skimming strategy, pricing the
toothbrushes at five times the price of a normal toothbrush.
When Apple delayed the launch of its iPad in South Africa in
April 2010 owing to excessive demand in the United States,
local importers were retailing the product from R7 599 (for
the 16 GB model) to R10 229 (for the 64 GB model), more
than double the going price of an iPad in the United States.
As a product progresses through its life cycle, the firm
may lower its price to penetrate larger market segments
successfully. The two dominant cellular phone firms in
South Africa have successfully expanded the market by not
only lowering the cost of handsets, but also using different
pricing packages, such as Vodacoms Weekender, to reach
the more price-sensitive market segments. Another example
is Telkoms ADSL service, which dropped from R800 per
month (for business ADSL) when it was first launched to
R699 in March 2005, to R477 in August 2005 and to R79 per
month for 1 GB in 2008. More recently Telkom has moved

away from this pricing strategy to a pricing strategy designed
around high-speed broadband services with different line
speed options, ranging from 2Mbps to 40Mbps. The 2 Mbps
ASDL will cost you R165 per month, the 4Mbps ASDL will
cost you R299 per month, the 10 Mbps ASDL will cost you
R425 per month, the 20 Mbps ASDL will cost you R540 per
month, while the 40 Mbps ASDL will cost you R795 per
month.21
Price skimming works best when the market is willing to
buy the product for its unique advantages even though it
carries an above-average price such as when cellphones
were initially introduced. Firms can also effectively use price
skimming when a product or service is well protected
legally, when it represents a technological breakthrough
(e.g. high-definition TV) or when it has in some other way
blocked entry to competitors (e.g. registered a patent).
Marketers may also follow a skimming strategy when
production cannot be expanded rapidly because of
technological difficulties, shortages or constraints imposed
by the skills and time required to produce a product. As long
as demand is greater than supply, price skimming is a viable
strategy.
To summarise, a successful skimming strategy enables
management to recover its product development costs
quickly because the high price ensures the rapid inflow of
cash.
8.3.2 Penetration pricing

Penetration pricing is at the other end of the spectrum.
Penetration pricing means charging a relatively low price for

a product as a way to reach the mass market as soon as
possible. When DStv first introduced its video-on demand
service Box Office it was priced at the loss-making price of
R25. Weve deliberately priced it at that level to make it
attractive says DStv Online CEO John Kotsaftis. At the
moment were sitting at below cost so we can build interest
and gain some traction.22
The low price is designed to capture a large share of a
substantial market, resulting in lower production costs. If a
marketing manager has determined that the firms pricing
objective should be to obtain a large market share, then
penetration pricing is a logical choice.
However, penetration pricing does mean a lower profit
per unit. Therefore, to reach the break-even point, it
requires higher sales volumes than those required by a
skimming strategy. If reaching a high volume of sales takes a
long time, then the recovery of product development costs
will also be slow. As you might expect, penetration pricing
tends to discourage competition because it creates a barrier
to entry to those competitors who cannot contain input
costs to the same extent.
A penetration strategy tends to be effective in a pricesensitive market. Price should decline more rapidly when
demand is elastic, because the market can be expanded by
charging a lower price. Also, price sensitivity and greater
competitive pressure should lead to a lower initial price and
a relatively slow decline in the price later.
8.3.3 Status quo pricing

The third basic price strategy a firm may choose is status quo
pricing, or meeting the competition. It means charging a
price identical or very close to the competitions price. Many
supermarket groups keep a close watch on the prices
charged by other groups. Although status quo pricing has
the advantage of simplicity, its disadvantage is that the
strategy may ignore demand or cost or both. But meeting
the competition may be the safest route to long-term
survival if the firm is comparatively small.
8.4 The legality and ethics of price strategies
LO7
Some pricing decisions are subject to government

regulation. Before marketing managers decide on a price
strategy, they should know whether there are laws that may
limit their decision-making. The price of petrol, for instance,
is determined by the government (see Reader 60 How fuel
prices are calculated in South Africa). Some pricing
practices are illegal (such as price fixing), whereas others,
such as bait pricing, may be regarded as unethical.
A good example of ethical, responsible behaviour is that
of Western Cape Tourism, which used research to support
and guide the development of a code of conduct to govern
price setting in the tourism industry in the Western Cape. A
survey was launched in January 2010 to investigate
accommodation booking and pricing trends for the 2010
FIFA World Cup. The survey revealed that most of the
Western Capes accommodation establishments were
charging reasonable rates for accommodation during the
event. This independent accommodation survey conducted
by capeinfo.com and endorsed by Cape Town Tourism

shows that reports on overpricing are based on perception
rather than reality. In January 2010, 31,6 per cent of the
respondents were charging the same price as they would in
peak season or less. The figure shifted to 57,3 per cent in
February 2010. The survey also revealed that 75,3 per cent of
establishments were charging no more than 20 per cent
above their peak-season rates (at the time of going to press).
On the basis of this information, a tourism code of
responsible pricing for Cape Town was drafted. The code
calls for a moderate approach to pricing, responsible peakseason rates and mindfulness of tourism sustainability and
transparency. Key tourism industry stakeholders,
representatives and membership organisations all signed
this code.23
8.4.1 Price fixing

Price fixing is an agreement between two or more firms on
the price they will charge for a product. For example, two or
more executives from competing firms may meet to decide
how much to charge for a product or to decide which of
them will submit the lowest bid on a certain contract. Such
practices are illegal under the provisions of the Competition
Act (No 89 of 1998).
The Competition Commission has found some evidence
of alleged price fixing in the motor vehicle manufacturing
industry (Toyota SA paid a fine of R12 million), food industry
(Pioneer Foods had to pay a R200m fine) and the car
security industry (vehicle-tracking firms, manufacturers of
gear locks and alarm systems firms). The commission also
outlawed the earlier practice of medical practitioners

charging fixed fees (called scale of benefits), used by the
Board of Healthcare Funders as a fee guideline.
8.4.2 Predatory pricing

Predatory pricing is the practice of charging a very low price
for a product with the intention of driving competitors out of
business or out of a market. Once competitors have been
driven out, the firm raises its prices. This practice is also
illegal under the provisions of the Competition Act (see
Reader 63 Media24 accused of predatory pricing).
Although the authors are not saying that Tiger Brands is
guilty of predatory pricing, the firm dropped the price of its
Fattis and Monis pasta by as much as 40 per cent when
Robertsons Napolina Pasta entered the market, and the
price of Tastic rice by 30 per cent when Uncle Bens entered
the market. Through these actions Tiger Brands succeeded
in forcing both Napolina and Uncle Bens out of the
market.24 When the low-cost airline 1Time was first
launched, it claimed that Comair, of which Kulula is a
subsidiary, was prepared to spend R100 million to knock
them out of the market.25
READER 63 >> Media24 accused of predatory pricing

THE Competition Tribunal on Tuesday heard explosive testimony from a former
Media24 manager on its aggressive strategies to force competitors in the
community newspaper market out of business. Wian Bonthuyzen, former senior
manager responsible for community newspapers at Die Volksblad in the Free
State, said the strategy was a deliberate one aimed at undercutting opponents
on advertising tariffs until they could no longer sustain their losses. This
eventually led to the demise of its fiercest competitor in the Goldfields area,
Gold-Net News, in 2009. Gold-Net complained about the conduct that
continued during 2004-09 to the Competition Commission, which found that
Media24 engaged in predatory pricing charging prices below average
variable cost or below average total costs. Media24 has denied the
allegations and is defending itself before the tribunal. The commission found
that Media24 used Goudveld Forum, a loss-making community newspaper in
the Goldfields area, as a fighting brand to undercut Gold-Net News on its
advertising rates, causing it to suffer continues financial losses. The strategy
was devised to protect Media24s star brand Vista, a newspaper that,
ironically, was founded by the owner of Gold-Net News, Hans Steyl.
Mr Bonthuyzen testified that he was astonished by Mr Steyls tenacity to
remain in a market where he was constantly undercut by Forum for a
prolonged period. I said to myself, Hans or Leda could not go on with those
rates (that they had to charge to compete with Media24) because they could
not make money. We had a big company, so it was possible for us to make
losses month in and month out or even year in and year out. They could not do
it, so surely they must close down sooner or later. Mr Bonthuyzen said he
manipulated the costs allocated to Forum to decrease the losses to divert any
possible suspicion by the competition authorities that it was engaged in
predatory pricing against its biggest opponent.
SOURCE: Adapted from: Visser, A. 2013. Media24 accused of predatory pricing, Business Day, 13
November, p. 2
8.5 Tactics for fine-tuning the base price
LO8
After managers understand both the legal and marketing

consequences of price strategies, they should set a base price
the general price level at which the firm expects to sell the
product or service. The general price level must be in line
with the pricing strategy: above the market (price

skimming), at the market (status quo pricing) or below the
market (penetration pricing). The final step is to fine-tune
the base price.
Fine-tuning techniques are short-run approaches that do
not change the general price level. They do, however, result
in changes within a general price level. These pricing tactics
allow the firm to adjust for competition in certain markets,
meet ever-changing government regulations, take
advantage of special demand situations and meet
advertising and positioning objectives. Fine-tuning pricing
tactics include various sorts of discounts, geographic pricing
and special pricing tactics.
WEBSITE
Visit Plascon Paints paint quality
estimates page at www.plascon.co.za. Do
you think it is a good pricing tactic?
8.5.1 Discounts, allowances and rebates

A base price can be lowered by using discounts and the
related tactics of allowances and rebates. Marketers use the
various forms of discounts to encourage customers to do
what they would not ordinarily do, such as paying cash
rather than using credit, taking delivery out of season, or
performing certain functions within a distribution channel.
The following is a summary of the most common tactics:
Quantity discounts. When buyers get a lower price for

buying in multiple units or above a specified amount it is
known as a quantity discount. A cumulative quantity
discount is a reduction from list price that applies to the

buyers total purchases made during a specific period. It
is intended to encourage customer loyalty. By contrast, a
non-cumulative quantity discount is a deduction from list
price that applies to a single order rather than to the total
volume of orders placed during a certain period. It is
intended to encourage orders in large quantities.
Cash discounts. A cash discount is a price reduction
offered to a buyer in return for prompt payment. Prompt
payment saves the seller carrying finance charges
(interest charges, bank fees and so on) and invoicing
expenses, and allows the seller to avoid bad debt.
Functional discounts. When distribution channel
intermediaries, such as wholesalers or retailers, perform
a service or function for the manufacturer, they must be
compensated. This compensation, typically a percentage
discount from the base price, is called a functional
discount (or trade discount). Functional discounts vary
greatly from channel to channel, depending on the tasks
performed by the intermediary.
Seasonal discounts. A seasonal discount is a price
reduction for buying merchandise out of season. It shifts
the storage function to the purchaser. Seasonal
discounts also enable manufacturers to maintain a
steady production schedule throughout the year.
Promotional allowances. A promotional allowance
(also known as a trade allowance) is a payment to a
retailer for promoting the manufacturers products. It is
both a pricing tool and a promotional device. As a
pricing tool, a promotional allowance is like a functional
discount. If, for example, a retailer runs an
advertisement for a manufacturers product see the

KwikSpar advertisement the manufacturer may pay
half the cost. If a retailer sets up a special display in a
supermarket, the manufacturer may include a certain
quantity of free goods in the retailers next order.
Rebates. A rebate is a cash refund given for the purchase
of a product during a specific period. The advantage of a
rebate over a simple price reduction for stimulating
demand is that a rebate is a temporary inducement that
can be taken away without altering the basic price
structure. A manufacturer that uses a simple price
reduction for a short time may meet resistance when
trying to restore the price to its original, higher level.
Marketers of prestigious products usually associated with

high levels of quality have to be particularly sensitive to the
potential impact of any form of price reduction on the
perceptions of consumers. Because it was concerned about
the image of its brand, Southern Sun (now renamed Tsogo
Sun) refused to discount its hotel rates when the market
started to buy down during the 2009 recession. Weve
maintained our rate strategy, because once you compromise
on your rates and start giving away huge discounts, your
brand is priced accordingly, said its managing director,
Graham Wood.26
Discounting does not always work, as is the case in
cinemas in South Africa. Ster-Kinekor has tried in vain to
increase cinema attendance by lowering prices, but the
tactic has simply not worked. A two-year price war between
Nu Metro and Ster-Kinekor has fizzled out without putting
more bums on seats. Dropping prices to R18 a ticket [in
2001] hasnt worked. People didnt perceive that prices had

dropped, since not all prices fell to a flat R18, said Primedia
chief operating officer, Ferdi Gazendam. Content and
access far outweigh pricing, he said. This contention was
confirmed when a further dramatic drop in prices to R14 a
ticket in 2005 had virtually no impact on ticket sales.27
8.5.2 Trade loading

Trade loading occurs when a manufacturer temporarily
lowers the price to induce wholesalers and retailers to buy
more products than can be sold in a reasonable time. Lets
say Coca-Cola offers Powerade at an additional 60c off the
normal price to retailers. The Powerade buyer (the retailer)
jumps at the bargain and buys a three-month supply.
Normally, the retailer will pass along the discount to
customers for about a month, but then return to the original
price for the last two months, thereby reaping some extra
profit.
Snapscan
After a lengthy pilot project, Standard Bank has
commercially launched SnapScan, a smartphonebased payments system that removes the need for
consumers to carry either cash or bank cards, allowing
them to make payments using only their phones.
Consumers from any bank, not only Standard Bank,
can download and use the app. They provide their
credit or cheque card number (no Pin is required) and

this information is securely stored using advanced
encryption techniques.
When they arrive at a point of sale at a merchant
that supports the platform users simply scan a Quick
Response Code (QR code), a type of matrix barcode
(see example) linked to the merchant and enter the
amount owing, or they scan a QR code linked to a
specific price. When the payment has been successfully
concluded, the merchant receives an SMS
confirmation. Standard Bank charges merchants a flat
fee of 3 per cent per transaction.
The platform potentially removes the need for
expensive point-of-sale equipment and could prove
popular among small vendors that cant afford or dont
want to operate traditional payment terminals.
Merchants arent even required to have a bank
account, and can elect to receive their payments in the
form a Standard Bank Instant Money voucher, which
can be redeemed at Spar supermarkets or at the banks
ATMs.
SOURCE: Adapted from McLeod, D. 2014. Standard Bank debuts new

payments app. TechCentral, 21 May 2014. Available from
http://www.techcentral.co.za/standard-bank-debuts-new-paymentsapp/48259/ (Accessed 1 September 2014)
8.5.3 Geographic pricing

Because many sellers ship their wares to a nationwide, or
even worldwide, market, the cost of freight can greatly affect
the total cost of a product. Sellers may use several different
geographic pricing tactics to moderate the impact of freight
costs on distant customers. The following are the most
common methods of geographic pricing:
FOB (free on board). This is a price tactic that requires
the buyer to absorb the freight costs from the shipping

point. The further buyers are from sellers, the more the
buyer pays for transport, because transportation costs
generally increase with the distance merchandise is
shipped.
Uniform delivered pricing. If the marketing manager
wants total costs, including freight, to be equal for all
purchasers of identical products, the firm will adopt
uniform delivered pricing. With uniform delivered
pricing, the seller pays the actual freight charges and
bills every purchaser an identical, flat freight charge,
irrespective of where the goods are transported from.
Zone pricing. A marketing manager who wants to
equalise total costs among buyers within large
geographic areas but not necessarily all of the sellers
market area may modify the base price with a zonepricing tactic. Zone pricing is a modification of uniform
delivered pricing. Rather than placing the entire country
(or its total market) under a uniform freight rate, the firm
divides it into segments, or zones, and charges a flat
freight rate to all customers in a given zone. For example,
everyone in Johannesburg may pay the same freight
costs, whereas customers in the Lowveld may pay more
for the product.
Freight-absorption pricing. With freight-absorption
pricing, the seller pays all or part of the actual freight
charges and does not pass them on to the buyer. The
manager may use this tactic in intensely competitive
areas or as a way to break into new market areas.
Basing-point pricing. With basing-point pricing, the
seller designates a location as a basing point and charges
all buyers the freight cost from that point, regardless of

the city from which the goods are shipped.
8.5.4 Special pricing tactics

Unlike geographic pricing, special pricing tactics are unique
and defy neat categorisation. Managers use these tactics for
various reasons for example, to stimulate demand for
specific products, to increase store patronage and to offer a
wider variety of merchandise at a specific price point.
Special pricing tactics include a single-price tactic, flexible
pricing, professional-services pricing, price lining, leader
pricing, bait pricing, odd-even pricing, price bundling and
two-part pricing. A brief overview of each of these tactics
follows, along with managerial reasons for using the tactic
or a combination of tactics to change the base price.
8.5.5 Single-price tactic

A firm using a single-price tactic offers all products and
services at the same price (or perhaps at two or three prices).
This tactic is not yet popular in South Africa, but US retailers
using this tactic include One Price Clothing Stores, Dre$$ to
the Nine$, Your $10 Store, and Fashions $9,99. One Price
Clothing Stores, for example, tend to be small. Their
objective is to offer merchandise that would sell for at least
$15 to $18 in other shops. The shops carry pants, shirts,
blouses, sweaters and shorts for teenagers and large-sized
women. The shops do not stock any second-hand or
irregular items, and everything is sold for less than $10.
Single-price selling removes price comparisons from the
buyers decision-making process. The consumer just looks
for suitability and the highest perceived quality. The retailer

enjoys the benefits of a simplified pricing system and
minimal clerical errors. However, continually rising costs
are a headache for retailers following this strategy. In times
of inflation, they need to raise the selling price frequently.
Recessionary circumstances in the United States led to the
rapid growth of single-price chains. Service firms often try to
remove the uncertainty associated with a price by offering a
single price for a fixed menu of services (see the
Volkswagen advertisement on page 486).
Gimme: Prices compared
Its become a whole lot easier to compare prices of
products available in a store with those charged on
popular online retailers sites. Price Snap, a free
application (app) developed by Cape-based Virtual
Mobile Technologies, allows smartphone users to
either type in the name of the product theyre searching
for or take a picture of its barcode. Once the product is
selected, the app shows what it is selling for on
Kalahari.com (now owned by Takealot) and on the
online classified site e-Bay. Price Snap worked well
when we tested it. Its menu is easy to navigate, it has no
problem identifying the barcode and it is easily able to
find products through a word search. But it does have
limitations. For one, it allows price comparisons from
two sites only and is available only through Apples
iTunes Store. It is unable to compare prices of

consumer goods so its of little use if you plan to use it
for grocery shopping. Even so, its useful if you wish to
compare certain prices without the hassle of going to
the store and then checking on a computer what the
online asking price is.
SOURCE: Claasen, L. 2012. Gimme: Prices compared. Financial Mail, 24
February, p. 32
8.5.6 Flexible pricing

Flexible pricing (or variable pricing) means that different
customers pay different prices for essentially the same
merchandise bought in equal quantities. This tactic is often
found in the sale of shopping products, speciality products
and most industrial products (see Chapter 8). Car dealers,
many appliance retailers and manufacturers of industrial
installations, accessories and component parts commonly

follow this practice. It allows the seller to adjust for
competition by meeting another sellers price, if needed.
Therefore, a marketing manager with a status quo pricing
objective might readily adopt this tactic. Flexible pricing also
enables the seller to close a sale with price-conscious
consumers. If buyers show promise of becoming largevolume shoppers, flexible pricing can be used to lure their
business. Internet sellers, such as Takealot and Amazon.
com, mine their databases to gauge specific shoppers
desires, measure their financial means, instantaneously
tailor products to fit the shoppers behaviour and price
products accordingly. Many B2B marketers, such as Dell
computers, also monitor inventories, costs and demand at
any given moment and adjust their prices instantly based on
the size of the order.
The obvious disadvantages of flexible pricing are the lack
of consistent profit margins, the potential ill will of highpaying purchasers, the tendency for salespeople to lower the
price automatically to make a sale and the possibility of
price wars among sellers (see Reader 64 Walmarts Chinese
batteries signal retail price war).
READER 64 >> Walmarts Chinese batteries signal retail

price war
The first of many Walmart-branded products has hit the shelves of Massmart
stores, signalling the beginning of a price war which analysts say Walmart will
win. The US retail giant is flexing its global buying muscle, importing Great
Value alkaline batteries from China. It is a private label product that will retail
at 35 per cent less than locally produced battery brands. Walmart has
unrivalled scale and buying power; there is no organisation on Earth that can
compete. Walmart will win this battle over time, Bryan Roberts, director of
retail research at Kantar Retail, said on Tuesday.
Although Walmarts Great Value brand is distributed in seven countries
and includes products such as frozen foods, baked goods, soups and juices,
most of its grocery sourcing would remain local, he said.
Last year, before the R16,5bn merger between Massmart and Walmart was
approved by the Competition Tribunal, Shoprite CEO Whitey Basson said
Africas largest supermarket chain was prepared to go to war over prices. The
company said on Tuesday there were no alkaline battery manufacturers in
South Africa. A pack of four locally produced AAA batteries costs about R39,
and the Great Value batteries will cost R25.
The offer from Walmart was very compelling, especially as batteries in
South Africa are priced at a premium thanks to many factors such as
pilferage, said Ray Abraham, Massbuild private label executive.
SOURCE: Adapted from Vallie, A. 2012. Walmarts Chinese batteries signal retail price war, Business
Day, 29 August, p. 1
8.5.7 Price lining

When a seller establishes a series of prices for a type of
merchandise, it creates a price line. Price lining is the
practice of offering a product line with several items at
specific price points. Jet Stores, for instance, may offer girls
dresses at just R60, R90 and R 120, with no merchandise
marked at prices between those figures.
Price lining reduces confusion for both the salesperson
and the consumer. The buyer may be offered a wider variety
of merchandise at each established price. Price lines may
also enable a seller to reach several market segments. For
buyers, the question of price is made quite simple: all they

have to do is find a suitable product at the predetermined
price. Moreover, price lining is a valuable tactic for the
marketing manager because the firm may be able to carry a
smaller total inventory than it could without price lines. The
results may include fewer mark-downs, simplified
purchasing and lower inventory-carrying costs.
Price lines also present drawbacks, however, especially if
costs are continually rising. Sellers can offset rising costs in
three ways. First, they can begin stocking lower-quality
merchandise at each price point. Second, sellers can change
the prices, although frequent price line changes confuse
buyers. Third, sellers can accept lower profit margins and
hold quality and prices constant. This third alternative has
short-term benefits, but its long-term limitations may drive
some sellers out of business.
8.5.8 Leader pricing

Leader pricing (or loss-leader pricing) is an attempt by the
marketing manager to attract customers by selling a product
near or even below cost, hoping that shoppers will buy other
items once they are in the shop. This type of pricing appears
weekly in the newspaper advertising of supermarkets,
speciality retailers, pharmacies and department stores (see
the Shoprite advertisement). Leader pricing is normally
used on well-known items that consumers can easily
recognise as bargains at the special price. The objective is
not necessarily to sell large quantities of leader items, but to
try to appeal to customers who might shop elsewhere.
8.5.9 Bait pricing

In contrast to leader pricing, which is a genuine attempt to
give the consumer a reduced price, bait pricing is deceptive.
The purpose of bait pricing is to get the consumer into a
shop through false or misleading price advertising and then
uses high-pressure selling to persuade them to buy more
expensive merchandise. When a potential customer goes in
to see the advertised product, a salesperson says that it has
just been sold or else shows the prospective buyer a piece of
junk no one would buy. Then the salesperson says: But Ive
got a really good deal on this fine new model. This is the
switch that may cause a susceptible consumer to walk out
with an expensive product that they did not initially want to
buy.
8.5.10 Odd-even pricing

Odd-even pricing (or psychological pricing) means pricing at
odd-numbered prices to connote a bargain and pricing at
even-numbered prices to imply quality. For years, many
retailers have used this tactic to price their products in odd
numbers for example, R99,99 or R49,95 in order to make
customers feel that they are paying a lower price for the
product.
Some retailers favour odd-numbered prices because they
believe that R999,99 sounds less imposing to customers than
R1 000,00. Other retailers believe that the use of an oddnumbered price signals to consumers that the price is at the
lowest level possible, thereby encouraging them to buy more
units. Neither theory has ever been conclusively proved.
Prices valid at all Shoprite stores in South Africa until

Sunday 26 January 2014. Vat incl. E & OE.
www.shoprite.co.za
8.5.11 Price bundling

Price bundling is marketing two or more products in a single
package for a special price. Examples include the sale of

maintenance contracts with computer hardware and other
office equipment, packages of stereo equipment (a CD
player and speakers), packages of options on cars, weekend
hotel packages that include a room and several meals and
airline packages that including a rental car. South African
Airways regularly offers a tariff including the airfare, two
nights free accommodation in a hotel and special rates on
car rental. Microsoft offers suites of software that bundle
together spreadsheets, word processing, graphics, e-mail,
Internet access and groupware for networks of microcomputers. Price bundling can stimulate demand for the
bundled items if the target market perceives the price as
good value. Bundle pricing is based on the concept that
consumers value the price package more than the items
individually. Bundle pricing usually also provides a lower
total cost to buyers and lower marketing costs to marketers.
The grocery retailer Spar bundles three magazines, Country
Life, Food & Home, and Garden and Home in a so-called
lifestyle pack for R56 a saving of R34 for the buyer
compared to when the three magazines are bought
individually.
A related price tactic is unbundling, or reducing the
bundle of services that comes with the basic product. For
example, instead of raising the price of hotel rooms, some
hotel chains have started charging registered guests for
additional services such as parking. And to help keep costs
down, some department stores require customers to pay for
gift-wrapping.
8.5.12 Two-part pricing

Two-part pricing means establishing two separate charges to
consume a single product or service. Sports clubs and health
clubs, for example, charge a membership fee and a flat fee
each time a person uses certain equipment or facilities, such
as playing a game of squash. In other cases they charge a
base rate for a certain level of usage, such as ten games per
month, and a surcharge for anything over that amount.
Consumers sometimes prefer two-part pricing because they
are uncertain about the number and the types of activities
they may use at places like an amusement park.
Also, the people who use a service most often pay a
higher total price. Two-part pricing can increase a sellers
revenue by attracting consumers who would not pay a high
fee even for unlimited use. For example, a health club may
be able to sell only 100 memberships at R 5 000 annually,
with unlimited use of facilities, for total revenue of R500 000.
But perhaps it could sell 900 memberships at R2 000 with a
guarantee of using the facilities ten times a month. Each
time members exceed ten uses they would be required to
pay a R50 fee. Membership revenue would, therefore,
provide a base of R1 800 000, with some additional usage
fees coming in throughout the year.
8.5.13 Product-line pricing
LO9
Product-line pricing is setting prices for an entire line of

products. A product-line is a group of products that are
closely related, such as the different passenger cars
marketed by Toyota (Yaris, RunX, Corolla and Avensis).
Product-line pricing encompasses broader concerns than
setting the right price on a single product. In the case of

product-line pricing, the marketing manager tries to
maximise profits or pursues other objectives for the entire
line rather than for a single component of the line.
8.6 Relationships between products

When using product-line pricing the manager must first
determine the type of relationship that exists among the
various products in the line:
If items are complementary, an increase in the sale of

one product causes an increase in demand for the
complementary product, and vice versa. For example,
the sale of tennis shirts depends on the demand for
tennis shorts, making these two items complementary.
Two products in a line can also be substitutes for each
other. If buyers buy one item in the line, they are less
likely to buy a second item in the line. For example, if
someone goes to an automotive supply shop and buys
paste Turtle Wax for a car, it is very unlikely that he or
she will buy liquid Turtle Wax in the near future.
A neutral relationship can also exist between two
products. In other words, demand for one of the
products is unrelated to demand for the other. For
instance, SAD Foods markets both dried fruit (Safari)
and Wellingtons Worcestershire sauce, but the sale of
one of these products has no known impact on demand
for the other.
8.7 Pricing during difficult economic times
LO10
Pricing is always an important aspect of marketing, but it is

especially crucial in times of inflation and recession. A firm
that does not adjust to economic trends may lose ground to
competitors, which it may never make up again.
8.7.1 Inflation
When the economy is characterised by high inflation,
special pricing tactics are often necessary. These tactics can
be subdivided into cost-orientated and demand-orientated
tactics.
Cost-orientated tactics
One popular cost-orientated tactic is culling products with a
low profit margin from the product line. However, this tactic
may backfire for three reasons:
A high volume of sales on an item with a low profit

margin may still make the entire line highly profitable
Eliminating a product from a product line may reduce
economies of scale, thereby lowering the margins on
other items
Eliminating the product may affect the price-quality
image of the entire line.
Another popular cost-orientated tactic is delayed-quotation

pricing, which is used for industrial installations and many
accessory items. Price is not set on the product until the item
is either completed or delivered. Long production lead times
have forced this policy on many firms during periods of
inflation. Builders of nuclear power plants, ships, airports,

office buildings and projects such as The Lost City and the
Medupi power station sometimes use delayed-quotation
tactics. The final price is determined only once the project is
completed. The completion of the Medupi power station
will cost R105 billion R35 billion more than originally
estimated.
Escalator pricing is similar to delayed-quotation pricing
in that the final selling price reflects cost increases incurred
between the times when an order is placed and when
delivery is made. An escalator clause allows for price
increases (usually across the board) based on the cost-ofliving index (the inflation rate) or some other formula. As
with any price increase, managements ability to implement
such a policy is based on inelastic demand for the product.
About a third of all industrial product manufacturers now
use escalator clauses. Often it is used only for extremely
complex products that take a long time to produce (like
building a dam or a national road), or with new customers.
Demand-orientated tactics
Demand-orientated pricing tactics use price to reflect
changing patterns of demand caused by inflation or high
interest rates. Cost changes are considered, of course, but
mostly in the context of how increased prices will affect
demand.
Price shading is the use of discounts by salespeople to
increase demand for one or more products in a line. Often,
shading becomes habitual and is done routinely without
much forethought. Some firms have succeeded in
eliminating the practice by telling their salespeople that
there will be no deviation from book price unless authorised

by management.
To make the demand for products or services more
inelastic and to create buyer dependency, a firm can use
several tactics. These include:
Cultivating selected demand. Marketing managers can

target prosperous customers who will pay extra for
superior quality, convenience or service. Woolworths, for
example, emphasises quality. As a result, a luxury retailer
can be more lenient with suppliers and their price
increases than a discounter, such as Game or Makro.
Creating unique offerings. Marketing managers should
study buyers needs. If the seller can design distinctive
products or services uniquely fitting buyers activities,
equipment and procedures, a mutually beneficial
relationship will evolve. Buyers would incur high
changeover costs in switching to another supplier. By
satisfying targeted buyers in a superior way, marketing
managers can enhance long-term loyalty. Many airlines
try to do that by targeting business travellers with the
required facilities to allow them to work while travelling.
They provide facilities such as business-class lounges,
private workstations and services such as fax machines,
photo copiers and Internet access.
Changing the package size. Another way some firms
pass on higher costs is to shrink product sizes but keep
prices the same. A coffee manufacturer switching from a
250- to a 200-gram jar without changing the price would
be an example. When informal traders at many of South
Africas road intersections started selling black refuse
bags, you could get 100 for R20. Then it became 80 for
R20; now they are down to 20 for R20 in some places.
Heightening buyer dependence. Many South African
banking clients are dependent on their banks because
they provide them with a range of services other than
banking, such as insurance and investment advice. As a
result they are less price-sensitive to competing offers
than they would be if they were not so locked in.
8.7.2 Recession
A recession is a period of slowing economic activity. Reduced
demand for products and services, and higher rates of
unemployment are common characteristics of a recession.
During such times, consumers typically trade down and
buy less expensive products. Nevertheless, astute marketers
can often find opportunities to exploit during recessions. A
recession is an excellent time to build market share because
some competitors are struggling to make ends meet. During
the recession of 2009, Woolworths dropped the prices of
many grocery items, organic vegetables and personal-care
products, a tactic that grew its market share from 4 to 9 per
cent.28
Two effective pricing tactics to hold or build market share
during a recession are value pricing and bundling. Value
pricing, discussed in the introduction to this chapter,
stresses to customers that they are getting good value for
their money. Whirlpool, for instance, advertises its
microwave ovens as added performance, added space and
added convenience to support its value positioning and
pricing.
Bundling or unbundling can also stimulate demand

during a recession. If features are added to a bundle,
consumers may perceive the offering as having greater
value. For example, suppose that a hotel in Cape Town
advertises a great escape weekend for R 5 000. The package
includes two nights accommodation and a continental
breakfast. The hotel may add a visit to a vineyard and a
dinner for two to create more value for this price.
Conversely, firms can unbundle offerings and lower base
prices to stimulate demand. A furniture retailer, for
example, may start charging separately for design
consultation, delivery, credit, set-up and taking away old
furniture.
Recessions are also a good time for marketing managers
to study the demand for individual items in a product line
and the revenue they produce. Pruning unprofitable items
from the product line can save resources to be better used
elsewhere. The examples of Lion Lager, Smirnoff Ice, the
Volkswagen Kombi and the Citi Golf have already been
discussed.
Specific tactics that firms use with suppliers include the
following:
Renegotiating contracts with current suppliers:

Sending suppliers letters demanding price cuts and
putting out for re-bidding the contracts of those that
refuse to cut costs
Offering help: Dispatching teams of experts to suppliers
plants to help reorganise and suggest other productivityboosting changes; working with suppliers to make parts
simpler and cheaper to produce
Keeping the pressure on: To make sure that

improvements continue, setting annual across-theboard cost-reduction targets, often of 5 per cent or more
a year
Paring down suppliers: To improve economies of scale,
slashing the overall number of suppliers, and boosting
purchases from those that remain.
When a recession begins to bite, retailers often pressurise

manufacturers to lower prices.29 When Iscor increased the
price of steel by 19,7 per cent in 2003, the motor vehicle
industry objected and insisted on a lower level of increase.30
Research in Motion (RIM), the firm that manufactures the
Blackberry was able to squeeze its suppliers to lower its
input costs during the 2009 recession. Being a strong growth
company in a challenging environment makes you an
important customer. That was probably helping RIM to elicit
better terms from the companies that made equipment for
[our] Blackberry phones, said CEO, Jim Balsillie. As a result,
RIM was able to offer considerable discounts on some of its
models.31
During the recession of 2008/09, food retailer Pick n Pay
summoned its suppliers to an urgent meeting to discuss
high and rising food prices which have continued upwards
despite a drop in fuel prices. In a strongly worded letter to 30
of the groups largest suppliers, Pick n Pays then CEO, Nick
Badminton, said in many cases we are being asked by our
suppliers for considerable price increases, which he
described as untenable.32
Tough tactics like these help keep many retailing firms
afloat during economic downturns.
<<< LOOKING BACK

The answer is yes to question 2 posed after the Marketing
in practice reader at the beginning of this chapter.
Consumers will generally associate a higher-priced product
with higher quality in the absence of other cues of quality.
In other words, if a consumer does not have anything else on
which to base a quality assessment they will use price as a
cue. Obviously, other cues, such as a brand name, may also
signal quality to a potential buyer.
SUMMARY
1
The importance of pricing decisions to the economy

and to the individual firm. Pricing plays an integral role
in the economy by allocating goods and services among
consumers, governments and businesses. Pricing is
essential in business because it creates revenue, which is
the basis of all business activity. When setting prices,
marketing managers strive to find a level high enough to
produce a satisfactory profit.
Pricing objectives. Establishing realistic and
measurable pricing objectives is a critical part of any
firms marketing strategy. Pricing objectives are
commonly classified into three categories: profitorientated, sales-orientated and status quo. Profitorientated pricing is based on profit maximisation, a
satisfactory level of profit or a target return on
investment. The aim of profit maximisation is to
generate as much revenue as possible in relation to cost.
Often, a more practical approach than profit

maximisation is setting prices to produce profits that will
satisfy management and shareholders. The most
common profit-orientated strategy is pricing for a
specific return on investment relative to a firms assets.
The second type of pricing objective is sales-orientated,
which focuses either on maintaining a percentage share
of the market or maximising rand or unit sales. The third
type of pricing objective aims to maintain the status quo
by matching competitors prices.
The role of demand in price determination. Demand is
a key determinant of price. When establishing prices, a
firm must first determine demand for its product. A
typical demand schedule shows an inverse relationship
between quantity demanded and price. In other words,
when the price is lowered, sales increase; when price is
increased, the quantity demanded falls. However, for
prestige products, there may be a direct relationship
between demand and price: the quantity demanded will
increase as price increases. Marketing managers must
also consider demand elasticity when setting prices.
Elasticity of demand is the degree to which the quantity
demanded fluctuates with changes in price. If
consumers are sensitive to changes in price, demand is
elastic; if they are insensitive to price changes, demand is
inelastic. An increase in price will, therefore, result in
lower demand for an elastic product and little or no
change in demand for an inelastic product.
Cost-orientated pricing strategies. The other major
determinant of price is cost. Marketers use several cost-
orientated pricing strategies. To cover their own

expenses and to yield a profit, wholesalers and retailers
commonly use mark-up pricing, i.e. they add an extra
amount to the manufacturers original price. Another
pricing technique is to maximise profits by setting the
price where marginal revenue equals marginal cost.
Another pricing strategy determines how much a firm
must sell to break even, and uses this amount as a
reference point for adjusting price.
The influence of product life cycle, competition,
distribution and promotion strategies, and
perceptions of quality on price. The price of a product
normally changes as it moves through the product life
cycle and as demand for the product and competitive
conditions change. Management often sets a high price
at the introductory stage, and the high price tends to
attract competition. The competition usually drives
prices down because individual competitors lower prices
to gain market share. Adequate distribution for a new
product can sometimes be obtained by offering a largerthan-usual profit margin to wholesalers and retailers.
Price is also used as a promotional tool to attract
customers. Special low prices often attract new
customers and entice existing customers to buy more.
Perceptions of quality can also influence pricing
strategies. A firm that wishes to project a prestigious
image often charges a premium price for a product.
Consumers tend to equate high prices with high quality.
The procedure for setting the right price. Setting the
right price for a product is a process with four major
steps:
Establishing pricing objectives
Estimating demand, costs and profit
Choosing a price policy to help determine a base
price
Fine-tuning the base price with pricing tactics.
A price strategy establishes a long-term pricing
framework for a product or service. The three main types
of price policies are price skimming, penetration pricing
and status quo pricing. A price-skimming policy charges
a high introductory price, often followed by a gradual
reduction. Penetration pricing offers a low introductory
price to capture a large market share and attain
economies of scale. Status quo pricing strives to match
competitors prices.
The legality and ethics of price. Some pricing decisions
are subject to government regulation. Before marketing
managers establish a price strategy, they should know
whether there are laws that limit their decision-making.
Some pricing practices are illegal; others, such as bait
pricing, are regarded as unethical.
The use of discounts, geographic pricing and other
special pricing tactics to fine-tune the base price.
Several techniques enable marketing managers to adjust
prices within a general range in response to changes in
competition, government regulation, consumer demand
and promotional and positioning objectives. Techniques
for fine-tuning a price can be divided into three main
categories: discounts, allowances and rebates;
geographic pricing; and special pricing tactics.
Product-line pricing. Product-line pricing maximises

profits for an entire product line. When setting productline prices, marketing managers determine which type of
relationship exists among the products in the line:
complementary, substitute or neutral. Managers also
consider joint (i.e. shared) costs among products in the
same line.
10 The role of pricing during periods of inflation and
recession. Marketing managers employ cost-orientated
and demand-orientated tactics during periods of
economic inflation. Cost-orientated tactics consist of
dropping products with a low profit margin, delayedquotation pricing and escalator pricing. Demandorientated pricing methods include price shading and
increasing demand through the cultivation of selected
customers, unique offerings and changing the package
size. To stimulate demand during a recession, marketers
use value pricing, bundling and unbundling. Recessions
are also a good time to prune unprofitable items from
product lines. Managers strive to cut costs during
recessions in order to maintain profits as revenues
decline. Implementing new technology, cutting payrolls
and pressuring suppliers for reduced prices are
techniques commonly used to cut costs.

1
2
Why is pricing so important to the marketing manager?

Explain the role of supply and demand in determining
price.
3
4
5
If a firm can increase its total revenue by raising its price,

shouldnt it do so?
Explain the concepts of elastic and inelastic demand.
Why do managers have to understand these concepts?
Why is it important for managers to understand the
concept of break-even points? What are the limitations
of break-even analysis?
A manufacturer of office furniture decides to produce
antique-style roll-top desks, but designed for personal
computers. The desks will have a platform for raising or
lowering the monitor and a number of other features.
The quality, solid-oak desks will be priced far below
comparable products. The marketing manager says:
Well charge a low price and plan on a high volume to
reduce our risks. Comment on this statement.
STRATEGY READER >> GMSAs entries 14 per cent

less
General Motors South Africa (GMSA) has slashed the prices of its entry level
range of vehicles. Some of the prices of the Chevrolet Spark Lite and Aveo
have been cut by up to 14 per cent. This latest realignment of prices and
models in our entry level A and B segments will significantly ease access
to new vehicles, GMSAs sales and marketing vice-president Malcom Gauld
said. Ever mindful of the financial pressures exerted by current global
economic conditions we have worked together with our vehicle supply
partners, General Motors in Korea where the Spark Lite and Aveo are built, to
take cost out of vehicles in our entry level range without compromising
specification, Gauld said.
The price of the Spark Lite 1.0 LS is reduced by R12 500 to just R86 200
including VAT. This represents a saving of 12,7 per cent on the previous
recommended retail selling price and only marginally above the price
previously asked for the 0,8 litre model, Gauld said. Importantly this is
achieved without negative impact on the specification, he said.
The Aveo Hatch range is downsized from three variants to just one - the
Chevrolet Aveo 1.6. The recommended retail price of this model is now R117
300 including VAT, a saving of R19 100 or 14 per cent! The Aveo 1.6 Hatch is
now the lowest priced 1,6 litre passenger car in South Africa. General Motors
is conscious of the difficulty faced by first-time vehicle buyers to access
affordable new vehicles, especially those from popular brands, Gauld said.
Chevrolet made its name by providing affordable, reliable and value-formoney vehicles for a large population of buyers to meet the requirements of
the family motorist and this remains true today.
SOURCE: Cheetam, B. 2012. GMSAs entries 14% less, Eastern Province Herald, 12 June, p. 3
QUESTIONS
1
2
What is the purpose of GMs pricing strategy?

What are the potential pitfalls of this strategy?
KEY CONCEPTS
Average total cost (ATC): total costs divided by quantity of
output.
Average variable cost (AVC): total variable costs divided by
quantity of output.
Bait pricing: a price tactic that aims to tempt consumers
into a shop through false or misleading price advertising and
then uses high-pressure selling to persuade them to buy
more expensive merchandise.
Base price: the general price level at which a firm expects to
sell a product or service.

Basing-point pricing: a price tactic that charges freight from
a given (basing) point, regardless of the location (e.g. city)
from which the products are shipped.
Break-even analysis: a method of determining what sales
volume must be reached before total revenue equals total
costs.
Cash discount: a price reduction offered to a consumer, an
industrial user, or a marketing intermediary in return for
prompt payment.
Delayed-quotation pricing: a price tactic used for industrial
installations and many accessory items, in which a firm
price is not set until the item is either completed or
delivered.
Demand: the quantity of a product that will be sold in the
market at various prices for a specified period.
Elastic demand: a situation in which consumer demand is
sensitive to changes in price.
Elasticity of demand: consumers responsiveness or
sensitivity to changes in price.
Escalator pricing: a price tactic in which the final selling
price reflects cost increases incurred between the times
when the order is placed and when delivery is made.
Fixed cost: cost that does not change as output is increased
or decreased.
Flexible pricing (variable pricing): a price tactic in which
different customers pay different prices for essentially the
same merchandise bought in equal quantities.
FOB (free on board) origin pricing: a price tactic that
requires the buyer to absorb the freight costs from the
shipping point.
Freight absorption pricing: a price tactic in which the seller
pays all or part of the actual freight charges and does not
pass them on to the buyer.
Functional discount (trade discount): a discount to
wholesalers and retailers for performing channel functions.
Inelastic demand: a situation in which an increase or a
decrease in price will not significantly affect demand for the
product.
Marginal cost (MC): the change in total costs associated
with a one-unit change in output.
Marginal revenue (MR): the extra revenue associated with
selling an extra unit of output or the change in total revenue
with a one-unit change in output.
Market share: a firms product sales as a percentage of total
sales for that industry.
Mark-up pricing: the cost of buying the product from the
producer plus an extra sum for profit and expenses not
otherwise accounted for.
Non-cumulative quantity discount: a deduction from list
price that applies to a single order rather than to the total
volume of orders placed during a certain period.
Odd-even pricing (psychological pricing): a price tactic
that uses odd-numbered prices to connote bargains and
even-numbered prices to imply quality.
Penetration pricing: a pricing policy whereby a firm
charges a relatively low price for a product initially in order
to reach a mass market.
Predatory pricing: the practice of charging a very low price
for a product with the aim of driving competitors out of
business or out of a market.

Prestige pricing: charging a high price to help promote a
high-quality image.
Price: that which is given up in an exchange to acquire a
product or service.
Price bundling: marketing two or more products in a single
package for a special price.
Price equilibrium: the price at which demand and supply
are equal.
Price fixing: an illegal agreement between two or more
firms on the price they will charge for a product.
Price lining: the practice of offering a product line with
several items at specific price points.
Price shading: the use of discounts by salespeople to
increase demand for one or more products in a line.
Price skimming: a pricing strategy whereby a firm charges a
high introductory price, often coupled with heavy
promotion.
Price strategy: a basic, long-term pricing framework that
establishes the initial price for a product and the intended
direction for price movements over the products life cycle.
Product line pricing: setting prices for an entire line of
products.
Profit: revenue minus expenses.
Profit maximisation: when marginal revenue equals
marginal cost.
Promotional allowance (trade allowance): payment to a
dealer for promoting the manufacturers products.
Quantity discount: price reduction offered to buyers buying
in multiple units or above a specified amount.

Rebate: cash refund given for the purchase of a product
during a specific period.
Revenue: the price charged to customers multiplied by the
number of units sold.
Seasonal discount: a price reduction for buying
merchandise out of season.
Single-price tactic: a policy of offering all products and
services at the same price.
Status quo pricing: a pricing objective that maintains prices
or meets the competitions prices.
Supply: the quantity of a product that will be offered to the
market by a supplier at various prices for a specified period.
Target return on investment (ROI): a measure of the overall
effectiveness of management in generating profits with its
available assets.
Trade loading: the practice of temporarily lowering the
price to induce wholesalers and retailers to buy more goods
than can be sold in a reasonable time.
Two-part pricing: a price tactic that charges two separate
amounts for a single product or service.
Unbundling: reducing the bundle of services that comes
with the basic product.
Uniform delivered pricing: a price tactic in which the seller
pays the actual freight charges and bills every purchaser an
identical, flat freight charge.
Unitary elasticity: a situation in which total revenue
remains the same when prices change.
Variable costs: costs that vary with changes in the level of
output.
Zone pricing: a modification of uniform delivered pricing

that divides the country (or the total market) into segments
or zones and charges a flat freight rate to all customers in a
given zone.
REFERENCES
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
Furlonger, D. 1998. Ford attempts to shrug off the Tin Lizzie image.
Financial Mail, 6 March 1998, p. 54.
Retailers are giving profits away. American Demographics, June 1994, p. 14.
Furlonger, D. 1998. Ford attempts to shrug off the Tin Lizzie image.
Financial Mail, 6 March 1998, p. 54.
Africa barrels ahead, Financial Mail, 22 June 2012, p. 64.
The persistent albatross. Financial Mail, 27 June 2008, p. 38.
Pile, J. 2004. Battle of the bedpans. Financial Mail, 6 August 2004.
Windsor, C. 2000. Tiger Brands: Can a tiger change its stripes? Investec
Securities Research Report, C100/25, pp. 78.
Brand, N. 2003. Sony verlaag CD-pryse tot onder R100. Die Burger, 3
November 2003, p. S11.
iBurst. 1 April 2010. Insomnia rocks! iBurst launches free three-month trial.
Available, http://www.iburst.co.za/default.aspx?
link=new_latest_news&blogs=162 (Accessed 17 May 2010).
Pincus, D. 1998. Price hikes squeeze market. Financial Mail, 6 February 1998,
p. 52.
Food & Beverage Reporter Online, edition 2/2/99, no. 15.
Mpofu, B. 2008. Glut of bricks forces price cuts. Eastern Province Herald
electronic edition, 20 November 2008.
Sherry, S. 2010. Good time for tea. Financial Mail, 15 January 2010, p. 44.
Mpofu, B. 2009. PPC hikes prices as energy costs bite. Business Day electronic
edition, 27 January 2009.
Baumann, J. 2009. Airline ticket costs are unsustainable. Business Day
electronic edition, 18 March 2009.
Mathe, K. 2009. Mzansi accounts fail to bring cheer as banks incur losses.
Business Day, 1 April 2009, p. 4.
McCleod, D. 2010. Cheaper calls at last. Financial Mail, 12 March 2010, p. 14.
Dodds, W., Monroe, K. & Grewal, D. 1991. Effects of price, brand and store
information on buyers product evaluations. Journal of Marketing Research,
August 1991, pp. 307319.
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26
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31
32
Haw, P. Major revamp to reposition range, Business Day, 29 October 2010, p.

18; Exclusive status, Business Day, 29 October 2010, p. 18.
Gilmour, C. 2005. Shoppers still shun the racks. Financial Mail, 1 April 2005,
p. 43.
Telkom ADSL. Available from
http://www.telkom.co.za/sites/athome/productsandservices/internetandbroadban
African barrels ahead, 2012. Financial Mail, 22 June, p. 64.
White, T. 2010. Accommodation overpricing is a perception rather than a
reality. Cape Town Media. Available,
http://www.capetown.travel/media/pressreleases/entry/accommodation_overpricing_is_a_
perception_rather_than_a_reality/ (Accessed 17 May 2010).
Windsor, C. 2000. Tiger Brands: Can a tiger change its stripes? Investec
Securities Research Report, C100/25, p. 8.
Wilson, N. 2004. Air price-war breaks out as Kulula slashes prices. Business
Day electronic edition, 26 January 2004.
Pile, J. 2009. Young blood. Financial Mail, 29 May 2009, p. 82.
Rose, R. 2005. Rob Roses Monday Comment: Phoney cinema war a boxoffice bomb. Business Day electronic edition, 22 August 2005; Derby, R. 2006.
Ster-Kinekor earnings down despite bid to attract patrons. Business Day
electronic edition, 28 February 2006.
Shevel, A. 2009. Woolies cuts prices to attract new market. Sunday Times
Business section, 8 February 2009, p. 9.
Cut costs or else. Business Week, 22 March 1992, pp. 2829; Roberts, A. 1998.
Squeezing the margins till they squeak. Financial Mail, 6 November 1998, p.
18.
Claasen, L. 2003. Iscor, car makers try to end steel price row. Business Day, 20
January 2003.
Miller, H. 2009. RIM squeezes Blackberry suppliers on price as economy dips.
Business Day electronic edition, 14 April 2009.
Mawson, N. 2009. Pick n Pay reads riot act to suppliers over prices. Business
Day, 26 January 2009, p. 1.
CHAPTER
14
Putting it all together: The

strategic marketing plan
LEARNING OUTCOMES
1
2
3
4
5
Understand the nature and importance of strategic planning.

Explain the value of compiling a written strategic marketing plan.
Formulate an appropriate business mission statement.
Conduct a situation analysis using a SWOT analysis.
Identify relevant marketing strategies for marketing products
under different models of competition.
6 Outline four responses to external influences in particular,
opportunities that are driven by corporate culture.
7 Describe the four different opportunity-utilisation strategies
available to firms.
8 Illustrate the use of the Boston Consulting Groups (BCG) portfolio
matrix and other strategic tools for assessing marketing
opportunities.
9 Describe marketing strategies for different strategic business
units in the different quadrants of a BCG matrix.
10 Identify the criteria for setting good marketing objectives.
11 Discuss target market and positioning strategies as components
of a strategic marketing plan.
12 Describe the elements of the marketing mix strategies as
13
14
15
16
17
components of a strategic marketing plan.

Understand why the implementation, evaluation and control of
the marketing plan are important to successful marketing.
Structure and compile a basic strategic marketing plan.
Identify the principles of effective strategic marketing planning.
Provide a marketing-management solution related to any of the
above outcomes.

When the game goes wrong
In his 2010 review the present chairman of Old Mutual,
Patrick OSullivan, said the following: This group has
an illustrious past, which has been tarnished by some
poor strategic decisions during the past 11 years, he
says. The insurers past decade provides one of the best
examples of the impact that poor strategic decisions
may have on a business and on shareholder wealth.
The costs may mount over years, often worsening as
management invests more capital and time in trying to
make an unwise investment work. It may take years
before it becomes clear a company has embarked on an
unwise strategy. Or, conditions may change, but
management resists retreat. Many other local
companies have made questionable and costly
strategic choices in the past two decades. Nedbank,
Sappi, Nampak, Sasol (Condea chemicals) and Anglo

American (buy-backs and acquisitions) are among
them.
Strategic errors can occur in forms such as
inappropriate market positioning or branding, but the
most frequent and destructive errors tend to be linked
to acquisitions or large capital investments. Companies
pay too much for acquisitions, move out of their areas
of competence, find they can bring little competitive
advantage, or underestimate market conditions or
competition.
Old Mutual made most of these errors, particularly
overpaying for acquisitions in its early years after
listing. Since then it had spent R67,82bn in seven
acquisitions and had destroyed shareholder value of
about R50bn over 10 years.
SOURCE: McNulty, A. 2011. When the game goes wrong. Financial Mail, 6
May, p. 58
QUESTIONS
1
2
What are the causes of poor strategic decision-making?

Can proper planning avoid poor decision-making?
1. Introduction
Throughout this book we have pointed out that the
marketing environment is fraught with risks. Marketing
decision-making therefor is by definition risky because it
concerns the future, and the future is unknown. For a firm to

survive and prosper, marketers continuously have to be on
the lookout for potential opportunities and threats. Failure
to do so can have serious consequences. The demise of
brands such as African Bank, Nokia, 1Time airline and
Blackberry are examples.
Abraham Lincoln once said, If I have four hours to chop
down a tree, I would spend three of them sharpening my
axe. Planning is one way in which marketers can reduce the
risks associated with decision-making.
In Chapter 1 it was stated that one of the objectives of this
book is to equip you to become a marketing manager. One
of the key responsibilities of a marketing manager is to
develop and implement a strategic marketing plan. The
focus of this chapter is the strategic marketing plan a
written document that acts as a guide for marketing
decision-making and activities.
2. The nature of strategic planning
LO1
Strategic planning is the managerial process of creating and

maintaining a fit between the firms objectives and
resources on the one hand, and developing market
opportunities on the other hand. The goal of strategic
planning is long-term profitability and growth. This goal can
be realised by reducing risk and enhancing the quality of
managerial decision-making as a result of proper planning
and the optimal allocation of the firms scarce resources. As
Dwight Eisenhower said: planning is indispensable.
A strategic error, often as a result of poor planning, can

threaten a firms survival. Several South African firms have
made some serious strategic errors in the recent past. Old
Mutual chairman Patrick OSullivan recently said: This
group has an illustrious past, which has been tarnished by
some poor strategic decisions during the past 11 years.
These include spending R5,40 billion on a life insurance
business in the United Sates in 2001. It recently had to close
the business down. African Bank ignored economic
developments affecting their customer base and had to be
rescued by the Reserve Bank. Before that they made an illadvised investment in furniture retailer Ellerines, which cost
them dearly. Banking group Nedbank made poor
investments in IT firm Dimension Data and Law firm
Edward Nathan & Friedland at high prices.1
On the other hand, a good strategic plan can help protect
a firms resources against competitive onslaughts. For
instance, if the US health foundation March of Dimes had
decided to focus only on fighting polio, the organisation
would no longer exist. Most of us view polio as a conquered
disease. March of Dimes survived by making the strategic
decision to switch to fighting birth defects. Denel, the South
African arms manufacturer, has realised that, with reduced
military conflict in the southern African region, it cannot
survive by manufacturing military hardware alone. It has
subsequently investigated manufacturing products such as
tractors for farming.
Strategic marketing management addresses two
questions: what is the firms main activity at a particular
time? And how will it reach its goals? The following are
examples of recent strategic decisions made by large South

African firms:
Capsule Technologies decision to develop a solarpowered desktop computer

Coca Colas decision to market two new brands: Zico
coconut water and Honest Tea
Woolworths decision to buy back all its franchises
Sasols decision to branch into gas production
PC maker Lenovos decision to enter the tablet market.
All these decisions have affected or will affect each firms

long-term course of action, its allocation of resources and
ultimately its financial success. By contrast, an operating
decision, such as marketing Koo mayonnaise in sachets, or
altering the sweetness of McCains peas, probably wont
have a major impact on the allocation of resources or the
long-term profitability of the firm. In this chapter the
emphasis is on long-term strategic marketing planning
rather than short-term planning.
How do firms go about strategic marketing planning?
How do employees know how to implement the long-term
goals of the firm? The answer is with a marketing plan.
WEBSITE
Visit www-1.obm.com/services/ strategy
for some of the most recent contemporary
ideas on corporate strategy.
3. The strategic marketing plan

Planning is the process of anticipating events and

formulating strategies to realise the firms objectives in the
future. Marketing planning involves designing activities
relating to marketing objectives and the changing marketing
environment. It is the basis for all marketing strategies and
decisions. Issues such as product lines, distribution
channels, marketing communications and pricing are all
delineated in the marketing plan. As a written document, it
acts as a guidebook of future marketing activities for the
marketing manager. In this chapter, you will learn about the
importance of writing a marketing plan and study the types
of information contained in a marketing plan.
4. The value of a strategic marketing

plan
LO2
By specifying objectives and defining the actions required to

attain them, a marketing plan provides the basis with which
actual and expected performance can be compared.
Marketing can be one of the most expensive and
complicated business components, but it is also one of the
most important business activities. The written marketing
plan provides clearly stated objectives that help employees
understand and work towards common goals.
Compiling a marketing plan allows the marketing
manager to examine the marketing environment in
conjunction with the inner workings of the firm.
Synchronising the external blend of threats and
opportunities on the one hand and the internal capabilities

of the firm on the other is a daunting task. Once the
marketing plan is written, it serves as a reference point for
the success of future activities. The marketing plan also
allows the marketing manager to enter the market with an
awareness of both the possibilities and the problems that it
offers.
5. The elements of a marketing plan

Marketing plans must be in written format because details
about tasks and activity assignments (i.e. assigning
responsibility) may be lost if communicated only verbally.
Regardless of the way a marketing plan is presented, there
are certain elements that are common to all marketing
plans. These include defining the business mission and
objectives, performing a situation analysis, identifying a
target market and formulating a marketing strategy (the
marketing mix). Other elements that ought to be included in
a strategic marketing plan are budgets, implementation
timetables, required marketing research efforts and
elements of advanced strategic planning.
Figure 14.1 illustrates the strategic marketing planning
process containing all of these elements. The whole process
in essence combines every aspect of marketing as discussed
in the previous 13 chapters and culminates in the strategic
marketing plan. An example of a thumbnail marketing plan
is contained in the sample summary marketing plan (see
Table 14.1).
Figure 14.1 The strategic marketing planning process
5.1 Defining the business mission
LO3
The foundation of any marketing plan is first to answer the

question, What business are we in and where are we going?
The answer is the firms mission statement. Both the firms
mission and how it defines the market(s) it serves should
guide the compilation of a marketing plan. (You may want to
review the Chapter 1 discussion on the firms market
definition for example, the central role of a generic versus a
product market orientation.)
The business mission definition profoundly affects longterm resource allocation, profitability and survival. The
mission statement is based on a careful analysis of benefits
sought by present and potential customers and an analysis
of existing and anticipated environmental conditions. The
firms long-term vision, embodied in the mission statement,
establishes boundaries for all subsequent decisions,
objectives and strategies.
Lets consider the mission statement of a hypothetical
hotel chain below. It illustrates how a mission statement
may provide a clear direction for marketing planning:
Sunshine Hotels are in business to satisfy customer
needs by operating hotels that provide:
Individuality and first-class facilities

Location and convenience
Guest service of an excellent standard
Value for money.
The Sunshine Hotel mission statement provides direction

for each of the four Ps: product (individuality and first-class

facilities); price (value for money); distribution (location and
convenience) and, by implication, for marketing
communication conveying the message that you can enjoy
individuality, excellent service and first-class facilities at
convenient locations at a price that represents value for
money if you choose a Sunshine Hotel.
Another example is Coca-Colas mission statement:2
We exist to create value for our shareowners on a long-term
basis by building a business that enhances the Coca-Cola
Companys trademarks. This also is our ultimate
commitment. As the worlds largest beverage company, we
refresh the world. We do this by developing superior soft
drinks, both carbonated and non-carbonated, and profitable
non-alcoholic beverage systems that create value for our
company, our bottling partners and our customers.
In creating value, we succeed or fail based on our ability
to perform as stewards of several key assets:
Coca-Cola, the worlds most powerful trademark, and

other highly valuable trademarks
The worlds most effective and pervasive distribution
system
Satisfied customers [retailers], who make a good profit
selling our products
Our people, who are ultimately responsible for building
this enterprise
Our abundant resources, which must be intelligently
allocated
Our strong global leadership in the beverage industry in
particular and in the business world in general.
Table 14.1 Sample summary marketing plan (hypothetical firm)
Business
mission
Ultracel is in the business of providing mobile

communication.
Marketing
objective
To achieve 20 per cent market share, in rand volume, of the

personal communications service (PCS) cellular telephone
market by the year 2010.
Situation analysis
Strengths
Well-funded firm; highly skilled workforce with low labour

turnover; excellent relationships with suppliers; product
differential; sustainable competitive advantage of patented
colour screen.
Weaknesses
Company name not well known; small firm with no

manufacturing cost advantages; no long-term contracts with
intermediaries; inexperience in the cellular telephone
market.
Opportunities
Explosive growth of cellular phone users; worldwide

acceptance of cellular technology; newly available digital
networks.
Threats
Heavy competition from Motorola, Sony and Nokia;

technology is incompatible with current analogue systems;
not everyone can afford the systems; potential governmental
regulation.
Competitor
Highly competitive; differentiation for different segments is
analysis
very important.
Competitive
advantage
Patented colour screen.
Target
market
selection
Young, mobile executives in South Africa with incomes over

R300 000 per year; frequent travellers; computer
enthusiasts (techno junkies).
Positioning
Premium product; superior quality and performance.
Marketing mix
Product
PCS cellular telephone. Brand name: Ultracel-2000.

Features: simultaneous voice and data communication,
Internet access, operation within buildings, link-ups to data
subscription and e-mail services, computer data storage,
colour screen, lightweight, 48-hour battery, three-year
unlimited warranty on parts and labour, 24-hour technical
support, leather or titanium carrying case.
Place
Available through cellular telephone retailers, upmarket

computer retailers, or via mail-order firm direct. Products
transported via aeroplane and temperature-controlled motor
carrier.
Promotion
Sales force of fifty manufacturers representatives, with 25

per cent commissions. Advertising in print media, television
and outdoor billboards. Sales promotion in the form of
introductory product rebates, technology trade shows. Public
relations efforts to news media and sponsorship of major
sporting events.
Price
Retail price of R1 250 (compared with Nokia at R1 000,

Motorola at R900 and Sony at R500). Assuming mild price
sensitivity and future price wars.
Implementation
First quarter
Complete marketing research on price; design promotional

campaign; sign contracts with manufacturers
representatives.
Second
quarter
Public relations campaign; product introduction at trade

shows; roll-out of advertising.
Third quarter
Test international markets (Botswana, Kenya and Egypt).
Business definitions and the resultant mission statements

that are stated too narrowly suffer from marketing myopia
(see Chapter 1). Marketing myopia means that the business
is defined in terms of products and services rather than in
terms of the benefits that customers want. In this context,
myopia means narrow, short-term thinking.3 There are
many other examples of broad business definitions. Simba
or Willards may, for instance, define their mission as being
in the snack-food business rather than in the chips business.
The mission of sports teams is not just to play games, but to
serve the interests of their supporters by entertaining them.
Telkom may say that it does not sell telephones or longdistance services it markets communications technology
to allow consumers to communicate effectively.
Business missions should not be stated too broadly. To
be a leading consumer-goods manufacturer and marketer
is probably too broad a mission statement for any firm.

Care must be taken when stating what business a firm is
in. The mass grocer Pick n Pay bought a stake in newsagent
PNA and in 7-Eleven convenience stores. They have
subsequently divested from both ventures, and changed
their focus to converting Score shops into Pick n Pay family
outlets. If Pick n Pay had had a sound idea in which business
it was in, it probably would not have burnt its fingers as it
did. The process of converting Score outlets to Pick n Paybranded outlets began in 2008. Thanks to extensive research
conducted within the LSM 47 target markets (see
Chapter 2), Pick n Pay discovered that customers really
wanted the Pick n Pay experience and not the Score brand,
which it saw as a second-rate offering. Add to this the fact
that Score shops were underperforming, and the obvious
solution was to convert the most suitable Score shops into
Pick n Pay franchises. By the middle of 2010, 52 shops had
been converted into Pick n Pay franchises, leading to the
termination of the Score brand. All in all, a lot of money was
wasted due to the absence of a clear mission statement in
the first place.
By correctly stating the business mission in terms of the
benefits that customers want the foundation for the
marketing plan is set.
5.2 Strategic marketing objectives

The marketer should formulate the firms strategic
marketing objectives based on the business mission. These
objectives are typically very broadly phrased and no
reference is made to specifics. They refer to the firm as a

whole rather than to any specific brands or markets.
5.3 Identifying opportunities to utilise

Once the firm has decided what business it is in, it will be in
a position to consider whether the opportunities and trends
identified during the environmental-scanning process (see
Chapter 2) can be utilised by considering whether they fall
within the firms ambit of business. For instance, German
Engineering firm Bosch is active in automotive technology,
industrial technology, power tools, security systems and
solar energy. It now wants to get involved in packaging.4
Does packaging fall inside Boschs definition of what
business it is in? If the answer is yes, then a situation analysis
needs to be conducted.
5.4 Conducting a situation analysis
LO4
Before specific marketing objectives can be defined or

marketing activities decided upon, marketers must
understand the current and potential environment that the
product will be marketed in. A situation analysis is
sometimes referred to as a SWOT analysis; that is, the firm
should identify its internal strengths (S) and weaknesses
(W), and examine external opportunities (O) and threats (T).
When examining internal strengths and weaknesses, the
marketing manager should focus on the firms resources
such as production costs, marketing skills, financial
resources, the firms or brands image, employee
capabilities and available technology. Another issue to

consider in this section of the marketing plan is the
historical background of the firm, such as its sales and profit
history.
EXAMPLE >> When the management of the publishing and printing

firm Avusa, conducted a situation analysis recently, it identified threats ranging
from piracy, to loss of advertising revenue, to ageing printing presses. Avusa owns
the Sunday Times, 50 per cent of BDFM (publisher of Business Day and the
Financial Mail), several magazines, Nu-Metro Theatres, Gallo Music Group and
Exclusive Books. The first threat the firm identified was the potential loss of
licences, such as music labels and magazines titles. Another threat was the loss
of key staff, particularly people with experience and knowledge, as was the loss of
advertising revenue for various publications. Ageing printing presses, onerous
leases at various film theatres, the high levels of theft of cash at retail outlets and
currency risk (i.e. changes in the value of the rand) were also identified as threats
to Avusas marketing plans.
South African Breweries (SAB) has pursued a number of
opportunities in African countries, such as Zambia Kenya
and Nigeria over the last few years. SAB probably considered
its years of beer brewing in developing countries as a
strength, together with its experience in efficient
distribution, all-round marketing skills and financial
resources. Potential weaknesses may be a lack of knowledge
of local consumer needs and preferences in these foreign
markets. When examining external opportunities and
threats, marketing managers must analyse aspects of the
marketing environment. This process is called
environmental scanning (see Chapter 2). Environmental
scanning is the collection and interpretation of information
about trends, forces, events and relationships in the external

environment that may affect the future of the firm or the
implementation of the marketing plan. Environmental
scanning helps identify market opportunities and threats,
and provides guidelines for the design of a marketing
strategy.
The six most often studied macro-environmental forces
are social, demographic, economic, technological, political
and legal, and competitive forces. These forces were
examined in detail in Chapter 2. Of these, the competitive
environment (Chapter 4) is probably the most important.
5.5 Assessing the competitive environment
LO5
The competitive environment encompasses the number of

competitors a firm must face, the relative size and market
power of the competitors and the degree of
interdependence within the industry. Management has little
control over the competitive environment confronting a
firm, and yet the marketing mix particularly pricing
depends on the type and level of competition prevailing in a
market (see Chapter 4).
Economists recognise four basic models of competition,
based mainly on the number of competitors and the nature
of the products produced. Table 4.1 in Chapter 4
summarises the characteristics of the four basic models of
competition and the key tasks of the marketing manager
within each competitive situation. The type of competition
prevailing in a market has a considerable impact on pricing
strategies and the ability of a firm to set a target price (see
Chapter 13).
At one extreme of economic competition is a monopoly,
in which one firm controls the output and price of a product
for which there are no close substitutes. In other words, the
firm is the industry and there are no direct competitors.
Parastatals, such as Eskom and the Post Office, are the most
common form of monopoly in South Africa. In addition, a
patent can give a firm monopoly power for a time. Xerox, for
example, held the patent on the dry-paper copying process
for many years. Only when the patent expired could
competitors enter the market to compete with Xerox and
force the prices of photocopiers down.
At the other extreme of the competitive spectrum is what
is termed pure competition. A purely competitive market is
characterised by a large number of sellers marketing moreor-less standardised products to a group of buyers who are
well informed about the market. New competitors can easily
enter the market and sell their entire output at the prevailing
market price. In a purely competitive market there is no
competitive advantage for any one firm, and it would
therefore not make sense for any firm to increase the price of
its product as a potential buyer would simply go elsewhere
and purchase the same product at the prevailing (lower)
market price.
When a relatively small number of firms dominate the
market for a particular product or service, the industry is
referred to as an oligopoly. In South Africa, cellphone service
providers (MTN, Vodacom and Cell C) and airlines compete
in oligopolistic markets. Oligopolies also exist at a lower
competitive level. If a small town has only three or four
petrol stations, for example, they are competing in an

oligopoly. Because they have few competitors, the actions of
one firm have a direct impact on the others. This
interdependence characterises an oligopoly.
The close relationship among firms in an oligopoly makes
firms in these types of markets susceptible to collusion and
price fixing, which are illegal in South Africa. Instead of
fixing prices, some industries simply follow a price leader.
The leader is normally the dominant firm in terms of assets,
market share or geographic coverage. Marketing managers
do not have a lot of pricing flexibility in an oligopoly. They
must be alert to price changes and quickly match price
decreases or lose a significant amount of market share. To
secure a firmer position in an oligopolistic market,
marketing managers should stress the firms competitive
advantage(s), such as good service, exceptional product
quality, better distribution or any other form of non-price
competition.
Monopolistic competition refers to a situation in which a
relatively large number of suppliers offer similar, but not
identical, products. Examples include laundries, hair
stylists, aspirin producers, lawyers and banks. Each firm has
a comparatively small percentage of the total market, so
each has limited control over the prevailing market price.
Competing firms attempt to differentiate their offerings by
means of brand names, trademarks, packaging,
advertisements and services. With monopolistic
competition,
consumers
tend
to
prefer
the
products/services of specific firms and, within limits, will
pay a higher price for them. In other words, they tend to
think, I like Magnum ice cream because its a little different.

But if the price goes up too much, I know Encore is just as
nice, so Ill switch. The seller, therefore, has some control
over price, but only within a limited range. If the marketing
manager raises prices too high, the firm could lose its entire
market.
Therefore, firms must incorporate information about
their competitive environment into the strategic marketing
plan. Failure to do so could be disastrous. The Danish toy
maker Lego recently reported its first-ever loss as a result of
falling sales and the slow reaction to the computer
onslaught.5 Legos experience also suggests that strategic
marketing has a timing dimension.
5.6 Strategic windows

A technique for timing the utilisation of opportunities is to
identify so-called strategic windows. A strategic window is
the limited period during which the fit between the key
requirements of a market and the particular competencies
of a firm are at an optimum. For example, the terrorist
attacks on New York and Washington in September 2001
opened a window of opportunity for South African tourism.
All of a sudden, many international tourists thought that
South Africa was a relatively safe place to travel to. The drop
in international tourism after September 2001 also resulted
in an underutilisation of international carriers aircraft,
which, in turn, meant that some South African airlines were
able to lease aircrafts at a relatively inexpensive rate
compared with competitors that had leased aircrafts earlier
in the year. Similarly, the success of the Sharks rugby team

provided the Sharks Rugby Union with a window of
opportunity to market successfully and profitably a whole
range of Sharks merchandise. And when the Bulls, Super 14
leaders and defending champions in 2010, were not able to
use their Loftus Versfeld home stadium for the semis or final
of the Super 14 series, as it was designated a clean stadium
for the football World Cup, the Bulls decided to play their
last two matches at the Orlando Stadium in Soweto, which
not only provided the businesses in Soweto with a
tremendous window of opportunity, but also allowed
spectators to experience township life.
5.7 Assessing the corporate culture
LO6
Whether a firm seizes the opportunities when the strategic

window is open is often determined by its corporate culture.
Corporate culture is the term given to a pattern of basic
assumptions a firm has adopted to cope with its internal
environment and the changing external environment.
Internally, corporate culture is concerned with such issues
as worker loyalty, the centralisation or decentralisation of
decision-making, teamwork, initiative and problem-solving
techniques. In terms of the external environment, corporate
culture is manifested in the way in which the firm reacts to
threats and opportunities. A firms response to the external
environment is influenced by its corporate culture and can
be categorised into four types of responses, as follows:
Prospector: This type of firm focuses on identifying and
capitalising on emerging market opportunities,

emphasising this through research and communication
with the market. Because of its strong external
orientation, the prospector tends to build and maintain
an excellent information system and new product
development programme. A prospector prefers strategic
alternatives that tap into new markets or develop new
products and services. South African Breweries is a good
example of a prospector. Despite dominating the South
African beer market, South African Breweries never rests
on its laurels and is continuously looking for new
opportunities in South Africa, in the rest of Africa and
overseas. It was the first brewer to experiment with an ice
beer (Dakota); it added Millers Genuine Draft, Pilsner
Urquell, flavoured beer (Fying Fish) and alternative
beverages, such as Brutal Fruit to its product range; it
successfully repositioned Hansa Pilsener and Castle Lite;
launched a cassava-based beer in Mozambique and it is
exploring new ways of increasing beer consumption
among women. SAB has also opened breweries and
entered into strategic alliances in a host of African
countries, including Zambia, Kenya and Nigeria as well
as in the United States, China, Russia and Colombia.
Reactor: The opposite of the prospector. Instead of
looking for opportunities, the reactor responds to
environmental pressures when forced to do so. The
reactor is a follower, not a leader, and lacks a strategic
focus. The emphasis is on maintaining the status quo
despite environmental change. A reactor will avoid any
strategic alternative that takes it out of its niche or that
calls for bold, risk-taking action. The publisher Caxton
(owner of magazine titles such as Living & Loving) is a

reactor. In reference to the Internet as a publishing
medium, Caxton says: No publisher can be so bold as to
say we are not interested in the Internet. But its early
days. Wed like someone else to do the breaking in.6
Defender: Has a specific market domain and does not
search outside that domain for new opportunities.
Instead, the defender tries to defend its turf. A defender
looks favourably, however, on any strategic alternative
that helps reduce operating costs. The risk, however, is
that market changes might go unnoticed. Even if the
defender detects such changes, it is usually unable to
adjust its business practices quickly in response. The
South African Post Office is an example. The advent of
fax machines in the 1980s was already a threat to its
postal business. Today electronic mail, online banking
and payments (instead of mailing cheques) and online
marketing (instead of the mailing of marketing material
such as sales catalogues) have accelerated the declining
demand for the Post Offices traditional services. This
decline has eroded its income and as a result the
organisation is not profitable at all. However, despite the
danger signs the Post Office has been unable to adapt to
the changing circumstances.
Analyser: Tends to be both conservative and aggressive.
It usually does business in at least one stable market and
tries to defend its position in that market. An analyser
also tries to identify emerging opportunities in other
markets. Unlike the prospector, the analyser is not an
aggressive risk-taker. Usually second in to new-product
markets, the analyser does have the advantage of
observing and learning from other firms new-product

problems. General Motors in South Africa may be
described as an analyser. It has a dominant position in
the bakkie market, which it jealously defends, but it
generally does not enter risky market segments.
Nandos describes its corporate culture in the following

terms: integrity; achievement-driven; autonomy; freedom to
operate; environment of openness and challenge; courage to
find brave and innovative solutions; we give each other
support, laughter and fun; passion for what we do; and pride
in our brand and people. What it does not want to be,
explains Nandos, is cookie-cutter, soulless, utilitarian and
unemotional. There can be no question that their culture
has contributed to its success. Imperial Holding described it
culture as entrepreneurial, diversified, decentralized
management structure, which empowers exceptional
people to develop their business.7
5.8 Opportunity-utilisation strategies
LO7
To discover a marketing opportunity, marketing

management must know how to identify alternatives. One
method for developing alternatives is the strategicopportunity matrix, which matches products with markets
(see Table 14.2, which provides hypothetical examples).
Firms can explore the following four opportunity-utilisation
strategies:
Market penetration. A firm using the market

penetration alternative wants to increase its market
share among existing customers with its existing range of
products, or slight modifications of them. For example,
Ina Paarman recently added vegetable stock and steak
sauces to its existing range of spices and Nestl now has
introduced its own-branded coffee machines in coffee

shops. In essence, market penetration means improved
marketing to existing target markets.
Market development means attracting new customers
to existing products. Ideally, new uses for old products
stimulate additional sales among existing customers
while also bringing in new buyers. The Zimbabwean firm
Tulimara, marketing indigenous African foodstuffs, such
as marula jelly, in Australia, is an example of market
development. Another example is Energade, marketed to
segments other than sportspeople.
Product development. A product-development strategy
entails the creation of new products for present markets.
Woolworths, for example, is getting involved in the
marketing of furniture. Parmalat has entered the iced-tea
market with three flavours: peach, lemon and mixed
berry.
Diversification is a strategy of increasing sales by
introducing new products into new markets. A
diversification strategy can be quite risky when a firm is
entering unfamiliar markets. On the other hand, it can
be very profitable when a firm is entering markets with
little or no competition. Cadac used to market gas bottles
and gas braais. It now also markets sleeping bags and
tents.
When embarking on a new venture selecting which

utilisation strategy to utilise depends on the firms corporate
philosophy and culture. The choice also depends on the
tools used to make the decision. Generally, firms adopt one
of two different approaches to profits: they either pursue
profits right away or first attempt to increase market share

and then pursue profits. In the long run, however, market
share and profitability are perfectly compatible goals. Many
firms have long followed the credo build market share, and
profits will surely follow.
Michelin, the tyre producer, consistently sacrifices shortterm profits in order to grow its market share. Others
disagree with this approach. When he took over as CEO of
IBM, Lou Gerstner stressed profitability over market share,
quality and customer service. One strategic alternative may
be viewed entirely differently by firms that have different
corporate cultures. A highly desirable alternative for one
firm may be completely unattractive to another.
Table 14.2 A strategic-opportunity matrix (hypothetical)
Present products
New products
Present
market
Bokomo Foods increases the

advertising budget of Weet-Bix
by 50 per cent
Pecks adds chicken liver and

beef/biltong to its savouryspread product range
New
market
South African Breweries opens

a brewery in India
Pick n Pay offers financial

services in Egypt
5.9 Strategic management tools

There are a number of tools that can help managers select a
strategic alternative. The most common of these tools are in
matrix form. One of these matrix tools, the Boston
Consulting Group (BCG) portfolio matrix, is described in

more detail below. A second, which is very similar the
General Electric market attractiveness/company strength
matrix is also briefly mentioned.
5.9.1 The Boston Consulting Group portfolio matrix
LO8
Large diversified firms engaged in strategic planning often

create strategic business units (SBUs). For example, the City
Lodge Group may regard all its City Lodges, Road Lodges,
Town Lodges and Courtyard Suite Hotels as separate SBUs.
Likewise, Steers Holdings, the firm that owns brands such as
Steers, Debonairs, Wimpy, Juicy Lucy, Whistle Stop, Milky
Lane and La Cucina, may regard each brand as a separate
SBU. Typically each SBU has its own management team,
marketing objectives, competitors, rate of return on
investment, growth potential and associated risk almost
like a little business on its own. Corporate management in
control of the SBUs must maintain a balance between
overall desired growth and profits for the corporation/group
and an acceptable level of risk. Some SBUs generate large
amounts of cash over and above what is required for
operating expenses. Other SBUs need cash to foster growth.
The challenge is to balance the firm, corporation or groups
portfolio of SBUs to realise the best long-term
performance. It must be pointed out, however, that SBUs
need not necessarily be large divisions: individual products
or brands may also be treated as SBUs.
To determine the future cash contributions and cash
requirements that can be expected for each SBU, managers
can use the BCG portfolio matrix as a planning aid or tool. A
matrix is a self-contained framework within which

something originates and develops. The portfolio matrix
classifies each SBU by its present or forecasted growth of the
market (the X-axis) and market share (the Y-axis). The
underlying assumption is that market share and profitability
are strongly linked. The measure of market share used in the
portfolio approach is relative market share, namely the ratio
between the firms share and the share of the largest
competitor. For example, if firm A has a 50 per cent share
and the competitor has 5 per cent, the ratio is 10 : 1. If firm A
has a 10 per cent market share and the largest competitor
has 20 per cent, the ratio is 0.5 : 1.
Figure 14.2 is a hypothetical portfolio matrix for a large
computer manufacturer. The size of the circle in each cell of
the matrix represents the sales of the SBU relative to the
sales of the firms other SBUs. The following are the
categories used in the matrix:
Star. A star is a market leader that is growing fast in a

fast-growing market. For example, computer
manufacturers have identified the tablet as a star. Star
SBUs usually generate high levels of income, but only
moderate profits because they need a lot of cash to
finance rapid growth and development. The best
marketing tactic for a star is to protect its existing market
share by reinvesting earnings in product improvement,
better distribution, improved marketing communication
and production efficiency. Marketing efforts are focused
on capturing most of the new users as they enter the
market.
Figure 14.2 Portfolio matrix for a large computer manufacturer (hypothetical)
Cash cow. A cash cow is an SBU that usually generates

more cash than it needs to maintain its market share. It
is in a low-growth market, but the product or brand has a
dominant market share and only limited investment is
required to maintain the dominance. Laptop computers
are categorised as cash cows in Figure 14.2. The basic
strategy for a cash cow is to maintain market dominance
by being the price leader and making product or
technological improvements to ward off potential new
competitors. Managers should resist pressure to extend
the basic product line unless they can dramatically
increase demand. Instead, they should allocate excess

cash to the product categories for which growth
prospects are the greatest.
Question mark. A question mark shows rapid growth
in a rapidly growing market, but requires a great deal of
cash investment to stay competitive. Without cash
support, it eventually becomes a dog. The strategy
options are to invest heavily to gain better market share,
acquire competitors (takeovers) to ensure the desired
market share, or drop the SBU. For the hypothetical
computer firm depicted in Figure 14.2, the
supercomputer is a question mark. Sometimes a firm
can reposition the products of a question mark SBU to
move it into the star category.
Dog. A dog has low growth potential and a small market
share. Most dogs eventually leave the market. In the
computer manufacturer example, the desktop computer
has become a dog. The strategy options for dogs are to
harvest or divest.
LO9
Strategies for allocating resources to SBUs
After classifying the firms SBUs (which may also be
products or brands) in the matrix, the next step is to allocate
future resources to each. The four basic strategies are as
follows:
Build. If a firm has an SBU that it believes has the

potential to be a star or a cash cow (probably a question
mark at present), building would be an appropriate
strategy. General Motors (GM) has identified its Isuzu
bakkie as a Question mark that it wants to turn into a Star
by challenging Toyotas Hilux 1-ton bakkie for market

dominance. To do that, GM will invest R500 million in
tooling up the Isuzu factory in Port Elizabeth. The firm
may decide to give up short-term profits and use its
financial resources to realise this goal. Procter & Gamble
built up Pringles chips from a money-loser to a record
profit-maker in the mid-1990s by investing cash in its
marketing and turning it into a star. Worldwide, CocaCola has 51 per cent of the carbonated soft drinks market
with the Coke brand (a cash cow), whereas it has only 10
per cent of the juice beverage market. Coca-Cola could,
therefore, regard its Minute Maid brand as a question
mark that could become a star or a cash cow by investing
some of the surplus cash generated by the Coke brand in
the marketing of Minute Maid. Unilever spent almost
R12 million to try to turn its Organics shampoo into a
star in the South African shampoo market. Its direct
competitor, Procter & Gamble, did the same. It spent
millions on advertising alone to try to obtain market
dominance for its Pantene brand.
Hold. If an SBU is a very successful cash cow, a key
objective would be to hold or preserve market share so
that the firm can take advantage of the strong, positive
cash flow. For Toyota, the Corolla was a cash cow for
many years. For SAB, it is Castle Lager. For Coca-Cola,
the Coke brand is its cash cow. The money that cash
cows generate is used to support the question marks
(such as Powerade in the case of Coke, and Flying Fish in
the case of SAB, the Lexus in the case of Toyota), with the
intention of growing the market share of the question
marks and turning them into cash cows.
Harvest. This strategy is appropriate for all SBUs except

those classified as stars. The basic goal is to increase the
short-term cash return without too much concern for the
long-term impact. Harvesting is especially worthwhile
when more cash is needed from a cash cow with longterm prospects that are unfavourable because of a low
market growth rate. For instance, Lever Brothers has
been harvesting Lifebuoy soap for a number of years
with little promotional support or product development.
Independent Newspapers, publisher of the Cape Times,
the Star and the Sunday Tribune among others, has not
invested in any new printing presses lately and spends
nothing on staff training a classic harvesting strategy.
Pick n Pay stopped refurbishing its Score supermarkets
while contemplating the chains future as part of the
group. Subsequently, Pick n Pay decided to terminate
the Score brand, that is to divest it.
Divest. Getting rid of SBUs with low shares of lowgrowth markets is often appropriate. Question marks
and dogs are most suitable for this strategy. Unilever, for
instance, dropped its Toppers brand (meat-flavoured
soya beans) because of its low growth potential. Times
Media used this strategy when it closed the newspaper
Sportsday owing to its lower than expected
performance.8 Media 24 also terminated its Nova
newspaper as a result of flat sales.
5.9.2 The General Electric market attractiveness/company

strength matrix
A second model for selecting strategic alternatives, originally
developed by General Electric, is known as the market

attractiveness/company strength matrix. The dimensions
used in this matrix market attractiveness and company
strength are richer and more complete than those used in
the BCG portfolio matrix, but are not very different from the
BCG approach and will, therefore, not be discussed in detail
here.
The horizontal axis of a market attractiveness/company
strength matrix the business position refers to how well
positioned the firm is to take advantage of market
opportunities:
Does the firm have the technology it needs to penetrate

the market effectively?
Are its financial resources adequate? Can manufacturing
costs be held below those of the competition?
Will the firm have bargaining power over suppliers?
Can the firm cope with change?
The vertical axis measures the attractiveness of a market,

which is expressed both quantitatively and qualitatively.
Some attributes of an attractive market are high profitability,
rapid growth, lack of governmental regulation, consumer
insensitivity to a price increase, lack of competition and
availability of technology. The grid is divided into three
overall attractiveness zones for each dimension: high,
medium and low.
Those SBUs (or markets) that have low overall
attractiveness should be avoided if the firm is not already
serving them. If the firm is in these markets, it should either
harvest or divest the SBUs. The firm should selectively
compete in markets with medium attractiveness. If

attractiveness begins to slip, then the firm should consider
withdrawing from the market.
Regardless of whether the firm uses the Boston
Consulting Group or the General Electric matrix to assess its
product or brand portfolio, the purpose is to have a wellbalanced portfolio. Kodak, for decades the dominant force
in photographic film, discovered that its market had
virtually disappeared in front of its eyes as consumers
switched to digital photography (it became a dog in
Kodaks portfolio). As a result, Kodak has begun harvesting
what it can from the photographic film market while
investing millions in digital photography (a potential star).
At the same time, Kodaks commercial printing is a cash
cow, generating cash to invest in its efforts to dominate the
digital printing market. Eventually Kodak did divest from the
photographic market.
5.10 Competitive advantage

To have a successful marketing plan, one must pursue a
competitive or differential advantage over the competition
when examining internal strengths and external market
opportunities. A competitive advantage is one or more
unique aspects of a firm or its products that differentiate it
from competitors and that cause target market consumers to
buy from the firm rather than from its competitors (see
Chapter 1). A competitive advantage may be based on a
variety of considerations that are important to consumers,
such as a favourable image (Woolworths), unique product
features/characteristics (Apple), a price advantage (Mr

Price) or a strong brand (Volkswagen), to name but a few.
IBMs competitive advantage, for example, is its
reputation and ability to provide entire business systems
solutions. Competitive advantages may also occur in any
element of the marketing mix. Superior product quality, for
instance, gives a firm such as Hewlett-Packard a competitive
advantage over other laser-printer makers by offering
customer value. Intel has produced superior advertisements
that have made the Intel Pentium computer chip a
household name. Formula 1 hotels offer the lowest-priced
hotel accommodation in the market. Vodacom and Nandos
have humorous, eye-catching advertising, which has
increased their brand awareness. These are all examples of
The two basic sources of competitive advantage are
superior skills and superior resources. Superior skills are the
managers and employees special capabilities, which
distinguish them from competing firms. For example,
Checkers, a once-floundering retail giant, has benefited
greatly from the vision and retail expertise of its managing
director and chief executive, Whitey Basson. Pep Stores
superior knowledge of the bottom end of the clothing
market has set it apart from all other competitors.
Superior resources are a more tangible form of
competitive advantage. For example, popular brand names,
such as Coke, Nike and Panasonic, have immeasurable
value. Sony has large, high-tech manufacturing facilities that
cannot easily be matched. The key to having a competitive
advantage is the ability to sustain that advantage. A
sustainable competitive advantage is a competitive

advantage that cannot be copied by the competition. TopFlite recently introduced the new Strata golf ball. These balls
are three times more expensive than normal golf balls, but
they are flying off the shelves. Why? The Strata has a
patented, three-layer construction that improves handling
and increases the distance the ball can travel. The patent
offers a sustainable competitive advantage over Titleist, the
number-one competitor.9
5.11 Setting marketing-strategy objectives
LO10
Before the details of a marketing strategy can be developed,

objectives for the marketing strategy must be stated.
Without objectives, there is no basis for measuring the
success of marketing-plan activities. For example, in 1996,
Microsoft had about a 10 per cent market share in the webbrowser software business. Is this good or bad? Without
previously stated objectives, there is no way of knowing.
Actually, Microsofts objective was to have a 30 per cent
market share, so its objective was not met.10 Today it
dominates the market and we can conclude that they were
very successful.
In South Africa, Amalgamated Beverages, the bottlers of
Coca-Cola, states its objectives clearly in its annual report.
Its objective for return on equity is to ensure the average
annual rate of return on equity, over time, exceeds 20 per
cent.11
The marketing-strategy objectives must be distinguished
from the marketing-plan objectives. The marketing-strategy
objectives are of a shorter-term nature, are more specific

and, unlike the marketing-plan objectives, are not really of a
strategic nature. A marketing objective is a statement of what
is to be accomplished through marketing activities. To be
useful, stated objectives should meet several criteria:
Objectives should be realistic, measurable and timespecific. It is tempting to state the objective in terms of
being the best this or that or maximising sales.
However, what is best for one firm may be sales of R10
million per year, whereas to another firm, best may
mean a dominant market share. It may also be
unrealistic for start-up firms or new products to
command a dominant market share, given other
competitors in the market. Finally, by what time should
the objective be met? A more realistic objective would be
to achieve, for example, 10 per cent share in the market
within 12 months of product introduction.
Objectives must be consistent and indicate the
priorities of the firm. Specifically, objectives should
flow from the business mission statement to the rest of
the marketing plan.
Table 14.3 shows some well-stated and poorly stated

objectives. Note how well they meet or fail to meet the
preceding criteria.
Carefully specified objectives serve several functions.
First,
they
communicate
marketing-management
philosophies and provide direction for lower-level
marketing managers so that marketing efforts are integrated
and follow a consistent direction. Next, objectives also serve
as motivators by creating something for employees to strive

for. When objectives are attainable and challenging, they
motivate those charged with achieving them. Additionally,
the process of writing specific objectives forces executives to
clarify their thinking. Finally, objectives form a basis for
control: the effectiveness of a plan can be gauged in the light
of the stated objectives.
Table 14.3 Examples of marketing objectives
Poorly stated
objectives
Well-stated objectives
Our objective is to
be a leader in the
industry in terms of
new product
development.
Our objective is to spend 12 per cent of sales revenue

between 2015 and 2016 on research and
development in an effort to introduce at least five new
products in the year 2017.
Our objective is to
maximise profits.
Our objective is to achieve a 10 per cent return on

investment in 2016, with a payback on new
investments of no longer than four years.
Our objective is to
serve customers
better.
Our objective is to obtain customer-satisfaction ratings

of at least 90 per cent in the 2015 annual customer
satisfaction survey and to retain at least 85 per cent
of our 2015 customers as repeat purchasers in 2016.
Our objective is to
be the best that we
can be.
Our objective is to increase market share from 30 per

cent to 40 per cent in 2016 by increasing advertising
expenditure by 13 per cent.
5.12 Formulating the marketing strategy

Marketing strategy refers to the activities of selecting and
describing one or more target markets and developing and
maintaining a marketing mix that will produce mutually
satisfying exchanges with target markets based on the firms
competitive advantage and proposed positioning.
5.12.1 The target market strategy
LO11
A market segment is a group of individuals or firms that

share one or more common characteristics. Therefore, they
have relatively similar product needs. For example, parents
of new-born babies need products such as milk formula,
nappies and special foods. The target market strategy
identifies which market segment or segments to focus on.
This process begins with a market opportunity analysis, or
MOA. An MOA is the description and estimation of the size
and sales potential of market segments that are of interest to
the firm, and the assessment of key competitors in these
market segments. After the market segments have been
described, one or more may be targeted by the firm. There
are three general strategies for selecting target markets:
appealing to the entire market with one marketing mix,
concentrating on one segment and appealing to multiple
market segments using multiple marketing mixes. The
characteristics, advantages and disadvantages of each
strategic option have been examined in Chapter 6.
Any market segment that is targeted must be fully
described. Demographics, psycho-graphics and buyer
behaviour should be assessed. Buyer behaviour was covered
in Chapter 3 and ought to be evaluated against the

background of solid market research (see Chapter 5).
5.12.2 The positioning strategy
LO11
Once the firm has identified its target market, it must decide
how it will be positioned (see Chapter 7). The firms
competitive advantage will largely determine the position it
wishes to occupy in relation to those of competing products
and brands (see Chapter 4).
5.12.3 The marketing mix
LO12
The term marketing mix refers to a unique blend of

product,
distribution,
marketing
communication
(promotion) and pricing strategies designed to produce
mutually satisfying exchanges with a target market.
Distribution is sometimes referred to as place, and makes up
one of the four Ps of the marketing mix: product, place,
promotion (marketing communication) and price. The
marketing manager can control each component of the
marketing mix, but the strategies for all four components
must be blended into an integrated whole to ensure optimal
results. A marketing mix is only as good as its weakest
component. For example, in the United States, the first
pump toothpastes were sold on cosmetic counters and
failed. Not until pump toothpastes were distributed in the
same way as tube toothpastes did they succeed. The best
advertising and lowest price cannot save a poor product.
Similarly, an excellent product with poor distribution,
pricing or advertising will in all probability fail.
Variations in marketing mixes seldom occur by chance.
Astute marketing managers devise marketing strategies to

gain a competitive advantage over competitors to best serve
the needs and wants of a particular target-market segment.
By manipulating elements of the marketing mix, marketing
managers can fine-tune the customer offering and ensure
competitive success.
Product strategies
Usually the marketing mix starts with the product P (see
Chapters 8 and 9). The heart of the marketing mix, the
starting point, is the product offering and product strategy. It
is hard to design a distribution strategy, decide on an
advertising campaign or set a price without knowing the
product to be marketed. The product includes not only the
physical unit, but also its package, warranty, after-sale
service, brand name, brand image, value and many other
factors. A Godiva chocolate has many product elements: the
chocolate itself, a trademark gold gift box, a customersatisfaction guarantee and the prestige of the Godiva brand
name. We buy things not only for what they do (benefits),
but also for what they mean to us (e.g. status, quality or
reputation).
Distribution (place) strategies
Distribution strategies are concerned with making products
available when and where customers want them. Wouldnt
you rather buy a kiwi fruit at the shop within walking
distance than have to fly to New Zealand to pick your own?
A part of the place P is physical distribution, which involves
all the business activities concerned with storing and
transporting raw materials or finished products. The
purpose of distribution is to make sure products arrive in

usable condition at designated places when needed.
Distribution strategies are covered in Chapter 10.
Marketing communication (promotion) strategies
Marketing communication includes advertising, personal
selling, sales promotion and public relations. The role of
marketing communication in the marketing mix is to bring
about mutually satisfying exchanges with target markets by
informing, educating, persuading and reminding the target
markets about the benefits of a firm or a product. A good
communication strategy like those used by Klipdrift with
its Eish campaign and First National Bankss Steve/Beep
Bank campaign can dramatically increase sales. Each
element of the marketing communication P (some use the
term promotion) should be coordinated and managed with
the others to create a communication blend or mix. These
integrated marketing communications activities are
described in Chapters 11 and 12.
Pricing strategies
Price is what a buyer must give up to obtain a product. It is
often the most flexible of the four elements of the marketing
mix, in the sense that it is the quickest element to change.
Marketers can raise or lower prices more frequently and
easily than changing other marketing mix variables. Price is
an important competitive weapon and is fundamentally
important to the firm because price multiplied by number of
units sold equals total revenue for the firm. Pricing decisions
are discussed in Chapter 13.
5.13 Implementation, evaluation and control

LO13
of the marketing plan
Implementation is the process that turns marketing plans
into action assignments and ensures that these assignments
are executed in a way that accomplishes the plans
objectives. Many firms have excellent, elaborate marketing
plans, yet end up in the bankruptcy court. Why? The
implementation of its planning failed. Implementation
activities may involve detailed job assignments, activity
descriptions, timelines, budgets and lots of communication.
Although implementation is essentially doing what you said
you were going to do, many firms repeatedly experience
failures in strategy implementation. Brilliant marketing
plans are doomed to fail if they are not properly
implemented. These detailed communications may or may
not be part of the written marketing plan. If they are not part
of the plan, they should be specified elsewhere as soon as
the plan has been communicated.
After a marketing plan is implemented, it should be
evaluated. Evaluation entails gauging the extent to which
marketing objectives have been realised during the specified
period. Four common reasons for failing to realise a
marketing objective are unrealistic marketing objectives,
inappropriate marketing strategies in the plan, poor
implementation and changes in the environment after the
objectives were specified and the strategy was implemented.
Once a plan is chosen and implemented, its effectiveness
must be monitored. Control provides the mechanisms for
evaluating marketing results in light of the plans objectives
and for correcting actions that do not help the firm realise
those goals within budget guidelines. Firms need to
establish formal and informal control programmes to make
the entire operation more efficient.
Perhaps the broadest control device available to
marketing managers is the marketing audit. A marketing
audit is a thorough, systematic, periodic evaluation of the
goals, strategies, structure and performance of the
marketing firm. A marketing audit helps management
allocate marketing resources efficiently. A proper marketing
audit demonstrates four characteristics:
Comprehensive. The marketing audit covers all the

major marketing issues facing a firm, and not just trouble
areas.
Systematic. The marketing audit takes place in an
orderly sequence and covers the firms marketing
environment, internal marketing system and specific
marketing activities. The diagnosis is followed by an
action plan with both short- and long-term proposals for
improving overall marketing effectiveness.
Independent. The marketing audit can be conducted by
either an internal or external party that is both objective
and independent enough to have top managements
confidence.
Periodic. The marketing audit should be carried out in a
regular schedule instead of only in a crisis. Whether it
seems successful or is in deep trouble, any firm can
benefit from such an audit.
Although the primary purpose of the marketing audit is to

develop a full profile of the firms marketing effort and

provide a basis for developing and revising the marketing
plan, it is also an excellent way to improve communication
and raise the level of marketing consciousness within the
firm. In other words, it is a useful vehicle for selling the
philosophy and techniques of strategic marketing to other
members of the firm.
5.14 Writing the marketing plan
LO14
The creation and implementation of a complete marketing

plan should allow the firm to realise its marketing objectives
and succeed. However, the marketing plan is only as good as
the information it contains, and the effort, creativity and
thought that went into its creation. A good marketing
information system (covered in Chapter 5) is critical to a
thorough, accurate situation analysis. The role of
managerial intuition and experience is also important in the
creation and selection of marketing strategies. Managers
must weigh the accuracy of any information they obtain
against their own judgement when making a marketing
decision. Note that the overall structure of the marketing
plan (see Figure 14.1) should not be viewed as a series of
sequential planning steps. Many of the elements of the
marketing plan are decided upon simultaneously and in
conjunction with one another. Similarly, the sample
summary marketing plan (Table 14.1) does not begin to
cover the intricacies and detail of a full marketing plan. In
addition, the content of every marketing plan is different
and depends on the firm and its mission, goals, objectives,
target markets and marketing mix components.

The marketing plan outline (Table 14.4) is an expanded
set of questions that can guide the formulation of a
marketing plan. However, this outline should not be
regarded as the only correct format for a marketing plan.
Many firms have their own distinctive format or terminology
used for creating such a plan. Coca-Cola, for instance,
distinguishes between customers (those who sell their
products, such as retailers and restaurants) and final
consumers (those who consume the products). Every
marketing plan should be unique to the firm for which it was
created. Remember that although the format and order of
presentation should be flexible, the same types of questions
and topic areas should be covered in all marketing plans.
As you can see by the extent of the marketing plan
outline, creating a complete marketing plan is not a simple
or quick task. However, it can be instructive to create
summary marketing plans, such as the sample summary
plan in Table 14.1, to get a quick idea of what a firms
marketing strategy is all about.
6. Effective strategic planning
LO15
Effective strategic planning requires continual attention and

creativity, as well as a commitment from management. The
following two points are important:
Strategic planning is not an annual exercise in which
managers go through the motions and forget about it
until the next year. Instead, strategic planning should be
an ongoing process because the environment is

continually changing and the firms resources and
capabilities are continually evolving.
Sound planning is based on creativity. Managers
should challenge assumptions about the firm and the
environment, and formulate new strategies. For
example, major oil firms developed the concept of the
service station in an age when cars needed frequent and
rather elaborate servicing. They held onto the fullservice approach, but independents were quick to
respond to new realities and moved to lower-cost selfservice and convenience-store operations. Many of the
major oil firms took several decades to catch up. Perhaps
the most critical element in successful strategic planning
is top managements support and participation.
Table 14.4 Marketing plan outline
1 Business mission
What is the mission of the firm? What business is it in? How well is
its mission understood throughout the firm? Five years from now,
what business does it wish to be in?
Does the firm define its business in terms of benefits its customers
want rather than in terms of products and services?
2 Objectives
Is the firms mission statement able to be translated into
operational terms regarding the firms objectives?
What are the stated objectives of the firm? Are they formally written
down? Do they lead logically to clearly stated marketing objectives?
Are objectives based on sales, profits or customers?
Are the firms marketing objectives stated in hierarchical order? Are

they specific, so that progress towards achievement can be
measured? Are the objectives reasonable in the light of the firms
resources? Are the objectives ambiguous? Do the objectives specify
a time frame?
Is the firms main objective to maximise customer satisfaction or to
get as many customers as possible?
3 Situation analysis (SWOT analysis)

Is there a strategic window that must be taken into account?
Have one or more differential advantages been identified in the
SWOT analysis?
Are these advantages sustainable against the competition?
a) Internal strengths and weaknesses
> What is the history of the firm, including sales, profits and
corporate philosophies?
> What is the nature of the firm and its current situation?
> What resources does the firm have (financial, human, time,
experience, asset, skill)?
> What policies inhibit the achievement of the firms objectives
with respect to resource allocation, operations, hiring, training,
and so on?
b) External opportunities and threats
> Social: What major social and lifestyle trends will have an
impact on the firm? What action has the firm been taking in
response to these trends?
> Demographic: What impact will expected trends in the size,
age, profile and distribution of the population have on the
firm? How will the changing nature of the family, the increase in
the proportion of women in the workforce and changes in the
>
>
>
>
>
ethnic composition of the population affect the firm? What

action has the firm taken in response to these developments
and trends? Has the firm re-evaluated its traditional products
and expanded the range of specialised offerings to respond to
these changes?
Economic: What major trends in taxation and income sources
will have an impact on the firm? What action has the firm
taken in response to these trends?
Political, legal and financial: What laws are now being
proposed at national, provincial and local levels that could
affect marketing strategy and tactics? What recent changes in
regulations and court decisions affect the firm? What political
changes at each government level are taking place? What
action has the firm taken in response to these legal and
political changes?
Competition: Which firms are competing with the firm directly
by offering a similar product? Which firms are competing with
the firm indirectly by securing its prime prospects time, money,
energy or commitment? What new competitive trends seem
likely to emerge? How effective is the competition? What
benefits do competitors offer that the firm does not? Is it
appropriate for the firm to compete at all?
Technological: What major technological changes are occurring
that affect the firm?
Ecological: What is the outlook for the cost and availability of
natural resources and energy needed by the firm? Are the firms
products, services and operations environmentally friendly?
4 Competitive advantage
Does the firm or its products have something that is unique?
Is the competitive advantage important to the target market?
Is the competitive advantage sustainable over a reasonably long
period of time?
5 Marketing strategy
a) Target market strategy
> Are the members of each market homogeneous or
heterogeneous with respect to geographic, socio-demographic
and behavioural characteristics?
> What are the size, growth rate and national and regional trends
in each of the firms market segments?
> Is the size of each market segment sufficiently large or
important to warrant a unique marketing mix?
> Are market segments measurable and accessible to distribution
and communication efforts?
> Which are the high- or low-opportunity segments?
> What are the evolving needs and satisfactions being sought by
target markets?
> What benefits does the firm offer to each segment? How do
these benefits compare with benefits offered by competitors?
> Is the firm positioning itself with a differentiable product? Is
the product needed?
> How much of the firms business is repeat, as opposed to new,
business? What percentage of the public can be classified as
non-users, light users and heavy users?
> How do current target markets rate the firm and its competitors
in respect of reputation, quality and price? What is the firms
image with the specific market segments it seeks to serve?
> Does the firm try to direct its products only to specific groups of
people or to everybody?
> Who buys the firms products? How does a potential customer
find out about the firm? When and how does a person become
a customer?
>
>
>
>
>
What are the major objections given by potential customers as

to why they do not buy the firms products?
How do customers find out about and decide what to
purchase? When and where?
If so, in which target markets and how vigorously?
Could the firm more usefully withdraw from some areas in
which there are alternative suppliers and use its resources to
serve new, unserved customer groups?
Which publics other than target markets (financial, media,
government, citizen, local, general and internal) represent
opportunities or problems for the firm?
b) Positioning
> How can the competitive advantage be used as a basis for
positioning?
> Will the positioning be close to or away from existing
competitors?
c) Marketing mix
> Does the firm attempt to achieve its objectives mainly through
the co-ordinated use of marketing activities (product,
distribution, communication and pricing) or only through
intensive advertising?
> Are the objectives and roles of each element of the marketing
mix clearly specified?
Product
- What are the firms main product/service offerings? Do
they complement each other or is there unnecessary
duplication?
- What are the features and benefits of each product
offering?
Where is the firm and each main product in its life cycle?
What are the pressures among various target markets to
increase or decrease the range and quality of products?
What are the major weaknesses in each product area?
What are the major complaints? What goes wrong most
often?
Is the product name easy to pronounce, spell and recall?
Is it descriptive, and does it communicate the benefits the
product offers? Does the name distinguish the firm or
product from all others?
What warranties are offered with the product? Are there
other ways to guarantee customer satisfaction?
Does the product offer good customer value?
How is customer service handled? How is the quality of
service assessed?
Place/distribution
- Should the firm try to deliver its offerings directly to
customers, or can it better deliver selected offerings by
involving other firms? What channel(s) should be used to
distribute product offerings?
- What physical distribution facilities should be used?
Where should they be located? What should be their main
characteristics?
- Are members of the target market willing and able to travel
some distance to buy the product?
- How good is access to facilities? Can access be improved?
Which facilities need priority attention in these areas?
- How are facility locations chosen? Is the site accessible to
the target markets? Is it visible to the target markets?
- Where are the retail establishments located and what is
their atmosphere? Do these retailers satisfy customers?
When are products made available to users (i.e. season,

day of week, time of day)? Are these times most
appropriate?
Marketing communication (promotion)

- How does a typical customer find out about the firms
products?
- Does the message the firm delivers gain the attention of
the intended target audience? Does it address the wants
and needs of the target market, and does it suggest
benefits or a means for satisfying these wants? Is the
message appropriately positioned?
- Does the communication effort effectively inform,
persuade, educate and remind customers about the firms
products?
- Does the firm establish budgets and measure the
effectiveness of communication efforts?
(i) Advertising
Which media are currently being used? Has the
firm chosen the type of media that will best reach
its target markets?
Are the types of media used the most costeffective, and do they contribute positively to the
firms image?
Are the dates and times the ads will appear the
most appropriate? Has the firm prepared several
versions of its advertisements?
Does the firm use an outside advertising agency?
What functions does the ad agency perform for
the firm?
What system is used to handle consumer
inquiries resulting from advertising and

promotions? What follow-up is done?
(ii) Public relations
Is there a well-conceived public relations and
publicity programme? Can the programme
respond to bad publicity?
How and by whom is public relations normally
handled by the firm? Have those responsible
nurtured working relationships with media
representatives?
Is the firm using all available public relations
avenues? Is an effort being made to understand
each of the publicity outlets needs and provide
them with story types that will appeal to their
audiences in readily usable forms?
What do the annual reports say about the firm
and its products? Who is being effectively
reached by this vehicle? Does the benefit of
publication justify the cost?
(iii) Personal selling
How much of a typical salespersons time is
spent soliciting new customers, compared with
serving existing customers?
How is it determined which prospect will be
called on and by whom? How is the frequency of
contacts determined?
How is the sales force rewarded? Are there
incentives for encouraging more business?
How is the sales force organised and managed?
Has the sales force prepared an approach
tailored to each prospect?

Does the firm match sales personnel with the
target-market characteristics?
Is there appropriate follow-up to the initial
personal-selling effort? Are customers made to
feel appreciated?
Can database or direct marketing be used to
replace or supplement the sales force?
(iv) Sales promotion
What is the specific purpose of each sales
promotion activity? Why is it offered? What does
it aim to achieve?
Which categories of sales promotion are being
used? Are sales promotions directed at the trade,
the final consumer or both?
Is the effort directed at all the firms key publics
or restricted to just potential customers?
Price
- What levels of pricing and specific prices should be used?
- What mechanisms does the firm have to ensure that the
prices charged are acceptable to customers?
- How price-sensitive are customers?
- If a price change is put into effect, how will the number of
customers change? Will total revenue increase or
decrease?
- Which method is used for establishing a price: the going
rate, demand-orientated prices or cost-based prices?
- What discounts are offered and with what rationale?
- Has the firm considered the psychological dimensions of
price?
Have price increases kept pace with cost increases,

inflation and competitive levels?
How are price promotions used?
Do interested prospects have opportunities to sample
products at an introductory price?
What methods of payment are accepted? Is it in the firms
best interest to use these various methods?
Implementation, evaluation and control

Is the marketing firm structured appropriately to implement the
marketing plan?
What specific activities must take place? Who is responsible for
these activities?
What is the implementation timetable?
What other marketing research is necessary?
What will the financial impact of this plan be on a one-year
projected income statement? How does projected income compare
with expected revenue if the plan is not implemented?
What are the performance standards?
What monitoring procedures (audits) will take place and when?
Does it seem as though the firm is trying to do too much or not
enough?
Are the core marketing strategies for achieving objectives sound?
Are the objectives being met and are the objectives appropriate?
Are enough resources (or too many resources) budgeted to
accomplish the marketing objectives?
<<< LOOKING BACK

Although effective planning cannot guarantee success,
failure to plan business ventures can have disastrous results.
A casual approach to new business ventures (such as

overconfidence) runs the risk of unanticipated events and
occurrences ruining the venture. This failure is often
attributable to unjustified assumptions (e.g. there is a need
for the product; the size of the market is sufficient; the
competition is not too strong) or failure to identify factors
that may threaten the success of the venture (e.g. changing
consumer needs; the impact of prevailing economic
conditions; competitor reactions). Several examples of failed
ventures were discussed in this chapter; many of them could
have been avoided by effective strategic planning.
SUMMARY
1
The importance of strategic marketing and writing the

marketing plan. Strategic planning is the basis for all
marketing strategies and decisions. The marketing plan
is a written document that acts as a guidebook of
marketing activities for the marketing manager. By
specifying objectives and defining the actions required to
attain them, a marketing plan provides the basis on
which actual and expected performance can be
compared.
The value of compiling a marketing plan. The written
marketing plan provides clearly stated activities that help
employees understand and work towards common
goals. Writing a marketing plan allows the marketing
manager to examine the marketing environment in
conjunction with the inner workings of the firm.
Synchronising the external challenges and the internal
capabilities of the firm is a considerable challenge. Once

the marketing plan is written, it serves as a reference
point for the success of future activities. Finally, the
marketing plan allows the marketing manager to enter
the market with an awareness of opportunities and
problems.
3 Defining an appropriate business mission statement.
The mission statement is based on a careful analysis of
benefits sought by present and potential customers and
an analysis of existing and anticipated environmental
conditions. The firms long-term vision, embodied in the
mission statement, establishes boundaries for all
subsequent decisions, objectives and strategies. A
mission statement should focus on the market or
markets the firm is attempting to serve, rather than on
the product or service offered.
4 The role of a SWOT analysis as a component of a
situation analysis. In the situation analysis, the firm
should identify its internal strengths (S) and weaknesses
(W), and examine external opportunities (O) and threats
(T). When examining external opportunities and threats,
marketing managers must analyse aspects of the
marketing environment in a process called
environmental scanning. The six most often studied
macro-environmental forces are social, demographic,
economic, technological, political and legal, and
competitive forces. During the situation analysis, the
marketer aims to identify the optimal strategic window
of opportunity the optimal time to utilise an
opportunity. Additionally, it is crucial that a competitive
advantage is identified and that it is established that it is
sustainable over time.

5 Marketing under different models of competition. A
purely competitive market is characterised by a large
number of sellers marketing a standardised product to a
group of buyers who are well informed about the market.
New competitors can easily enter the market and sell
their entire output at the prevailing market price. In a
purely competitive market, it would not make sense for
one firm to raise the price of a product. A buyer would
simply acquire the same merchandise elsewhere at the
prevailing market price. At the other extreme of
economic competition is a monopoly. In a monopoly,
one firm controls the total output in the industry and
thus also the price of the product as there are no close
substitutes. In other words, the monopoly firm
determines the market price and consumers have no
other choice of supplier if they want the product because
there are no direct competitors. In an oligopoly there are
few competitors and the actions of one firm have a direct
impact on the others. This market situation often leads to
collusion and price fixing, which are illegal. Instead of
fixing prices, some industries simply follow a price
leader. Marketing managers do not have a lot of pricing
flexibility in an oligopoly. They must be alert to price
changes and quickly match price decreases, or otherwise
lose significant market share. To secure a position in a
market, marketing managers should stress non-price
forms of competition. Monopolistic competition refers to
a situation in which a relatively large number of
suppliers offer similar, but not identical, products. Each
firm has a comparatively small percentage of the total
market, so each has limited control over market price.

Firms attempt to distinguish their offerings through
brand names, trademarks, packaging, advertisements
and service level. With monopolistic competition,
consumers tend to prefer the products of specific firms
and, within limits, will pay a higher price for them.
6 Four culture-driven corporate responses to external
influences particularly opportunities:
Prospector: The firm focuses on identifying and
capitalising on emerging market opportunities,
emphasising this through research and
communication with the market.
Reactor: The opposite of the prospector. Instead of
looking for opportunities, the firm responds to
environmental pressures when forced to do so.
Defender: Has a specific market domain and does
not search outside that domain for new
opportunities. Instead, the firm tries to defend its
turf.
Analyser: Tends to be both conservative and
aggressive. The firm usually operates in at least one
stable market and tries to defend its position in that
market.
7 Opportunity-utilisation strategies:
Market penetration: A firm using the market
penetration strategy aims to increase market share
among existing customers with its existing range of
products or slight modifications of them.
Market development: Attracting new customers to
existing products.
Product development: The creation of new products
for present markets.

Diversification: A strategy for increasing sales by
introducing new products into new markets.
8 Describe tools used to help select strategic
alternatives. The strategic opportunity matrix can be
used to help management develop strategic alternatives.
The four options are market penetration, product
development, market development and diversification.
The BCG portfolio matrix is a method of determining the
profit potential and investment requirements of a firms
SBUs by classifying them as stars, cash cows, question
marks or dogs, and then determining appropriate
resource allocations for each. A more detailed alternative
to the portfolio matrix is the market
attractiveness/company strength matrix, which
measures company and market viability.
9 Marketing strategies for different BCG quadrants.
Build: If a firm has an SBU that it believes has the
potential to be a star (probably a question mark at
present), building would be an appropriate goal. The
firm may decide to give up short-term profits and use
its financial resources to achieve this goal.
Hold: If an SBU is a very successful cash cow, a key
goal would be to hold or preserve market share so
that the firm can take advantage of the positive cash
flow.
Harvest: This strategy is appropriate for all SBUs
except those classified as stars. The basic goal is to
increase the short-term cash return without too
much concern for the long-term impact.
Divest: Getting rid of SBUs with low shares of low"****** DEMO - www.ebook-converter.com*******"
growth markets is often appropriate. Dogs are most

suitable for this strategy.
10 The criteria for stating good marketing objectives.
Objectives should be realistic, measurable and timespecific. Objectives must also be consistent and indicate
the priorities of the firm.
11 Target market and positioning strategies. The target
market strategy identifies which market segment(s) to
focus on. The process begins with a market opportunity
analysis (MOA), which describes and estimates the size
and sales potential of market segments that are of
interest to the firm. In addition, an assessment of key
competitors in these market segments is performed.
After the market segments are described, one or more
may be targeted by the firm. The three strategies for
selecting target markets are to appeal to the entire
market with one marketing mix, to concentrate on one
segment and to appeal to multiple market segments
using multiple marketing mixes.
12 The elements of the marketing mix. The marketing mix
(or four Ps) is a blend of product, distribution (place),
marketing communication (promotion) and pricing
strategies designed to produce mutually satisfying
exchanges with a target market. The starting point of the
marketing mix is the product offering, which may be
tangible goods, ideas or services. Distribution strategies
are concerned with making products available when and
where customers want them. Marketing communication
includes personal selling, advertising, sales promotion
and public relations. Price is what a buyer must give up
to obtain a product, and is often the easiest to change of
the four marketing-mix elements.

13 Implementation, evaluation and control of the
marketing plan. Before a marketing plan can work, it
must be implemented. In other words, people must
perform the actions in the plan. The plan should also be
evaluated to see if it has achieved its objectives. Poor
implementation can be a major factor in a plans failure.
Control provides the mechanisms for evaluating
marketing results in the light of the plans goals, and for
correcting actions that do not help the firm reach those
goals within budget guidelines.
14 Structuring a basic marketing plan. Although there is
no set formula or a single correct outline for a marketing
plan, basic factors that should be covered include stating
the business mission, setting objectives, performing a
situation analysis of internal and external environmental
forces, identifying a potential competitive advantage,
selecting one or more target markets, deciding on an
appropriate positioning strategy, delineating a marketing
mix (product, place, communication/promotion, price)
and establishing ways to implement, evaluate and
control the plan.
15 Principles of effective strategic planning. First,
management must realise that strategic planning is an
ongoing process and not just an annual exercise. Second,
good strategic planning involves a high level of creativity.
Finally, top managements support and co-operation are
required.

Your cousins want to start their own business and they

are in a hurry. They have decided not to write a
marketing plan because they already have funding and
do not need a formal proposal, and writing such a
document would take too long. Explain why it is
important for them to write a plan anyway.
How can a new firm best define its business mission
statement? Can you find examples of good and poor
mission statements on the Internet or in the annual
reports of South African firms? How could you improve
these mission statements?
The new marketing manager has stated that the
marketing objective of the firm is to do the best job of
satisfying the needs and wants of the customer. Explain
that although this objective is admirable, it does not
meet the criteria for a good marketing objective. What
are these criteria? Provide a specific example of a better
objective.
Matric enrolment is now more than 12 per cent lower
than in 1991. Write a memorandum to your university,
technikon or colleges marketing manager and suggest
ideas for how it should respond to this trend.
The dwindling volume of mail due to the Internet and
tough competition from private couriers poses a threat to
the Post Offices long-term survival. Prepare a detailed
strategic marketing plan for the Post Office that will
ensure its survival in an increasingly competitive market.
STRATEGY READER >> Move to stabilise rooibos

market
Rooibos tea is brewing up a storm globally, but its Cederberg, Western Capebased growers are stuck in a time warp, preventing the industry from taking
full advantage of the demand. Our farmers should start thinking as marketers
and leave behind the mind-set of the days before deregulation [of agriculture]
in 1994, says Willem Engelbrecht, director of cultivation research & producer
affairs at the SA Rooibos Council. Engelbrecht believes this uniquely SA tea
industry, with a turnover of R600m/year, has failed to adjust. Growers still see
their role simply as producers and believe the marketing is someone elses
problem. This is one reason for the price volatility of recent years, he adds.
The producer price was R16,50/kg in 2004; it plunged to R4,50/kg in 2010.
With production costs of R8/kg, many farmers stopped growing it. The
resultant shortage drove the price to R11,50/kg.
Engelbrecht says more control over rooibos marketing would help stabilise
things. A price of R10/kg-R12/kg would sustain the industry. Rooibos can be
stored for up to 20 years and though it might be costly, storage and releasing
certain amounts to the market would provide greater stability to the industry.
He says the farmers need more information on areas planted, harvest
forecasts and demand. A Dutch-funded project hopes to develop an
independent production forecast model and to gauge the potential of direct
exports of value-added rooibos products. The 450 rooibos growers and their 5
000 workers produce about 12 000t/year; half is exported.
The main destination for bulk exports of rooibos tea is Germany, where
value is added to the product and it is resold to other markets in the EU. The
council is assessing the potential for direct exports to those markets. Interest
in rooibos, says Engelbrecht, is also growing in the US and Japan. An
application to trademark the name rooibos will be made next month.
SOURCE: SHerry, S, Stabilising rooibos, Financial Mail, 24 May 2012, p. 30
QUESTIONS
1
2
What is Rooibos strengths and weaknesses?

How would you describe Rooibos market opportunity-utilisation
strategy?
What are the potential risks associated with this strategy?
KEY CONCEPTS
Cash cow: in the portfolio matrix, a business unit that
usually generates more cash than it needs to maintain its
market share.
Competitive advantage: one or more unique aspects of a
firm that cause target consumers to patronise that firm
rather than its competitors.
Diversification: a strategy of increasing sales by introducing
new products into new markets.
Dog: in the portfolio matrix, a business unit that has low
growth potential and a small market share.
Environmental scanning: collecting and interpreting
information about forces, events and relationships in the
external environment that may affect the future of the firm
or the implementation of the marketing plan.
Evaluation: gauging the extent to which marketing
objectives have been achieved during the specified time
period.
Four Ps: product, place, marketing communication
(promotion) and price, which together make up the
marketing mix.
Implementation: the process that turns marketing plans
into action assignments and ensures that these assignments
are executed in a way that accomplishes the plans
objectives.
Market attractiveness/company strength matrix: a tool for

allocating resources to strategic business units on the basis
of how attractive a market is and how well the firm is
positioned to take advantage of opportunities in that market.
Market development: attracting new customers to existing
products.
Market opportunity analysis: the description and
estimation of the size and sales potential of market segments
that are of interest to the firm, and the assessment of key
competitors in these market segments.
Market penetration: a marketing strategy that aims to
increase market share among existing customers.
Marketing audit: a thorough, systematic, periodic
evaluation of the goals, strategies, structure and
performance of the marketing firm.
Marketing mix: a unique blend of product, distribution,
marketing communication and pricing strategies designed
to produce mutually satisfying exchanges with a target
market.
Marketing myopia: a business defined in terms of products
and services rather than in terms of the benefits that
customers seek.
Marketing objective: a statement of what is to be
accomplished through marketing activities.
Marketing plan: a written document that acts as a
guidebook of marketing activities for the marketing
manager.
Marketing planning: designing activities relating to
marketing objectives and the changing marketing
environment.
Marketing planning control: provides the mechanisms for

evaluating marketing results in light of the plans objectives
and for correcting actions that do not help the firm reach
those objectives within budget guidelines.
Marketing strategy: the activity of selecting and describing
one or more target markets, and developing and
maintaining a marketing mix that will produce mutually
satisfying exchanges with target markets based on the firms
competitive advantage and proposed positioning.
Mission statement: the firms long-term vision based on a
careful analysis of benefits sought by present and potential
customers and analysis of existing and anticipated
environmental conditions.
Planning: the process of anticipating future events and
determining strategies to achieve the firms objectives.
Portfolio matrix: a tool for allocating resources to products
or strategic business units on the basis of relative market
share and market growth rate.
Question mark: in the portfolio matrix, a business unit that
produces poor profit margins in a fast-growing market.
Star: in the portfolio matrix, a business unit that is a fastgrowing market leader.
Strategic business unit (SBU): a subgroup of a single
business or products/brands within the larger firm.
Strategic planning: the managerial process of creating and
maintaining a fit between the firms objectives and
resources and evolving market opportunities.
Strategic window: the limited period during which the fit
between the key requirements of a market and the particular
competencies of a firm are at an optimum.
Sustainable competitive advantage: a differential

advantage that cannot be copied by the competition.
SWOT analysis: identifying internal strengths (S) and
weaknesses (W), and examining external opportunities (O)
and threats (T).
REFERENCES
1
2
McNulty, A. 2011. When the game goes wrong. Financial Mail, 6 May, p. 58.
Source: http://www.coca-cola.com/co/mission.html (1998) (Accessed 29
July 2010).
3 Levitt, T. 1960. Marketing myopia. Harvard Business Review, JulyAugust
1960, pp. 4556.
4 Anderson, A. 2012. Confident Bosch plans SA packaging division. Business
Day, 2 November, p. 17.
5 Financial Mail, 21 May 1999, p. 7.
6 Lloyd, T. 2000. A blessing from a supertanker. Financial Mail, 21 January
2000, p. 54.
7 Gebhardt, M. 1014. Lambert gets into driving seat at Imperial. Business Day,
24 February, p. 1.
8 TML closes ailing Sportsday tabloid. Business Day, October 1999.
9 Merritt, J. 1996. The belle of the golf balls. Business Week, 29 July 1996, p. 6.
10 Robello, K. 1996. Inside Microsoft. Business Week, 15 July 1996, pp. 5657.
11 Amalgamated Beverages Industries Limited. Annual Report for the year
ended 31 March 1998, p. 1.
PART
03
Specialised marketing
CHAPTER
15
Marketing in specialised market
LEARNING OUTCOMES
Describe the growing demand for services in westernised

economies.
2 Describe the unique characteristics of a service in contrast to a
physical product.
3 Explain how the marketing mix of a service firm should be
adapted to the unique characteristics of an intangible service.
4 Distinguish between sports marketing and marketing through
sport.
5 Identify and describe the particular demands of using sport as a
specialised field of marketing.
6 Distinguish between sports products and other products in
marketing terms.
7 Distinguish between licensed and branded sports products.
8 Describe the general nature of marketing through sport.
9 Identify and describe the unique demands of non-business
marketing.
10 Explain the growing acceptance of the value and importance of
marketing by non-profit organisations.
11 Highlight the dual role of marketing for non-profit organisations.
12 Describe the competitive environment that non-profit
organizations typically face.
13 Demonstrate how marketing strategies should be adapted for use

in a non-business environment.
14 Identify the needs of four customer groupings in the business-tobusiness market.
15 Identify and describe the unique demands of business-tobusiness marketing.
16 Classify government markets using the industrial classification
system.
17 Explain the differences between business-to-business and
consumer markets.
18 Distinguish between the different types of business-to-business
products.
19 Describe the typical steps in the business-to-business purchase
process.
20 Identify the main sectors of the travel and tourism industry.
21 Identify and describe the special characteristics of marketing
travel and tourism services.
above outcomes.

Sponsorship needs to be there at the
start of the race
Potential sponsors need to remember the Rolling
Stones and the Beatles also struggled once upon a time.
Any company or organisation going into sponsorship in

order to position and entrench the brand further in a
target community always ends up balancing budget
with exposure. This is not as easy as it seems and
involvement with a high-profile sport may have to be
given up owing to budget constraints. The other
decision is whether to spend millions to have a small
slice of big sport action or spend less to gain a bigger
share or even total ownership of a smaller sport.
The debate over what brings bigger returns has been
thrown into the limelight by our Olympian swimmer,
Roland Schoeman, and his comments in Athens. As a
sportsperson, he was obviously lower on the list of
priorities than more popular sports. But with the win in
the relay, he should be high on the wanted list for large
corporate organisations.
That is the way it works in theory. However, the
South African sponsorship animal does not always
dance to that kind of logical thinking. Sponsorship is
targeted mostly at sportspeople and entertainers who
are already successful. This means that it costs more
and competition for exposure is huge.
Before the reader despairs and says this is all
obvious, my point is that it is cheaper and less
competitive to start lower down the ranks. This is quite
a challenge, though, as it means a bit more work. The
advantages are that a sponsor gains ground with a
target market that will support them even further when
the sportsperson or band makes it big and other
mercenary organisations come running. Rest assured, I
understand the economics behind sponsorship

decisions, but any organisation that had spotted the
fact that Schoeman was woefully under-sponsored
could have earned mega kudos at the games in Athens.
SOURCE: Adapted from Clarke, R. 2004. Sponsorship needs to be there at
the start of the race. Bizcommunity online newsletter. Available:
www.bizcommunity.com
QUESTIONS
1
2
What are the advantages of identifying and sponsoring sportspeople

and musicians or events before they have made it big?
What are the dangers associated with such an approach?
1. Introduction
Consumer goods became the focus of marketing activities in
the 1950s. The 1960s witnessed an increased focus on
business-to-business (industrial) markets. The 1970s saw
considerable academic and scholarly efforts directed at nonprofit, or societal, marketing. Marketing in the services
sector an area of marketing that had received remarkably
little attention at the time, given its importance in the overall
economy received its fair share of attention only in the late
1980s. Since 2000 relationships with customers and firms
ability to offer products and services that have value for
customers have been the overriding concerns for marketing
managers.
At present, marketing principles and practices are
employed in numerous diverse and specialised markets to

communicate and interact with target audiences. For
instance, marketing is used for developing and executing
both for-profit and non-profit exchanges. The objective of
for-profit exchanges is to generate income over and above
the costs of the firm that is, to make profit. A non-profit
organisation, on the other hand, may sell products at more
than cost price, then use the surplus to cover the
organisations costs. The Western Cape Blood Transfusion
Service sells blood and blood products to help cover the cost
of operating the organisation. Persons can be marketed for
profit (Justin Bieber, for example) or non-profit purposes,
such as political candidates soliciting donations or votes.
Places can be marketed for profit, such as Kennedy Space
Centre, or for non-profit purposes, such as national parks
promoted by a national or provincial government
department.
The purpose of this chapter is to explore some of the
specialised areas of marketing. Issues related to the
following specialised fields of marketing are considered:
Services marketing
Sports marketing and marketing through sport
Travel and tourism marketing.
2. Services marketing
LO1
A service is the result of both human and/or mechanical

effort focused on people or objects. Put differently, services
are deeds, performances or efforts that cannot be physically
possessed. The most important distinguishing characteristic
of a service, therefore, is its intangibility.
There are many reasons for the growing importance of
services in the economies of many westernised countries.
Services marketing concepts and strategies and, in fact,
services marketing as a marketing sub discipline, have
developed in response to the tremendous growth of service
industries, resulting in their increased importance to world
economies. The growth in the South African services sector
as a percentage of gross domestic product (GDP) was 1 per
cent per year for the period 19862014. Table 15.1 shows
that the relative size of the services sector as a percentage of
GDP has grown from about 50 per cent to two-thirds in
28 years.
Table 15.1 Services as a percentage of South African GDP
SOURCES: Various Statistics SA publications & South African Reserve Bank

(accessed 16 August 2014)
In an advanced economy, such as that of the United States,

services contribute even more to GDP. In 2013, services
were responsible for 79,4 per cent of US GDP.1 The demand
for services is expected to continue to grow in the future.
Much of this demand is driven by the demographic changes
that are occurring in societies. An ageing population, for
instance, has a growing need for services such as nursing,

home healthcare, physical therapy (such as physiotherapy)
and social work. Double-income families, on the other
hand, need services such as childcare, housecleaning and
gardening. The growth of the services sector is to a large
extent influenced by the growing demand for information
and data which, in turn, creates a need for specialised
service providers such as data-mining specialists, computer
engineers and systems analysts.
Services have also grown into an essential function of
manufacturing. During the early phases in the development
of services marketing and management, most of the interest
and impetus originated from service industries such as
banking and airlines. Today manufacturing-based
industries, such as the motor and mobile phone industries,
also recognise the need to provide good service in order to
compete effectively.
Governments have traditionally regulated large service
industries, such as telecommunications, postal services,
airlines, electricity and transport. However, the past few
decades have witnessed the deregulation of many industries
and professional services in various countries. The result is
that marketing decisions that used to be tightly controlled by
governments are now partially and in some cases, totally
within the control of individual firms. Providers of
professional services (such as dentists, lawyers, accountants,
engineers and architects) have also had to re-orientate their
businesses, as these industries have become increasingly
competitive following deregulation, and the guidelines of
many professional bodies now also allow for some degree of
advertising.
New technologies have also resulted in the provision of
new service concepts in an increasingly competitive market.
Fax machines, voicemail, e-mail and cellphones are
examples of technology-based services that have substituted
traditional methods of communicating. Fax machines and
e-mail have, to a large extent, replaced postal mail and
phone calls, and cellphones enable phone communication
from almost anywhere in the world. In each of these cases
marketing has played a role in educating consumers about
the service concept (primarily its benefits) and teaching
them how to use the new service.
The forces described above have led to a realisation
among marketers that the marketing and management of
services are different from the marketing and management
of physical products. The unique characteristics of services
and the need for a different marketing mix to market
services are the two principal reasons that necessitate an
approach that is different to that used in the marketing of
products. It is also important to realise that every product is
accompanied by some form of service such as delivery,
made to the customers specifications and so forth.
2.1 How services differ from physical

products
LO2
Services have four important characteristics that distinguish

them from physical goods, namely intangibility,
inseparability, heterogeneity and perishability.
2.1.1 Intangibility
The basic difference between services and products is that
services are intangible. Because of their intangibility,
services cannot be touched, seen, tasted, heard or felt in the
same manner in which physical products can be
experienced. Services cannot be stored and are often very
difficult to duplicate. Moreover, services are seldom based
on any hidden technology, and no patent protection exists
for services. Evaluating the quality of services before or even
after making a purchase is more difficult than evaluating the
quality of products because, compared with products,
services tend to exhibit fewer search qualities. A search
quality is a characteristic that can be easily assessed before
purchase, such as the colour of an appliance or a car. At the
same time, services tend to exhibit more experience and
credence qualities.2 An experience quality is a characteristic
that can be assessed only after use, such as the quality of a
meal in a restaurant, or the actual experience of a vacation.
A credence quality is a characteristic that consumers may
have difficulty assessing even after purchase because they
do not have the necessary knowledge or experience. Medical
services are examples of services that exhibit credence
qualities. Even after open-heart surgery, a patient may be
unable to assess whether the quality of service received was
good or not. These characteristics also make it more difficult
for marketers to communicate the benefits of an intangible
service than to communicate the benefits of tangible goods.
As a result, services marketers often rely on tangible cues to
communicate the nature and quality of a service. Sanlams
use of the protective hands imagery and Old Mutuals use
of the anchor symbol help communicate in terms of

tangible items the benefit of protection that insurance
provides.
The facilities that customers visit, or from which services
are delivered, are a critical part of the total service offering.
For example, Barnes & Noble, a large US bookseller, was
founded on the knowledge that shopping is a form of
entertainment for many consumers. Its shops were designed
to provide a unique shopping experience, using a woody,
traditional, soft-coloured, library-like atmosphere that
would appeal to book lovers. Additionally, sophisticated
modern architecture and graphics and stylish displays were
used to support this entertainment-based positioning. The
firms superstores have cafs and big chairs and tables
where people can browse through piles of books.
Management also makes sure that the shops toilet facilities
are always in an impeccable condition.3
Customers perceptions of a firms service are influenced
by tangible cues, such as the decor, the clutter or neatness of
service areas and the staffs demeanour and the way in
which they dress. The Walt Disney organisation is one of the
best firms in the world at managing tangible cues.
Disneyworld and Walt Disney World focus on the set
(facility), the cast (personnel) and the audience. Hosts and
hostesses (not employees) serve guests (not customers) at
attractions and shops (not rides and stores). When cast
members are hired, they are given written information
about what training they will receive, when and where to
report and what to wear. They spend the first day on the job
at Disney University, learning about the Disney
philosophy, management style and history. The cast

members also discover how all parts of the organisation
work together to provide the highest possible level of guest
satisfaction. In the Magic Kingdom, the cast is just as
important as the set.
2.1.2 Inseparability
Physical products are produced, sold and then consumed.
By contrast, however, services are often sold and produced
and consumed at the same time and in the same place. In
other words, the production and consumption of services
are inseparable activities. Inseparability means that, because
consumers must be present during the production of
services like haircuts and surgery they are actually
involved in the production of the services they buy. This type
of consumer involvement is rare in goods manufacturing.
Inseparability also means that services cannot normally be
produced in a centralised location and consumed in
decentralised locations, in the way that physical products
usually are. Services are also inseparable from the
perspective of the service provider: the quality of service that
firms are able to deliver depends on the training and quality
of the employees.
2.1.3 Heterogeneity
One of the great strengths of the Burger King fast-food chain
is its consistency. Whether customers order a Double
Whopper and onion rings in Cape Town, Singapore or
Moscow, they know exactly what they are going to get. This
is not the case, however, with many service providers.
Heterogeneity means that services tend to be less

standardised and uniform than goods. For example,
physicians in a group practice or barbers in a barbershop
differ within each group in their technical and interpersonal
skills. A particular physician or barbers performance may
even vary according to certain factors, such as the time of
day, the operatives physical health or the mood the person
is in. Because services tend to be labour-intensive and
production and consumption are inseparable, consistency
and quality control can be difficult to achieve.
Standardisation and training help service providers increase
the consistency and reliability of their service delivery.
Limited-menu restaurants, like KFC, offer customers high
consistency from one visit to the next because of
standardised preparation procedures. Another way to
increase consistency is to mechanise the process. For
example, banks have reduced the inconsistency of teller
services by providing automated teller machines and
Internet banking; airport X-ray surveillance equipment has
replaced manual searching of baggage; and automatic car
washes have replaced the variable quality of washing,
waxing and drying by hand.
2.1.4 Perishability
Perishability means that services cannot be stored,
warehoused or inventorised for later consumption. An
empty hotel room or vacant aeroplane seat produces no
revenue that day it cannot be stored and the revenue is lost
forever. Nevertheless, service firms are often forced to turn
away full-price customers during peak periods. Therefore,
one of the most important challenges in many service

industries is finding ways to synchronise supply and
demand. The philosophy that some revenue is better than
none has prompted many hotels to offer big discounts at
weekends and during low seasons, and has led to airlines
adopting similar pricing strategies during off-peak times.
Car-rental agencies, cinemas and restaurants also use
discounts to encourage demand during non-peak periods in
an attempt to overcome the problems associated with
perishability.
2.2 Marketing mixes for services
LO3
The unique characteristics of services intangibility,

inseparability, heterogeneity and per-ishability make
service marketing more challenging than marketing a
physical entity. Consequently, elements of the marketing
mix for products (product, distribution, promotion and
pricing) need to be expanded to meet the special needs
created by the characteristics of a service. In addition to the
traditional four Ps, the services marketing mix should
include strategy components related to people, process and
physical evidence. Table 15.2 contains examples of the
seven Ps of the services marketing mix.
2.2.1 People
The people component of service delivery includes all the
people who play a part in the service delivery and in so
doing influence the customers perceptions of the service
firm. These people comprise the firms staff, the customer
and other customers in the service environment. The people

who deliver a service to a customer are important because
they provide cues as to how the customer experiences the
delivery of the service. In the provision of certain services,
such as consulting, counselling, and other professional
relationship-based services, the service provider is
extremely important because the provider is the service. In
other instances, the contact person may play an apparently
relatively small role in service delivery. Examples are maildelivery staff, airline baggage handlers and maintenance
staff. However, these staff members all play a critical role in
the overall service-delivery process.
Customers themselves can also influence service delivery
and by doing so influence the service quality and their own
satisfaction. For instance, patients influence the quality of
service they receive by obeying or disobeying the advice of a
medical doctor and by observing the use of their
medication. A customer can also influence the outcome of
another customers service. The customers present in a
cinema, sports stadium or lecture hall can influence the
quality of service received by other customers. The
behaviour of customers can, therefore, enhance (e.g. by
providing unique insights during a lecture discussion) or
detract from (e.g. by behaving noisily during a film) how
other customers experience a service.
Table 15.2 The expanded marketing mix for services: The seven Ps
2.2.2 Process
The process component of service delivery refers to all
activities, procedures and mechanisms involved in
producing and delivering the service. The actual delivery of
the activities that a customer experiences, or the operational
flow of the service, also provides a customer with evidence
by which to judge the service. Some activities are visible to
customers, for example the Nandos attendant who takes the
order, or the attendant at a petrol station. These activities
are referred to as front-stage activities. However, other
activities that are unseen by the customer, such as those
undertaken by kitchen staff (preparing meals) and staff
preparing the laundry for a hotel, are called backstage
activities. A process may involve both front-stage and
backstage activities, and both influence customers
satisfaction with the service they receive.
Service processes may be simple or complex, standard or
customised. Irrespective of the process characteristics, the
importance of the process is that it provides a customer with
a form of evidence by which to judge a service. By asking
who or what is the direct recipient of the service and what is
the nature of the service act, we can distinguish four types of
processing, namely people, possession, mental stimulus and
information processing.4 Table 15.3 illustrates these four
types of processing.
2.2.3 Physical evidence

Ever wondered why hotel staff daily put a sticker on the
toilet tissue or fold and stack the towels in the bathroom
when they have cleaned the room? It is to show the
customer that a service has taken place and that the room is
now clean. These are examples of physical evidence that a
service has been performed.
The physical evidence component of service delivery
includes both the physical environment in which a service is
delivered as well as all the tangible components that
facilitate the performance or communication of the service.
The physical environment in which a service is delivered is
called the servicescape. In some instances, the
servicescape is very important in the delivery of a service.
Examples are the dining area of a restaurant or the beauty
salon where a facial is provided. Customers expect
servicescapes to adhere to certain minimum requirements
in terms of hygiene, neatness or other criteria that are
important in the evaluation of the service that is delivered.
On the other hand, certain services, such as office cleaning
or advertising, do not have servicescapes. Where
servicescapes are absent or not important, service providers
utilise other tangibles, such as account statements, business
cards, equipment and signage, as indicators of quality.
When consumers have little on which to judge the actual
quality of service, they rely on the cues offered by these
tangibles just as they rely on the cues provided by the people
and the service process. Physical evidence cues provide
ample opportunities for the firm to send consistent, strong

messages about the firm and its services.
Table 15.3 The four types of service processing
What is the
nature of the
service act?

Who or what is the direct recipient of the

service?
People
Possessions
Tangible actions
People processing
(services directed at
peoples bodies):
Passenger
transportation
Medical care
Haircare salon
Physical therapy
Fitness gym
Restaurant/bar
Possession processing
physical possessions):
Parcel delivery
Repair and
maintenance
Office plant caring
Laundry and drycleaning
Garden service
Intangible
actions
Mental-stimulus
processing (services
directed at peoples
minds):
Advertising
Art exhibition
TV/radio
Management
consulting
Education
Music concert
Information processing
intangible assets):
Accounting
Banking
Life/short-term
insurance
Legal services
Research
Share broking
SOURCE: Adapted from Lovelock, C. & Wirtz, J. 2011. Services marketing: People,
Technology, Strategy. Upper Saddle River: Pearson Education International, p. 41
Unfortunately, service delivery in South Africa is generally of

a poor standard, which often leads to low levels of loyalty to
service providers (see Reader 65 Customer loyalty at
BMW).
READER 65 >> Customer loyalty at BMW

One of the things that struck me very forcibly as soon as I arrived back in this
country was how low the standards of service had fallen. Compared with the
United States or even a Far East country like Singapore, I think our standards
are absolutely appalling. Compared with the UK, however, I think theyre on a
par. So I see the major opportunity for us at BMW South Africa is to focus on
the real needs of the customer and to focus on building customer loyalty.
Because what we have found is that although BMW owners are loyal to the
brand, they are very disloyal to the individual dealerships where they may have
purchased the car. We have discovered that people who have bought five, six
or even seven BMWs have bought them from five, six or even seven
dealerships. They are desperately searching for someone who will provide a
standard of service that matches their perception of the technology and
excellence of the vehicle itself.
This service initiative is based on a programme we brought from the
Harvard Business School. I became fascinated with the work of a small group
of professors who specialise in service management at the school. After about
20 years of research, they have proved conclusively that a relatively small shift
in customer loyalty results in a huge improvement in overall profitability
because operating costs, including the expensive task of continually trying to
win new customers, come down and the ongoing revenue stream goes up to
the extent that even a 5 per cent improvement in customer loyalty can result
in up to a 100 per cent increase in overall profitability. Ive made a rough
calculation that a 5 per cent improvement in customer loyalty, even at BMW
South Africa where our customer loyalty is already high, could deliver at least
50 per cent greater profitability.

SOURCE: BMW South Africa spokesperson
3. Sports marketing and marketing

through sport
LO4
Sport has become a major global business. The 1990s saw a

big surge in the sports business, and this period has been
described as the golden age of sport. The worldwide
market for spending on sports and related activities is
continually on the increase. For example, a
PricewaterhouseCoopers report estimates that global sports
spending will rise from $121,4 billion in 2010 to $145 billion
in 2015, representing a compound annual growth rate of 3,7
per cent over the four years.5 The Super Bowl sold its
advertising time for Super Bowl XL at a rate of $4 million for
a 30-second advertising spot in 2014.6
The amount of money that sports stars such as Rory
Mcllroy, Roger Federer, Lewis Hamilton, Lionel Messi and
Serena Williams earn on and off the sports arenas also
provides an indication of how many consumers want to see,
hear and experience sport. Real Madrid paid Tottenham
Hotspur 86 (100) million for Gareth Bale in 2013.7 Events
such as the FIFA World Cup, the IRB Rugby World Cup, the
Wimbledon Tennis Championship and others create
enormous excitement, and the broadcasting rights and
merchandise sold are worth millions of rands. Even
Hollywood cashes in on the sports business. The 1997 video
release of Jerry Maguire set a weekend record, when almost

3 million copies were rented and 3,5 million copies sold.8
Sport, recreation and leisure activities compete with one
another for consumers, and the competition among
different sports for consumers money is just as high.
Defining sports marketing is not as simple as it may
appear. The first attempt to define sports marketing
emerged in 1978 when Advertising Age described the
activities of consumer and industrial product and service
marketers who increasingly used sport as a means to
communicate with their target markets.9 This first attempt
ignored the marketing of sports products, events and
services. It is, therefore, considered more appropriate to
distinguish between marketing of sport and marketing
through sport. Sports marketing consists of all activities
designed to meet the needs and wants of sport consumers
through exchange processes. Sports marketing has two
major channels: the marketing of sport products and
services directly to consumers of sport, and the marketing of
other consumer and industrial products or services through
the use of sport promotions.10
3.1 The special characteristics of sport
LO5
From a marketing point of view, sport is challenging in the

sense that it has both product and service attributes.
Essentially there are five main areas of difference that sport
marketers need to consider, namely the usual four Ps of
product, price, place and promotion, and also people, which
refers to the market characteristics.11 Table 15.4 provides a
summary of some of the more salient differentiating

characteristics of sport.
3.2 The sports product
LO6
The sports product, to be distinguished from other products,

includes at least the following distinguishing
characteristics:12
Playful competition, typically in the form of a game

A separation from normal space and time
Regulation by special rules
Physical prowess and physical training
Special facilities and equipment.
As indicated earlier, the sports product is a complex package

of tangible and intangible elements. Figure 15.1 illustrates
the characteristics of the sports product.
The core benefits offered by sport vary from health and
achievement for players to pure entertainment and
socialisation for spectators. Many of these core benefits are
intangible and, therefore, pose challenges to marketers.
3.3 Licensed and branded sports

products
LO7
Most sports organisations, clubs and tournaments try to

exploit the commercial value of their logos, names and
facilities. Wimbledon has a range of clothing and tennis

equipment that is marketed under the exclusive name,
Wimbledon. Real Madrid soccer club has a wide range of
clothing, souvenirs and other merchandise that are sold all
over the world. A fair share of the clubs income come from
merchandising and in the 2008-2012 period the club sold
more than 1,4 million replica shirts alone. Real Madrids
total revenue for 2012/13 was 518,9 million; this
achievement made them the first sports team to generate
revenue of more than 500 million in a year.13 The
manufacture and marketing of products utilising the logos of
sports clubs and unions normally takes place under the
terms of a licensing agreement with the particular club or
union.
Table 15.4 Some differentiating characteristics of sport
Category
People
Specific characteristics
Despite the fact that events are virtual in many instances and
personal interaction between consumers and players rarely
takes place, consumers know players and officials and they
strongly identify with the sport. Therefore, there are many
expert consumers in sport.
The wide range of motivations that can be satisfied by sport
consumption offer particular challenges to sport marketers. For
instance, people may attend a major rugby match for all the
following reasons:
They love the sport of rugby
They support one of the sides
They attend the game as part of a social group who do not
really feel strongly about rugby

They want to be seen by others especially if invited to a
hospitality suite
They play rugby and want to watch a specific individual
play to learn from the player
They coach or work as administrators and wish to pick up
ideas
Pople like to associate with winning teams or individuals,
and consumer demand, therefore, fluctuates quickly. A
team that was unknown before a tournament but excels
during the tournament may create a new excitement for the
spectators. In turn, new followers may start paying high
prices for tickets to a final match in which this team may
feature.
The experiences of sport are often influenced by the

atmosphere at matches or games.
Product
The sports product is exercised or supported by people from all

walks of life and all corners of the globe. Most people have
some or other interest in sport, varying from the fervent
followers of English soccer to occasional observers.
The characteristics of a service, namely heterogeneity,
inseparability, intangibility and perishability, are directly
applicable to the sports product. The consumption of sport is
experiential and this serves as an important element to set it
apart from other services and products.
Sports organisations compete and co-operate with one
another at the same time. Before teams of sports clubs can
compete, the clubs work together to form a league or
association. Competition schedules, rules, disciplinary actions
and a host of other activities need to be addressed and
decided upon before competitions can start.

There is no control over the core product of sport. Weather
conditions, the performance of players and crowd behaviour are
inconsistent, so the outcome of the customers experience
cannot be predicted with certainty.
Price
The cost of a sports product is generally small to the consumer

in comparison with the total cost price. The cost of an
individual ticket for a match at Wimbledon or any sport code
during the Olympic Games is small compared with the cost of
hosting such events.
The indirect income generated by sport is frequently bigger
than the direct operating income. Ticket sales income for an
event such as the Olympic Games is small compared with
income from sponsorship, television rights, merchandising and
licences.
Many sport codes operate on a not-for-profit basis. Only
sport codes that operate at national and international level
usually succeed in obtaining sponsorships and other forms of
assistance because of the exposure they offer to potential
sponsors.
Promotion
The high visibility of sport and the extent to which people

identify personally with sport make it attractive to firms through
sponsorships.
Because marketers have little or no control over the core
product (competition, achievement, etc.), they concentrate
marketing efforts on product extensions such as merchandise,
hospitality facilities and parking.
Place
The advances in electronic media make it possible to deliver

sports in real time to consumers around the world.
SOURCE: Based on Bennett, et al. 2003. Services marketing a managerial

approach. Milton: John Wiley & Sons Australia, p. 446
EXAMPLE >> Clothing and sports goods manufacturers, such as Nike,

Adidas, Fila and Reebok, hold licences to manufacture and sell products bearing
the logos and marks of professional and amateur sports entities. In South Africa,
ASICS and various other licensees are at present licensed by the South African
Rugby Union (SARU) to manufacture and sell, among other items, rugby jerseys,
caps, shorts and T-shirts that display the Springbok logo owned by the South
African Rugby Union.
Owning a licensed product scuh as a football shirt allows
fans to take the experience home after a game, and in some
cases, the product is a substitute for experiencing a game.14
Wearing or displaying licensed products indicates to others
that the user is a supporter. The person, therefore, exhibits
support of and involvement with the sports organisation,
and, the user hopes, his or her affiliation with that
organisation. Using or displaying the product is an attempt
to bridge the barriers between players and fans. Fans may
not be able to play like their sports heroes, but licensed
products allow them in a sense to experience a reflected
identification. Such products also allow users to transmit
their affiliation to others that might share it, thereby
building a sense of a social community of fans. The pavilions
that are filled with supporters wearing blue when the Bulls
play is an example of this common affiliation.
Figure 15.1 Characteristics of the sports product
SOURCE: Adapted from Mullin, B.J., Hardy, S. & Sutton, W.A. 2007. Sport
marketing (3rd edition). Champaign: Human Kinetics, p. 17
Branded products, on the other hand, display only the logo

and marks of the manufacturer. The popularity of branded
products affects the demand for licensed products. Several
reasons have been put forward for the popularity of branded
products. One of the reasons is that firms like Nike, for
instance, base their efforts to foster consumer identification
not with a particular sport, team or individual, but rather
with what sports consumers perceive the Nike brand to
stand for: a culture of athletic excellence based on individual
performance and participation.
WEBSITE
Visit http://www.megapro.co.za/ to get a
sense of the extent to which sport can be
used to advertise and promote a firm and
its products or services.
3.4 Marketing through sport
LO8
Many sports are able to draw large crowds to their matches

and competitions, and are, therefore, attractive as a market
venue or medium to communicate with large captive
audiences. As a result, sponsorships have been widely used
by many marketers to communicate with consumers.
Sponsorship is the marketing activity through which a
sponsor contractually provides financial and/or other
support to a firm or individual in return for rights to use the
sponsors name (i.e. company, product or brand) and logo
in connection with the sponsored event or activity.
Sponsorships also generate large sums of money for sports
clubs and associations. For example, in the 2014 season,
Real Madrid was sponsored by the following thirteen
sponsors:15
Adidas
Audi
bwin
BBVA
Coca-Cola
Campofrio
Emirates
Mahou
Nivea for men

Salon De Cobras
Samsung
Sanitas
STC.
Of Real Madrids 2012/13 annual turnover of 518,9 million,

sponsorships and royalties accounted for 40 per cent.16
The long-term benefits and rewards that flow from a
committed, well-managed approach to sponsorship are
significant and multi-faceted, both in business and society.
These benefits are unique to sponsorship and include the
following:17
Flexibility: Sponsorship allows for niche marketing,

enabling marketers to segment and target their markets
on the basis of demographics, psychographics, time and
location criteria. Many events and activities can be
sponsored in many different ways. Events can be
selected to fit demographic and psychographic
requirements, providing the opportunity to connect with
consumers one-on-one by associating the firm (brand or
product) with the qualities of the event or activity itself,
while simultaneously projecting the firms personality,
values and style. This positions the firm in line with its
target markets interests and shows it as responsive to
their preferences, lifestyles and attitudes.
Brand equity: Sponsorship can serve as an important
branding vehicle that can expand, reinforce and even
alter brand personality traits through the association
with the qualities of an event. This is a unique way of
generating brand loyalty and long-term corporate

awareness. Sponsorship accrues value over time,
increasing its effectiveness and improving the return on
investment. When fully integrated and leveraged, events
build brand equity.
Media exposure: Sponsorship is the only form of
marketing communication in which a marketer can
dominate the stage without having to compete with
other promotional clutter. It can also extend the value of
advertising campaigns by creating a dynamic, interactive
environment that makes key messages more relevant
and persuasive.
Cost effectiveness: Sponsorship enables marketers to
obtain coverage and brand awareness at a more
favourable rate than traditional advertising, adding
greater value to the advertising rand spent, and it
simultaneously incorporates corporate public relations
and social-responsibility programmes.
Industrial labour relations: A firms reputation and
image have a direct bearing on the morale of existing
staff and can encourage the highest quality of future job
applications.
Sponsorship opens doors: Through corporate
hospitality and by establishing a good corporate image
and reputation, a firms ability to do business with local
and national government and other influential
organisations can be enhanced by providing access that
would otherwise be extremely difficult and costly to
attain.
Crosses all frontiers: The involvement of South African
firms with South African sporting success is an
invaluable tool in export drives and the international

promotion of the country. Sponsorship is global it
crosses all barriers of bureaucracy, national prejudice
and languages.
Presents new challenges: Leveraging sponsorship to
maximise profitability presents great challenges to
creativity and often reveals the ingenuity in marketers.
Despite the benefits of sponsorship, sponsors need to be

watchful of other firms that might want to have a free ride at
their sponsored events. This is known as ambush marketing,
and is defined as the attempt of a firm to create the
impression of being an official sponsor of the event or
activity by affiliating itself with that event without having
paid the sponsorship rights fee or being a party to the
sponsorship contract.
The ambush marketing tactics that can be, and have
been, used are seemingly limitless. For example, a firm may
use taglines in its advertising, such as We support the South
African team, or it may use symbols commonly associated
with the event, such as the Olympic flame. This creates
confusion in the market as to who the sponsor is, and dilutes
the sponsorship investment. For example, the official
sponsor of the 1996 Comrades Marathon, which paid for the
right to use its name and logo at the event, was ambushed by
another firm. The publicity that the ambusher received
from this completely overshadowed the sponsors
involvement, and as a result the sponsors sponsorship
investment became virtually worthless.
Ambush marketing is extremely destructive. Why should
a firm bother to invest money in sports or the arts if it can
still have its logo, name and subsequent publicity at the

event without paying a cent of the rights fee? Ambush
marketing could be extremely detrimental to the future of
sponsorable events and activities in South Africa. During the
2010 FIFA World Cup in South Africa, Bavaria Beer was
accused of ambush marketing. It is essential that the event
should benefit financially from the sponsorship, as this
enables its future growth and development, without which
these events and activities would not exist. To protect
sponsorship rights, the government has passed tough
legislation to prevent firms from using ambush marketing
tactics.18
Instances have been reported in which ambush
marketing has been highly successful. Table 15.5 provides
information on the 1992 Olympic Games. Note how nonsponsors outperformed some of the official sponsors with
highly effective commercials that were aired during the
Olympic Games.19
Table 15.5 Peoples perception of corporate sponsors: 1992 Olympic Games
Percentage identifying

Category
Correct percentage
(official sponsor)
Incorrect percentage
(not official sponsor)
Credit card
46%
(Visa)
24,3%
(American Express)
Overnight
delivery
service
13,2%
(Express Mail)
60,4%
(Federal Express)
19,6%
(UPS)
Coffee
25,5%
(Maxwell House)
41,7%
(Folgers)
Retailer
11,9%
(J.C. Penney)
34,7%
(Sears)
27,7%
(Kmart)
14,9%
(Wal-Mart)
Pain reliever
15%
(Nuprin)
41%
(Tylenol)
SOURCE: Graham, P.J. 1994. Ambush marketing: An American perspective.

Third Annual Conference on Sports Marketing Law, Tax and Finance. Lausanne:
2728 September 1994
4. Non-business marketing
LO9
A non-business organisation is one that exists to achieve

some goal other than the usual business goals of profit,
market share or return on investment. Few people realise
that non-business organisations account for over 20 per cent
of the economic activity in the United States. The cost of
government entities, the predominant form of non-business
organisation, has become the biggest single item in the
American family budget more than housing, food or
healthcare. Together, federal, state and local governments
collect revenues that amount to more than a third of the
United States gross domestic product. Moreover, they
employ nearly one in five of all non-agricultural civilian
workers. In addition to government entities, non-business
organisations include hundreds of thousands of private
museums, theatres, schools, churches and others.
Non-business marketing involves the marketing activities
conducted by non-business organisations. These can be
divided into two categories: social marketing and non-profit
marketing.
Social marketing is the use of marketing methods to

spread socially beneficial ideas or behaviours. Examples
include the marketing of efforts to persuade people to
seek help for problems such as alcohol or drug
dependency, child or spouse abuse and depression.
Social marketing is also used to urge people to vote, stop
smoking, undergo medical check-ups, refrain from
polluting the environment, prevent forest fires and
perform a variety of other socially beneficial actions.

Social marketing can be used by private and for-profit
firms as well as non-profit organisations, as is the case
when, for example, liquor producers, such as South
African Breweries, urge people not to drink and drive.
Non-profit organisation marketing, on the other hand,
is the effort by non-profit organisations to bring about
mutually satisfying exchanges with target markets.
Although these organisations vary substantially in size
and purpose and operate in different environments,
most perform the following marketing activities:
> Identify the customers they wish to serve or attract
(although they usually use terms other than
customers, such as clients, patients, members or
sponsors)
> Explicitly or implicitly specify objectives
> Develop, manage and terminate programmes and
services
> Decide on prices to charge (although they use other
terms, such as fees, donations, tuition, fares, fines or
rates)
> Schedule events or programmes and determine
where they will be held or where services will be
offered
> Communicate their availability through brochures,
signs, public-service announcements or
advertisements.
Often the non-profit organisations that carry out these

functions do not realise they are engaged in marketing. The
biggest obstacle to introducing marketing into a non"****** DEMO - www.ebook-converter.com*******"
business organisation may be the word marketing itself.

Many people think marketing is of value only to commercial,
profit-seeking firms. Some even consider marketing
activities unprofessional, unethical, or otherwise
inappropriate for non-business organisations. These views
clearly reflect inaccurate perceptions of marketing.
4.1 Factors contributing to the acceptance of

LO10
marketing by non-profit organisations
Global events of the past decade have again highlighted the
severe pressure most non-profit organisations face when
they try to alleviate human suffering. The extent of the floods
in the Philippines, the tsunami in Indonesia, and the war in
Iraq have forced many non-profit organisations that provide
relief and aid to operate a less-than-sufficient service
because of the lack of adequate funding and shortage of
volunteers. In addition to the pressure and demands created
directly by such tragedies which reinforce the need for the
application of marketing principles in non-profit
organisations other factors have also contributed to a
possibly greater role for marketing in non-profit
organisations. These factors are:
Increased privatisation. Governments are increasingly

shifting their responsibility for certain social services by
means of privatisation to non-profit organisations. Nonprofit organisations are experienced and use innovative
means to decrease costs and improve the effectiveness
with which they deliver services that were traditionally
managed by government departments. Privatisation can

take on many formats, such as short-term contracts,
management contracts, joint ventures or total divestiture
of public programmes.20 In short, many governments
want to rid themselves of these functions.
Decreased support from traditional sources. Excluding
their direct income from sales and services rendered,
many non-profit organisations are highly dependent for
their financial resources on government subsidies or
grants, and corporate and private donations. Many nonprofit organisations experience a decline in such sources
of income. Difficult financial times for businesses usually
mean reduced financial support for non-profit
organisations.
Increased competition among non-profit
organisations. Some non-profit organisations have
managed to become very effective at marketing
themselves. Some large non-profit organisations even
employ highly sophisticated marketing strategies. This
approach creates pressure for competing non-profit
organisations that are not skilled in marketing
themselves for contributions from donors.
Increase in the number of non-profit organisations.
Specifically, there is an increase in non-profit
organisations that attend to relatively newer
phenomena, such as HIV/Aids.
Absence of tax incentives. For a number of years now,
contributions to registered non-profit organisations have
not qualified for deductions from income for tax
purposes. Therefore, there are limited tax incentives
available to individuals or organisations to contribute
financially to non-profit organisations.

The abovementioned factors, especially as far as donors and
volunteers are concerned, warrant a consideration of
marketing to help non-profit organisations become more
effective in their ability to draw funds and volunteers.
4.2 The dual role of marketing in non-profit

LO11
organisations
The marketing task of a non-profit organisation is more
demanding than that of firms that market products or
services. Non-profit organisations have to market
themselves to various stakeholders, such as the general
public and government. In addition to this, the stakeholders
are very diverse in nature. On the one hand, the non-profit
organisation must market itself to its beneficiaries or
potential beneficiaries; additionally, it must market the
organisation to appeal to donors and volunteers.
The dual nature of non-profit marketing has been
described as the clients for whom the charity exists to
benefit, and the donors without whom the charity would not
exist.21 Figure 15.2 illustrates these two highly diverse
constituencies at which the non-profit organisation must
direct its marketing efforts.
When a non-profit organisation markets itself to its
beneficiaries the marketing objective will focus on the
problem to be solved or the relief to be provided to alleviate
the distress of members of its target market. This focus is at
times an easy task when shelter, food and clothing, for
example, are provided to disaster victims. But the task can

be very difficult, on the other hand, when the beneficiary
does not want to benefit from the non-profit organisations
endeavours. An example of the latter type would be an
alcoholic who does not want to undergo treatment offered
by a non-profit organisation. Marketing their services or
products to beneficiaries is a natural task for non-profit
organisations this is the reason they exist.
When a non-profit organisation has to market itself for
inputs, the marketing exercise becomes more complicated.
For instance, the marketing approach that will appeal to
donors and volunteers not only differs between these two
groups, but different donors must also be approached in
different ways. Table 15.6 illustrates the diversity of donors
and volunteers that can be of value to non-profit
organisations.
Figure 15.2 The diverse marketing constituencies of non-profit organisations
Table 15.6 Major types of donors and volunteers
Donors
Fund donors
> Foundations
- Corporate
- Family
- General
- Community
> Business enterprises
> Government
> Individuals
Donors of gifts in kind
Volunteers
Day-to-day workers
Day-to-day professional staff
Non-paid board of directors or trustees
When a non-profit organisation wishes to approach a

potential donor, it should ensure that its activities fall within
its declared mission statement. A good fit between the nonprofit organisations activities and the donors mission is
essential for effective solicitation of donor funds. Businesses
are progressively involving themselves more with corporate
social responsibility activities to get an edge in competition.
The following are some examples that illustrate this fit:
Literacy: Efforts to increase literacy are supported by

publishing firms
HIV/Aids: Life-insurance firms invest in Aids-prevention
measures
Environmentalism: Firms that manufacture outdoor
clothing and organisations that extract natural resources
support non-profit environmentally concerned groups
Medical care: Medical schemes advise their members to
join health clubs and gyms for regular exercise.

Although it is expected of business firms to undertake or
contribute to programmes that project them as socially
responsible, it can be argued that a business firms main
motive for donating funds is driven by self-interest. The
message for non-profit organisations is this that business
firms will donate to causes that will benefit their own longterm interests.
4.3 Sources of competition faced by nonprofit organisations
LO12
Non-profit organisations have to contend with diverse forms

of competition such as the following:
Competition with for-profit firms. Many non-profit

organisations rent out their halls or have gift shops or
bookshops on their premises. In this instance, non-profit
organisations compete directly with firms that undertake
such ventures for profit.
Competition with the public sector. Although
competition does not literally take place, one can ask the
question why do non-profit organisations exist? It has
been found that non-profit organisations are generally
more responsive and specialised to deal with consumer
needs. They tend to be more flexible, less bureaucratic
and more innovative than government departments or
agencies that attend to social issues.
Competition with other non-profit organisations. Four
areas of competition are relevant when considering

competition with other non-profit organisations, namely
funding, personnel, users and influence and prestige.
When a non-profit organisation competes for funding, it
not only competes with other organisations that offer
similar, related or substitutable services, but also with
those that employ similar forms of fund-raising appeals.
Most non-profit organisations are labour-intensive and,
therefore, have to rely on a cadre of social workers and
volunteers. The supply of voluntary assistance is not
inexhaustible and non-profit organisations compete with
one another not only for the acquisition of such labour and
skills, but also for the retention of labour and skills.
In contrast with the competition for funding, many nonprofit organisations are unaware of the competition for
users. The term users refers to customers and clients, and
includes both existing and potential users who are either
unaware of the services offered or need to be persuaded to
use the services of the non-profit organisation.
The last facet of competition with other non-profit
organisations is competition for influence and prestige.
Influence and prestige are important when non-profit
organisations lobby for their cause or approach businesses
for support. Some non-profit organisations are so large,
powerful and well known (the Red Cross is an example) that
they receive a large share of resources regardless of the
efforts of competing non-profit organisations. Another, not
so noticeable, source of competition is generic competition.
A history museum, for instance, may compete with guided
tours of a famous sports ground for visitors.
International competition. Some large non-profit

organisations, such as the Red Cross and World Vision,
operate all over the world. Local non-profit organisations
experience difficulties in competing with such large nonprofit organisations because the latter possess a large
reservoir of skills and have also created a lot of goodwill
for themselves over the years. These factors make it
difficult for local organisations to compete with large
international non-profit organisations.
4.4 The unique aspects of non-business

marketing strategies
LO13
Like their counterparts in for-profit firms, non-business

managers develop marketing strategies to bring about
mutually satisfying exchanges with target markets. However,
marketing in non-business organisations is unique in many
ways including the setting of marketing objectives, the
selection of target markets and the development of
appropriate marketing mixes.
4.4.1 Objectives
In the private sector, the profit motive is both an objective
for guiding decisions and a criterion for evaluating results.
Non-business organisations do not pursue profitability for
redistribution to owners or shareholders. Instead, their
focus is to deliver the services or products to its
beneficiaries, such as influencing peoples behaviour or
distributing food or medical care. For example, the
Methodist Church does not gauge its success by the amount

of money left in the collection plates. The Museum of
Science and Industry does not base its performance
evaluations on the monetary value of tokens put into the
turnstiles.
Instead, most non-business organisations are expected to
provide equitable, effective and efficient services that
respond to the needs and preferences of multiple
constituencies. These include users, players, donors,
politicians, appointed officials, the media and the general
public. Non-business organisations cannot measure their
success or failure in strictly financial terms.
The lack of a financial bottom line and the existence of
multiple, diverse, intangible and sometimes vague or
conflicting objectives make prioritising objectives, making
decisions and evaluating performance difficult for nonbusiness managers.
4.4.2 Target markets

Three issues relating to target markets are characteristic of
non-business organisations:
Apathetic or strongly opposed targets. Private-sector

firms usually give priority to developing those market
segments that are most likely to respond to particular
offerings. By contrast, non-business organisations must
often target those who are apathetic about or strongly
opposed to receiving their services. These services may
include vaccinations, family-planning guidance, help for
problems such as drug or alcohol abuse and
psychological counselling. Given the desire or need to

reach unresponsive markets, should the organisation
focus on the least resistant segment, the most resistant
segment or both? Valid arguments can be made for any
of these options, depending on availability of financial
resources, public health or welfare considerations, and
the like.
Pressure to adopt undifferentiated segmentation
strategies. Non-business organisations often adopt
undifferentiated strategies by default. Sometimes they
fail to recognise the advantages of careful targeting, or an
undifferentiated approach may appear to offer
economies of scale and low per capita costs. In other
instances, non-business organisations are pressured or
required to serve the maximum number of people by
targeting the average user. The problem with developing
services targeted at the average user is that there are few
average users. Therefore, such strategies typically fail to
satisfy fully any market segment. Most profit-seeking
firms are well aware of the need for segmenting markets
and developing targeted marketing programmes.
Complementary positioning. The main role of many
non-business organisations is to provide services, using
available resources, to those who are not adequately
served by private-sector firms. As a result, the nonbusiness organisation must often complement rather
than compete with the efforts of others. The positioning
task is to identify under-served market segments and
develop marketing programmes that match their needs,
rather than to target the niches that may be most
profitable.
4.4.3 Product decisions

Non-business organisations share important characteristics
with private-sector service firms. Both market intangible
products, but often require the customer to be present
during the production business. Both business and nonbusiness services vary greatly from producer to producer
and from day to day, even from the same producer. Business
and non-business services cannot be stored in such a way
that tangible goods can be produced, saved and sold at a
later date.
However, there are three product-related distinctions
between business and non-business organisations:
Benefit complexity. Rather than simple product

concepts, like Africas warmest welcome or We earn
money the old-fashioned way, non-business
organisations often promote complex behaviours or
ideas. Examples are the need to exercise and eat
healthily, not to drink and drive and not to smoke
tobacco. The benefits that a person would receive are
complex, long-term and intangible, and may, therefore,
be difficult to communicate to consumers.
Benefit strength. The benefit strength of many nonbusiness offerings is quite weak or indirect. What are the
direct, personal benefits to you of driving at 60
kilometres per hour, donating blood or asking your
neighbours to contribute money to charity? By contrast,
most private-sector (for-profit) service firms can offer
customers direct, personal benefits in an exchange
relationship.
Involvement. Many non-business organisations market
products that elicit either very low involvement (e.g.

Prevent forest fires or Dont litter) or very high
involvement (e.g. Join the military or Stop smoking).
In the case of private-sector goods and services, the
typical involvement range is much narrower. Traditional
marketing-communication tools may be inadequate to
motivate the adoption of either low- or highinvolvement products.
4.4.4 Distribution decisions

The nature of services means that distribution channels
must often be direct from producer to consumer and that
services cannot be inventorised in anticipation of demand.
Non-business organisations share these characteristics with
profit-sector service firms.
A non-profit organisations capacity for distributing its
service offerings to potential customer groups when and
where they want those services is usually a key variable in
determining the success of those service offerings. For
example, educational institutions offer educational
programmes to reach the general public. Many large
universities have satellite campus locations to provide easier
access for students in other areas, such as the University of
Pretorias satellite campus in Nelspruit. Some educational
institutions also offer classes to students at off-campus
locations via video technology, such as North West
Universitys distance learning courses.
The extent to which a service depends on fixed facilities
has important implications for distribution decisions.
Obviously, services like rail transit and lake fishing can be
delivered only at specific points. Many non-business

services, however, do not depend on special facilities.
Counselling, for example, need not take place in a
psychologists office. It may occur wherever counsellors and
clients can meet.
Fund-raising also requires good channels of distribution.
The Salvation Army places its collection tins in areas with
heavy pedestrian traffic during the Christmas season. The
donations then flow mostly to local units, with a small
amount going to the national office. The Cancer Association
of South Africa has the annual Sanlam Cancer Challenge,
and there is the Green Campaign of Child Welfare.
4.4.5 Marketing communication decisions

Many non-business organisations are explicitly or implicitly
prohibited from advertising, which obviously limits their
advertising and promotion options. Other non-business
organisations simply do not have the resources to utilise the
services of advertising agencies, promotion consultants or
marketing staff for fund-raising purposes. However, nonbusiness organisations have at their disposal unique
advertising and promotion options:
Professional volunteers. Non-business organisations

often contract marketing, sales and advertising
professionals to help them develop and implement
marketing-communication strategies. In some instances,
an advertising agency donates its services in exchange
for potential long-term benefits. For example, one
advertising agency donated its services to a major US
symphony orchestra because the orchestra had a blueribbon board of directors. Donated services create
goodwill, personal contacts and general awareness of the
donors organisation, reputation and competency.
Sales promotion activities. Sales promotion activities
that make use of existing services or other resources are
increasingly being used to draw attention to the market
offering of non-business organisations.
4.4.6 Price decisions
Pricing objectives: Revenue is the main pricing

objective in the profit sector or, more specifically, profit
maximisation, sales maximisation, target return on sales
or investment, and so on. Many non-business
organisations must also be concerned about revenue.
However, non-business organisations strive to defray
costs either partially or fully, rather than achieve a profit
for distribution to owners or shareholders. Non-business
organisations aim to redistribute income, for example
through taxation and sliding-scale fees. Moreover, they
strive to allocate resources fairly among individuals or
households or across geographic or political boundaries.
Non-financial prices: In many non-business situations,
consumers are not charged a monetary price, but instead
must absorb non-monetary costs. The importance of
those costs is illustrated by the large number of eligible
citizens who do not take advantage of so-called free
services for the poor. Non-monetary costs consist of the
opportunity cost of time, embarrassment costs and effort
costs.
Indirect payment: Indirect payment through taxes is

common to marketers of free services, such as libraries,
fire protection and police protection. Indirect payment is
not a common practice in the for-profit sector.
Separation between payers and users: By design, the
services of many charitable organisations are provided to
those who are relatively poor, and largely supported by
those who are financially better off. Although examples
of separation between payers and users can be found in
the profit sector (such as insurance claims), the practice
is much less prevalent than in the non-profit sector.
Below-cost pricing: An example of below-cost pricing is
university tuition. Virtually all public colleges and
universities price their services at below full cost. This
practice also exists in the profit sector, although it is
generally an undesirable, temporary situation.
5. Business-to-business marketing
LO14
Business-to-business marketing is the marketing of goods

and services to individuals and organisations for purposes
other than personal consumption. The sale of a computer to
be used on the production line of a motor vehicle
manufacturer is an example of a business-to-business
product. Business-to-business products include those that
are used to manufacture other products, which become part
of another product, that aid the normal operations of a firm
or that are acquired for resale without any substantial
change in form. The key characteristic distinguishing
business-to-business products from consumer products is

intended use rather than physical characteristics. A
product that is purchased for personal or family
consumption or as a gift is a consumer product. If that same
product, such as a microcomputer or a cellphone, is bought
for use in a business, then it is a business-to-business
product.
5.1 Business-to-business customers
LO15
The business-to-business market consists of four major

categories of customers: producers, resellers, governments
and institutions.
5.1.1 Producers
The producer segment of the business-to-business market
includes profit-orientated individuals and organisations that
use purchased goods and services to produce other
products, to incorporate into other products or to facilitate
the daily operations of the firm. Individual producers often
buy large quantities of goods and services. Firms like Toyota
in Japan spend billions of dollars annually on business
products like steel and metal components that are used to
manufacture motor vehicles.
5.1.2 Resellers
The reseller market includes retail and wholesale businesses
that buy finished goods and resell them for a profit. A
retailer sells mainly to final consumers; wholesalers sell
mostly to retailers and other organisational customers.

Consumer-product firms, like Unilever, Nestl and Adcock
Ingram, sell directly to large retailers and retail chains, and
through wholesalers, to smaller retail units. Businessproduct intermediaries are wholesalers that buy business
products and resell them to business customers. They often
carry thousands of items in stock and employ sales forces to
call on business customers. Businesses that wish to buy 50
pencils or 100 kilograms of fertiliser usually purchase these
items from local intermediaries rather than directly from
manufacturers.
5.1.3 Governments
A third major segment of the business-to-business market is
governments. Government organisations include hundreds
of central, provincial and local buying units. They make up
what is considered to be the largest single market for goods
and services in the world. Contracts for government
purchases are often put out to tender. Interested suppliers
submit tenders (usually sealed) to provide specified
products during a particular time. Sometimes the lowest
tenderer is awarded the contract. When the lowest tender is
not awarded the contract, strong evidence must be
presented to justify the decision. Grounds for rejecting the
lowest tender include lack of experience, inadequate
financing or poor past performance. Tendering allows all
potential suppliers a fair chance of winning government
contracts and helps ensure that public funds are spent
wisely.
5.1.4 Central government

Name just about any product or service available and
chances are that someone in the central government uses it.
The US Federal Government, the central government in the
United States, is the worlds largest customer. Although
much of the central governments buying is centralised, no
single central agency or department contracts for all the
governments requirements, and no single buyer in any
agency or department purchases all that the agency or
department needs. A central government can be described
as a combination of several large firms with overlapping
responsibilities and thousands of small, independent units.
Selling to provinces and cities can be less frustrating for
both small and large suppliers than selling to central
government. Paperwork is usually simpler and more
manageable than at the central-government level. On the
other hand, at central-government level, suppliers are faced
with hundreds of governmental units that are likely to buy
their wares. Provincial and local buying agencies include
schools, hospitals and road departments.
5.1.5 Institutions
The fourth major segment of the business-to-business
market is institutions that seek to achieve goals different
from such ordinary business goals as profit, market share
and return on investment. This segment includes schools,
hospitals, universities, churches, research foundations and
other so-called non-business organisations.
Table 15.7 The standard industrial classification for South Africa: Major
divisions
1
Agriculture, hunting, forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Wholesale and retail trade; repair of motor vehicles, motor cycles and
personal and household goods; hotels and restaurants
Transport, storage and communication
Financial intermediation, insurance, real estate and business services
Community, social and personal services
10
Private households, extraterritorial organisations, representatives of

foreign governments and other activities not adequately defined
5.2 Classification of business and

government markets
LO16
The standard industrial classification system (SIC) is a

detailed numbering system for classifying business and
government organisations by their main economic activity.
The SIC system divides the economy into ten main divisions
and assigns two-digit numbers to major industry groups
within each division. Table 15.7 lists all the main divisions of
the SIC in South Africa. For each two-digit code, Statistics
South Africa publishes data on total industry sales and
employment. This information is further broken down by
geographic region and is available for each province in
South Africa. Two-digit SIC industry categories are then
further subdivided into three-digit and four-digit categories,
which represent sub-industries within the broader two-digit
categories.
Although SIC data are helpful for analysing, segmenting
and targeting markets, they have significant limitations. For
example, only one code is assigned to each firm. Therefore,
the system does not accurately describe firms that engage in
several different activities or that provide various types of
products. Furthermore, the system is too general to describe
adequately industries that are growing more sophisticated
and diversified.
5.3 Differences between business-tobusiness and consumer markets
LO17
The basic philosophy and practice of marketing is the same

whether the customer is a business organisation or a final
consumer. Business markets do, however, have different
characteristics from consumer markets. Table 15.8
summarises the main differences between business-tobusiness and consumer markets.
5.3.1 Demand
Consumer demand for products is quite different from
demand in the business-to-business market. Unlike
consumer demand, business-to-business demand may be
derived, inelastic, joint and fluctuating.
Derived demand
The demand for business-to-business products is called
derived demand because firms buy products to be used in
producing consumer products. In other words, the demand
for business-to-business products is derived from the
demand for consumer products. For example, motor vehicle
and truck manufacturers account for a major share of steel,
rubber and aluminium consumption. Because demand for
these products is derived from the demand for motor
vehicles and trucks by final consumers, business-tobusiness marketers must carefully monitor demand patterns
and changing preferences in final consumer markets, even
though their customers are not in those markets. Moreover,
business-to-business marketers must carefully monitor their
customers forecasts because derived demand is based on
expectations of future demand for those customers
products. Some business-to-business marketers not only
monitor final consumer demand and consumer forecasts,
but also try to influence final consumer demand. In South
Africa, lower interest rates in the period 2004 2006 led to
almost unprecedented demand for housing, which drove
the demand for cement, which, in turn, led to huge profits
for cement-producing firms, such as PPC and Lafarge. The
demand for cement is, therefore, derived from the demand
for housing. Similarly, the demand for carbon dioxide used
in fizzy drinks depends on the demand for fizzy drinks.

Table 15.8 Principal differences between business-to-business and consumer
markets
Characteristic
Business-to-business
market
Consumer
market
Demand
Organisational
Individual
Purchase volume
Larger
Smaller
Number of customers
Fewer
Many
Location of buyers
Geographically concentrated
Dispersed
Distribution structure
More direct
More indirect
Nature of buying
More professional
More personal
Nature of buying
influence
Multiple
Single
Type of negotiations
More complex
Simpler
Use of reciprocity
Yes
No
Use of leasing
Greater
Lesser
Primary promotional
method
Personal selling
Advertising
Inelastic demand
The demand for many business-to-business products is
inelastic with regard to price. Inelastic demand means that
an increase or decrease in the price of the product will not
significantly affect demand for the product. The price of a
product used in the production of or as part of a final
product is often a minor part of the final products total
price. Therefore, demand for the final consumer product is
not affected. If the price of motor vehicle paint or spark
plugs rose significantly say by 200 per cent in one year do
you think the number of new cars sold that year would be
affected? Probably not.
Joint demand
Joint demand occurs when two or more items are used
together in a final product. For example, a decline in the
availability of memory chips will slow the production of
laptops, which will, in turn, reduce the demand for flash
disks. Many business products, like hammer heads and
hammer handles, also exemplify joint demand.
Fluctuating demand
The demand for business-to-business products
particularly new plants and equipment tends to be more
unstable than the demand for consumer products. A small
increase or decrease in consumer demand can produce a
much larger change in demand for the facilities and
equipment needed to make the consumer product.
Economists refer to this phenomenon as the multiplier effect
(or the accelerator principle).
Boeing Aircraft uses sophisticated surface grinders to
make aeroplane parts. Suppose that Boeing currently uses

20 surface grinders. Each machine lasts about ten years.
Purchases have been timed so that two machines will wear
out and be replaced annually. If the demand for aeroplane
parts does not change, two grinders will be bought this year.
If the demand for parts declines slightly, only 18 grinders
may be needed, and Boeing wont replace the worn ones.
However, suppose next year demand returns to previous
levels plus a little more. To meet the new level of demand,
Boeing will need to replace the two machines that wore out
in the first year and the two that wore out in the second year,
and buy one or more additional machines. The multiplier
effect works this way in many industries, producing highly
fluctuating demand for business-to-business products.
5.3.2 Purchase volume

Business-to-business customers buy in much larger
quantities than consumers. Just think how large an order
Kelloggs typically places for the wheat bran and raisins used
to manufacture Raisin Bran. Imagine the number of tyres
that Volkswagen buys at one time.
5.3.3 Number of customers

Business-to-business marketers usually have far fewer
customers to serve than consumer marketers. The
advantage is that it is a lot easier to identify prospective
buyers, monitor current customers needs and levels of
satisfaction and personally attend to existing customers. The
main disadvantage is that each customer becomes crucial
especially for those business-to-business manufacturers
that have only a few customers.
5.3.4 Location of buyers

Business-to-business customers tend to be much more
geographically concentrated than consumers. Examples are
the mining, fishing, sugar and wine industries. A large
metropolitan city such as Johannesburg will also contain a
large proportion of business-to-business customers for
many products and services.
5.3.5 Distribution structure

Many consumer products pass through a distribution
system that includes the producer, one or more wholesalers
and a retailer. However, because of many of the
characteristics already mentioned, channels of distribution
are typically shorter in business-to-business marketing.
Direct channels, whereby manufacturers market directly to
users, are more common.
5.3.6 Nature of buying

Unlike consumers, business-to-business buyers usually
approach purchasing rather formally. Businesses use
professionally trained purchasing agents or buyers who
spend their entire career purchasing a limited number of
items. They get to know the items and the sellers well and
continued business is often dependent on sound relations.
5.3.7 Nature of buying influence

Normally more people are involved in a single business
purchase decision than in a consumer purchase. Experts

from fields as varied as quality control, marketing and
finance, as well as professional buyers and users, may be
grouped in a single buying centre, and all contribute to
buying decisions.
5.3.8 Types of negotiations

Consumers are used to negotiating prices on motor vehicles
and real estate. But with most products/services, South
African consumers expect sellers to set the price and other
conditions of sale, such as time of delivery and credit terms.
However, negotiating is common in business-to-business
marketing. Buyers and sellers negotiate product
specifications, delivery dates, payment terms and other
pricing matters. Sometimes these negotiations occur during
many meetings over several months. Final contracts are
often very long and detailed.
5.3.9 Use of reciprocity

Business purchasers often choose to buy from their own
customers, a practice known as reciprocity. This practice is
neither unethical nor illegal unless one party coerces the
other and the result is unfair competition. Reciprocity is
generally considered a reasonable business practice. If all
possible suppliers sell about the same product for about the
same price, doesnt it make sense to buy from those firms
that buy from you?
5.3.10 Use of leasing

Consumers normally buy products rather than leasing them.
Businesses, on the other hand, commonly lease expensive

equipment, like computers, construction equipment,
vehicles and aircraft. This allows firms to reduce capital
outflow, acquire a sellers latest models and receive better
services and they often gain a tax advantage as well.22 The
lessor, the firm providing the product, may be either the
manufacturer or an independent intermediary. The benefits
to the lessor include greater total income from leasing
compared with selling and a chance to do business with
customers that cannot afford to buy. Leasing, however, is
not without risks. When airlines in the United States slashed
spending in the early 1990s, hundreds of planes owned by
aircraft makers and leasing firms lay idle.23
5.3.11 Primary promotional method

Business-to-business marketers tend to emphasise personal
selling in their promotional efforts, especially for expensive
items, custom-designed products, large-volume purchases
and situations requiring negotiations. The sale of many
business-to-business products requires a great deal of
personal contact. With so much riding on a single sale in the
business-to-business market, salespeople tend to go to great
lengths to sway buyers opinions. So it is perhaps not
surprising that ethical issues sometimes arise.
5.4 Types of business-to-business

products
LO18
Business-to-business products generally fall into one of the

following seven categories, depending on their use: major

equipment, accessory equipment, raw materials,
component parts, processed materials, supplies and
business services.
5.4.1 Major equipment

Major equipment includes such capital goods as large or
expensive machines, mainframe computers, blast furnaces,
generators, aircraft and buildings. (These items are also
commonly called installations.) Major equipment is
depreciated over time rather than charged as an expense in
the year it is purchased. In addition, major equipment is
often custom-designed for each customer. Personal selling
is an important part of the marketing strategy for major
equipment because distribution channels are almost always
direct from the producer to the business user.
5.4.2 Accessory equipment

Accessory equipment is generally less expensive and has a
shorter lifespan than major equipment. Examples include
portable drills, power tools, microcomputers and fax
machines. Accessory equipment is often charged as an
expense in the year it is bought rather than depreciated over
its useful life. Unlike major equipment, accessories are more
often standardised and are usually bought by more
customers. These customers tend to be widely dispersed.
For example, all types of businesses buy microcomputers.
Local industrial intermediaries (wholesalers) play an
important role in the marketing of accessory equipment,
because business buyers often purchase accessories from
them. Regardless of where accessories are bought,

advertising is a more important promotional tool for
accessory equipment than for major equipment.
5.4.3 Raw materials

Raw materials are unprocessed extractive or agricultural
products. Examples include mineral ore, timber, wheat,
corn, fruit, vegetables and fish. Raw materials become part
of finished products. Extensive users, such as steel or wood
mills, food canners and soft-drink bottlers, generally buy
huge quantities of raw materials such as wood, fruit and
sugar. Because there is often a large number of relatively
small sellers of raw materials, none can greatly influence
price or supply. Therefore, the market tends to set the price
of raw materials, and individual producers have little pricing
flexibility unless they organise a collective effort. Promotion
is almost always personal selling, and distribution channels
are usually direct from producer to business user. When
advertising is used, it is placed in trade journals, such as
Food & Beverage Reporter Online (see the Huletts
advertisement).
5.4.4 Component parts

Component parts are either finished items ready for
assembly or products that need very little or no processing
before becoming part of some other product. Examples
include spark plugs, tyres and electric motors for cars. A
special feature of component parts is that they often retain
their identity after becoming part of the final product. For
example, car tyres are clearly recognisable as part of a car.
Moreover, because component parts often wear out, they

may need to be replaced several times during the life of the
final product. As a result, there are two important markets
for many component parts: the original equipment
manufacturer (OEM) market and the replacement market.
Many of the business-to-business features listed in
Table 15.8 characterise the OEM market. The difference
between unit costs and selling prices in the OEM market is
often small, but profits can be quite substantial because of
volume buying.
EXAMPLE >> Rarely does advertising play a key role in the promotion
strategy for OEM markets. Even rarer is advertising to end-users. Two exceptions
to this generalisation are NutraSweet, the artificial sweetener, and Intel, the
semi-conductor firm. NutraSweet encourages the manufacturers of products such
as Coke Light and Extra chewing gum to feature its logo on their containers and
packages. Intel pays computer manufacturers to feature its trademark Intel

inside in their advertisements and on their products. Because NutraSweet and
Intel are not observable they try to create a brand image and customer
preference for their brands by visualising it. Buyers neednt know exactly what
NutraSweet is or what Intel makes if those buyers can be convinced that products
containing these components are preferable.
The replacement market is composed of organisations and
individuals that buy component parts to replace worn-out
parts. Because components often retain their identity in
final products, users may choose to replace a component
part with the same brand used by the manufacturer, for
example, the same brand of car tyre or battery. The
replacement market operates differently from the OEM
market, however. Whether replacement buyers are
organisations or individuals, they tend to demonstrate the
characteristics of consumer markets that are shown in Table
15.8. Consider, for example, a motor vehicle replacement
part. Purchase volume is usually small, and there are many
geographically dispersed customers, who typically buy from
car dealers or parts stores. Negotiations do not occur, and
neither reciprocity nor leasing is usually an option.
Manufacturers of component parts often direct their
advertising towards replacement buyers. Volkswagen and
other motor vehicle manufacturers, for example, compete
with independent firms in the market for replacement car
parts.
5.4.5 Processed materials

Processed materials are used directly in the manufacture of
other products. Unlike raw materials, they have undergone
some processing. Examples include sheet metal, chemicals,

speciality steel, wood and plastics. Unlike component parts,
processed materials do not retain their identity in final
products. Most processed materials are marketed to OEMs
or to intermediaries servicing the OEM market. Processed
materials are generally bought according to customer
specifications or to some industry standard, as is the case
with steel and wood. Price and service are important factors
in choosing a supplier.
5.4.6 Supplies
Supplies are consumable items that do not become part of
the final product, such as lubricants, detergents, paper
towels, pencils and paper. Supplies are normally
standardised items that purchasing agents routinely buy.
They usually have relatively short lives and are inexpensive
compared with other business goods. Because supplies
generally fall into one of three categories maintenance,
repair or operating supplies these items are often referred
to as MRO. Competition in the MRO market is intense. Bic
and Paper-Mate, for example, battle for business purchases
of inexpensive ballpoint pens.
5.4.7 Business services

Business services are expense items that do not become part
of a final product. Businesses often retain outside providers
to perform janitorial, advertising, legal, management
consulting, marketing research, maintenance and other
services. Hiring an outside provider is a good option when it
costs less than hiring or assigning an employee to perform
the task, or when an outside provider is needed for

particular expertise.
5.5 The business-to-business purchase

process
LO19
The business-to-business purchase process is set out in Table

15.9. The process begins with the recognition of a need. For
example, a firm may realise that it must replace old
machinery or expand its production facilities. Occasionally
business-to-business marketers will use advertising to make
potential business buyers aware of a need by emphasising
the benefits of a product by means of advertising. SupaCrisp
palm oil, for example, is targeted at restaurants, hotels and
other establishments that prepare large numbers of meals at
a time. Your customer will taste the difference while you
reap the benefits, says the advertisement. For the best
results in the kitchen, satisfied customers and more profits,
use SupaCrisp Palm Oil. Its the best way to cook. Its
cholesterol-free, its additive-free, and it has a longer
working life than other vegetable oils. You save money.
The next step in the purchase sequence is a tentative
decision on the type of product needed. Sometimes the
buying firm then drafts product specifications. More often,
though, members of the buying centre select several
potential sources of supply and begin negotiations.
Purchasing agents may even keep lists of approved suppliers
for various types of products. Negotiations begin with a
discussion of the product needed, the time frame within
which it is needed and the terms of delivery. Negotiations
often end when each of the potential suppliers submits a

proposal with a bid or price to be charged for the product.
The buyer then analyses the proposals and either selects the
best one or asks suppliers for clarifications.
Table 15.9 shows that although business-to-business

purchasing and consumer buyer behaviour (see Chapter 3)
share many similarities, the former certainly has some
differentiating features. Negotiations are also increasingly

done by means of electronic platforms, as Technology
reader Electronic marketplace (below) shows.
Table 15.9 Steps in the business-to-business purchase process
Need
recognition
The user realises that the current product either can no

longer do the job or cannot do it as well as newer
products.
Product
definition
The user, having extensive knowledge of the task to be

done, defines the type of product needed to complete the
task.
Development
of product
specifications
When the product must be customised, the influencer

works with the salesperson to develop specifications. The
influencer is often an engineer who knows how to adapt
machinery.
Search for
qualified
suppliers
The purchasing agent searches for qualified suppliers.

Names of suppliers may be provided by influencers, such
as quality-control personnel who have come into contact
with potential suppliers at trade shows or exhibitions.
Acquisition
and analysis
of products
The purchasing agent takes product proposals or bids

from suppliers and, with the decision-makers, analyses
the proposals.
Selection of
supplier
The purchasing agent and other members of the buying

centre analyse alternative bids and vendors, and select a
supplier.
Order
placement
The purchasing agent (usually) places the order and

establishes the delivery and order routines, as well as the
financial terms.
Product
inspection
Receiving, inspection or quality-control employees check

for shortages, damaged merchandise or incorrect
shipments.
Product
performance
evaluation
Purchasing agents and others monitor the suppliers

performances. Users monitor the products performance.
Electronic marketplace
Arch-rivals in the European food sector are reportedly
lining up to join a new electronic marketplace started
by Nestl. Frances Danone has joined the venture, and
Unilever has been invited. Companies that sign up for
the venture, known as CPGMarket.com, will
supposedly drive down their costs by combining orders
for supplies ranging from office furniture and
packaging material to raw food commodities, such as
cocoa and butter. Members will be able to automate
bookkeeping chores, carry out transactions, hold
auctions and solicit contract tenders all online. The
companies will be able to see the different prices from
all suppliers. Nestls chief executive, Peter Brabeck,
said: We dont believe very much in Old Economy and
New Economy. What we believe in is [that] through this

new information technology, there are new possibilities
for making the way were running our business even
more efficient.
SOURCE: Electronic marketplace. Food & Beverage Reporter Online, no.
69, 28 July 2000
6. Travel and tourism marketing
LO20
Major events around the world during the past two decades,
such as the fall of the Berlin Wall and the demise of
communism in many Eastern European countries, have
opened up the whole world for travel and tourism. Visitors
from the Western world can now visit Moscow, for example,
for a holiday, which was almost impossible during the era of
the Soviet Union. Travel/tourism has become the worlds
largest industry; the World Travel and Tourism Council
(WTTC) estimates that travel and tourism generated $6,99
billion (9 per cent of the world GDP) in 2013.24 It was also
responsible for 266 million jobs, representing 1 in every
eleven jobs globally in 2013. 25 Travel and tourism have
become major contributors to economic development.
South Africa also benefits greatly from international travel
and tourism. In 2013, tourists spent R97,8 billion in South
Africa.26
6.1 The main sectors of the travel and

tourism industry
LO21
Travel and tourism is, essentially, a total market in itself,

with consumer demand for a very broad spectrum of travelrelated products. The total market consists of many
segments and even more products and services provided by
a host of organisations which deliver specialised products
and services. These different segments are shown in Table
15.10.
6.2 The special characteristics of travel and

tourism services
In addition to the generic characteristics common to all
services, travel and tourism services have at least three
further features that are particularly relevant to this industry.
These three characteristics are seasonality, the
interdependence of different tourism products and the
relatively high fixed costs of tourism operations.27
6.2.1 Seasonality and demand fluctuations

The demand for leisure tourism markets fluctuates greatly
during the year. In South Africa, the summer is the main
season for holidays. In Europe, the winter is a busy holiday
season for skiing and other snow-bound activities. School
holidays and business-year cycles also tend to influence the
time most people go on holiday. The result is that many
tourism firms dealing with holiday markets fluctuate from
peaks of 90 to 100 per cent capacity utilisation for a few

weeks in the year, to troughs of 30 per cent or less for the rest
of the year. The demand variations are acute because of the
perishability of travel and tourism products, and it is always
a major preoccupation of marketing managers to generate
as much demand as market conditions permit in the troughs
(low seasons).
The response of marketing managers is to manage or
manipulate demand. During the low-demand season
(winter) for coastal accommodation in South Africa, most of
the larger hotels offer breakaway packages, such as weekend
specials, at a fraction of what they would cost during the
peak season. If a firm can succeed in drawing business in the
off-season, it will utilise the regular, available and
inseparable capacity, and generate extra or marginal sales,
which produce income at very little extra cost.
6.2.2 Interdependence of tourism products/services

Most clients combine various services and products when
they make travel and tourism decisions. Someone who
books a holiday, as well as the mode of travel chosen to get
to the destination, will also purchase accommodation,
meals, entertainment and visit tourist attractions. From a
supplier viewpoint, it is ideal, therefore, if various different
suppliers can find ways to combine their respective efforts.
Over time, the interdependence of tourism products and
services has led to the development of product packages.
Product packages are defined as quality-assured,
repeatable offers comprising two or more elements of
transport, accommodation, food, destination attractions,
other facilities and services (such as travel insurance).

Product packages are marketed to the general public,
described in print or electronic media, and offered for sale to
prospective customers at a published, inclusive price, in
which the costs of the product components cannot be
separately identified.28
6.2.3 High fixed costs of service operations

An analysis of the income statements of travel and tourism
businesses reveals a relatively high fixed cost to operate
available capacity. Variable costs, on the other hand, tend to
be relatively low. Fixed costs in respect of premises, rentals,
leases, equipment, salaries and wages of full-time personnel
have to be paid, irrespective of whether an attraction draws
10 000 or 1 000 visitors on any day. The reality of high fixed
operational costs focuses service operators attention on the
need to generate extra demand, especially additional or
marginal sales, a very high proportion of which represent
income gain at little or no extra cost.
Table 15.10 Categories of organisations that provide products and
services in the travel and tourism industry
SOURCE: Adapted from Middleton, V.T.C., Fyall, A., Morgan, M. & Ranchhod, A.
2009. Marketing in travel and tourism (4th edition). Oxford: Elsevier, p. 11
6.3 The marketing mix in travel and tourism

Because most of what is offered in the travel and tourism
industry contains both product and service characteristics, it
is deemed necessary to apply the seven Ps marketing mix
to the products and services of the travel and tourism
industry. Table 15.11 highlights some of the product and
service characteristics of travel and tourism. Table 15.11 also
illustrates some of the adjustments that marketers of
tourism-related services need to make to the marketing mix
to appeal to the needs of the tourist consumer and traveller.
Table 15.11 Example of the marketing mixes in travel and tourism

Hotel
Product
(designed
characteristics;
packaging;
branding)

Location; building size; room
size; facilities in hotel;
Holiday Inn; Marriott
Product
(physical
evidence)
Airline
Routes; service
frequency; aircraft type;
seat size; decor; meals;
style; SAA; Lufthansa
Staff numbers; uniforms;

reception desk; decor
Staff numbers; uniforms;
check-in counters; type
of food served
Price
(normal or
regular price;
promotional
prices for
each product
offered)
Rack rates; corporate rates;

frequent-user rates
First class; business

class; economy class;
standby
Promotion
(solo and
collaborative)
Advertising;
sales
promotions;
public
relations; sales
force
Advertising in newspapers;
travel magazines; agencies;
financial publications, etc.
Advertising in
newspapers; travel
magazines; agencies;
financial publications,
etc.
Place
Channels of
distribution,
including
reservation
systems
Internet
bookings
Computerised reservation
systems; other hotels in
group; travel agents; tour
operators; airlines; 086
telephone numbers; Internet
bookings
Computerised reservation
systems; city offices;
airport desks; travel
agents; 086 telephone
numbers; Internet
bookings
Process
Reception desk;
documentation
Check-in systems;
baggage handling
People
Receptionists; waiters;
Cabin crew; ground staff
cleaners
<<< LOOKING BACK

Sports organisations and individual sports celebrities are
also examples of commodities that benefit from marketing
activities. The advantages of identifying a potentially
successful sportsperson early are that sponsorship is
cheaper, and secondly, that they already have a following
(i.e. fans or supporters). The risk, however, is that money
could be spent on performers who do not succeed.
SUMMARY
1
The growing importance of services in westernised

economies. The growing demand for services is
expected to continue. Much of this demand results from
demographics. An ageing population will need services
such as nursing, home healthcare, physical therapy (e.g.
physiotherapy) and the services of social workers.
Double-income families, on the other hand, need
services such as childcare, house cleaning and gardening
services. Also driving the growth of the services sector
will be the increasing demand for information managers,
such as computer engineers, systems analysts and
paralegal service providers.
The unique characteristics of a service. Services have
four unique characteristics that distinguish them from
physical goods intangibility, inseparability,
heterogeneity and perishability. Because of their

intangibility, they cannot be touched, seen, tasted, heard
or felt in the same manner in which physical products
can be experienced. Services are often sold and
produced and consumed at the same time and in the
same place. In other words, their production and
consumption are inseparable activities. Heterogeneity
means that services tend to be less standardised and
uniform than goods. Perishability means that services
cannot be stored, warehoused or inventorised. An empty
hotel room or vacant aeroplane seat produces no
revenue that day.
3 Adapting the marketing mix for services. The unique
characteristics of services make service marketing more
challenging in contrast to marketing a physical item.
Therefore, elements of the marketing mix for products
(product, distribution, promotion and pricing), need to
be expanded to meet the special needs created by these
characteristics. In addition to the traditional four Ps, the
services marketing mix should include strategy
components related to people, process and physical
evidence.
4 Distinguish between sports marketing and marketing
through sport. Sports marketing has two major
channels: the marketing of sport products and services
directly to consumers of sport, and the marketing of
other consumer and industrial products or services
through the use of sport promotions.
5 Identify and describe the unique demands of using
sport as a specialised field of marketing. From a
marketing point of view, sport is challenging in the sense
that it has both product and service attributes.

Essentially, there are five main areas of difference that
sport marketers need to consider, namely the usual four
Ps of product, price, place and promotion, as well as
people, which refers to the market characteristics.
6 Distinguish the sports product from other products
in marketing terms. The sports product includes at least
the following characteristics that distinguish it from
other products:
Playful competition, typically in the form of a game
A separation from normal space and time
Regulation by special rules
Physical prowess and physical training
Special facilities and special equipment.
7 Distinguish between licensed and branded sports
products. ASICS, for example, is at present licensed by
the South African Rugby Union (SARU) to manufacture
and sell, among other items, rugby jerseys, caps, shorts,
T-shirts and windbreakers that display the Springbok
and Protea logo owned by SARU. Branded products, on
the other hand, display only the logo and marks of the
manufacturer itself.
8 Describe the general nature of marketing through
sport. Many sports are able to draw large crowds to their
matches and competitions and are, therefore, attractive
as a market venue or medium to communicate with large
captive audiences. Sponsorships have been widely used
by many marketers to communicate with consumers.
Sponsorship is the marketing activity through which a
sponsor contractually provides financial and/or other
support to an organisation or individual in return for
rights to use the sponsors name (company, product,

brand) and logo in connection with the sponsored event
or activity.
9 Identify and describe the unique demands of nonbusiness marketing. A non-business organisation is a
firm that exists to achieve some goal other than the usual
business goals of profit, market share or return on
investment. Non-business marketing includes marketing
activities conducted by non-business organisations. It
can be divided into two categories: social marketing and
non-profit marketing.
10 The growing acceptance of the value and importance
of marketing by non-profit organisations. The factors
that have gradually contributed to a potentially greater
role for marketing in non-profit organisations are:
Increased privatisation
Decreased support from traditional sources
Increased competition among non-profit
organisations
An increase in the number of non-profit
organisations
An absence of tax incentives.
11 The dual role of marketing for non-profit
organisations. On the one hand, the non-profit
organisation must market itself to its beneficiaries or
potential beneficiaries. On the other hand, it must
market the organisation to appeal to donors and
volunteers.
12 The competitive environment that non-profit
organisations typically face. The diverse forms of
competition that non-profit organisations have to
contend with are:

Competition with for-profit organisations
Competition with the public sector
Competition with other non-profit organisations
International competition.
13 Adapting marketing strategies for use in a nonbusiness environment. Marketing in non-business
organisations is unique in many ways, including the
setting of marketing objectives, the selection of target
markets and the development of appropriate marketing
mixes.
14 The needs of four customer groupings in the businessto-business market. The producer segment of the
business-to-business market includes profit-orientated
individuals and organisations that use purchased goods
and services to produce other products, to incorporate
into other products or to facilitate the daily operations of
the firm. The reseller market includes retail and
wholesale businesses that buy finished goods and resell
them for a profit. A third major segment of the businessto-business market is government. Government
organisations include hundreds of central, provincial
and local buying units. The fourth major segment of the
business-to-business market is institutions schools,
hospitals, universities, universities of technology,
churches, research foundations and other non-business
organisations.
15 Identify and describe the unique demands of
business-to-business marketing. Business-to-business
marketing is the marketing of goods and services to
individuals and organisations for purposes other than
personal consumption. Business-to-business products

include those that are used to manufacture other
products or become part of another product, aid the
normal operations of a firm or are acquired for resale
without any substantial change in form. The key
characteristic that distinguishes business-to-business
products from consumer products is intended use
rather than physical characteristics.
16 Classify business and industrial markets using the
industrial classification system. The major divisions of
the standard industrial classification (SIC) for South
Africa are:
Agriculture, hunting, forestry and fishing
Mining and quarrying
Manufacturing
Electricity, gas and water supply
Construction
Wholesale and retail trade
Transport, storage and communication
Financial intermediation, insurance, real estate and
business services
Community, social and personal services
Private households, extraterritorial organisations,
representatives of foreign governments and other
activities not adequately defined.
17 The principal differences between business-tobusiness markets and consumer markets. The different
characteristics can be summarised as shown in the table
at the top of p. 557.
18 The different types of business-to-business markets.
Business-to-business products generally fall into one of
the following seven categories, depending on their use:

major equipment, accessory equipment, raw materials,
component parts, processed materials, supplies and
business services.
Major equipment includes capital goods, such as
large or expensive machines, mainframe computers,
blast furnaces, generators, aircraft and buildings.
Characteristic
Business-to-business
market
Consumer
market
Demand
Organisational
Individual
Purchase volume
Larger
Smaller
Number of customers
Fewer
Many
Location of buyers
Geographically concentrated
Dispersed
Distribution structure
More direct
More indirect
Nature of buying
More professional
More personal
Nature of buying
influence
Multiple
Single
Type of negotiations
More complex
Simpler
Use of reciprocity
Yes
No
Use of leasing
Greater
Lesser
Primary promotional
method
Personal selling
Advertising
Accessory equipment is generally less expensive and

has a shorter lifespan than major equipment
Raw materials are unprocessed extractive or
agricultural products
Component parts are either finished items ready for

assembly or products that need very little or no
processing before becoming part of some other
product
Processed materials are used directly in
manufacturing other products. Unlike raw materials,
they have undergone some processing
Supplies are consumable items that do not become
part of the final product, for example lubricants,
detergents, paper towels, pencils and paper
Business services are expense items that do not
become part of a final product. Businesses often
retain outside service providers to perform janitorial,
advertising, legal, management consulting,
marketing research, maintenance and other services.
19 The usual steps in the business-to-business
purchasing process:
Need recognition
Product definition
Development of product specifications
Search for qualified suppliers
Acquisition and analysis of products
Selection of supplier
Order placement
Product inspection
Product performance evaluation.
20 The main sectors of the travel and tourism industry:
Accommodation sector
Attractions sector
Transport sector
Travel organisers sector
Destination organisation sector.

21 Identify and describe the special characteristics of
travel and tourism services. In addition to the generic
characteristics common to all services, travel and
tourism services have at least three further features that
are particularly relevant to this industry. These three
characteristics are seasonality, the interdependence of
different tourism products and the relatively high fixed
costs of tourism operations.

1
Explain to one of your fellow students how the fact that a

service is intangible influences the marketing of that
service.
Your boss, the marketing manager, is considering
sponsoring a major cycling event. Compile a
memorandum addressed to her in which you highlight
the dangers of an ambush marketing effort by your major
competitor and point out what can be done to overcome
this threat.
The Internet is an excellent medium for attracting
international visitors to South Africas many tourist
attractions. Compile a list of frequently asked questions
that you expect foreigners would like to have answered
on a website for an adventure-holiday tourist operator.
STRATEGY READER >> SASOL sponsorship

At Sasol we pursue sponsorships that enhance our brand, inspire creativity
and innovation, and create unique opportunities to build stakeholder

relationships.
We are proud to support selected sporting and artistic initiatives, as well
environmental and educational organisations and events. We currently devote
most of our sponsorship investment in South Africa to sport and sponsor
several South African national teams, including:
The South African national womens football team Banyana Banyana
www.safa.net
The Sasol League www.safa.net
The South African Paralympics team www.sascoc.co.za
The mens national wheelchair basketball team
The annual Sasol Rally www.sasolmotorsport.co.za.
We also sponsor:
The Sasol New Signatures art competition www.sasolsignatures.co.za
The Black Tie Ensemble and the South African National Youth Orchestra
www.sanyo.org.za/events
The Sasol Solar Challenge www.solarchallenge.org.za
The Techno X festival of science, engineering and technology
www.sasoltechnox.co.za.
In addition to these, we support environmental programmes focused on the
conservation of wild dogs, vultures and ground hornbills, as well as
educational programmes including natural history publications and birdingrelated projects.
Through our corporate membership programme, Sasol supports socioeconomic initiatives including the Nepad Business Foundation, the Business
Trust and the Black Management Forum.
SOURCE: SASOL website http://www.sasol.co.za/about-sasol/company-profile/sponsorships (Accessed
26 August 2014)
QUESTIONS
1
2
3
Do you think it is necessary for a firm like SASOL to become involved in

sponsorships?
Do you think SASOLs sponsorship of sport and other organisations and
events is a good idea?
How does SASOLs brand awareness compare with that of its
competitors?
KEY CONCEPTS
Accessory equipment: examples include portable drills, power tools,
microcomputers and fax machines; generally less expensive and with a shorter
life span than major equipment.
Ambush marketing: the attempt of an organisation to create the impression of
being an official sponsor of the event or activity by affiliating itself with that event
without having paid the sponsorship rights fee or being a party to the
sponsorship contract.
Branded products: products that display only the logo and marks of the
manufacturer.
Business services: expense items that do not become part of a final product and
are sometimes provided by outside providers, who perform advertising, legal,
management consulting, marketing research, maintenance and other services.
Component parts: either finished items ready for assembly or products that
need very little or no processing before becoming part of some other product
examples include spark plugs, tyres and electric motors for cars.
Derived demand: in cases where business-to-business products are used in the
production of consumer products the demand for such products is derived from
the demand for consumer products.
Fluctuating demand: a small increase or decrease in consumer demand may
produce a much larger change in demand for the facilities and equipment
needed to make the consumer product. Economists refer to this phenomenon as
the multiplier effect (or the accelerator principle).
Heterogeneity: a characteristic of services that makes them less standardised
and uniform than physical goods.
Inelastic demand: an increase or decrease in the price of the product will not
significantly affect demand for the product.
Inseparability: a characteristic of services that allows them to be produced and
consumed simultaneously.
Intangibility: a characteristic of services that prevents them from being touched,

seen, heard or felt in the same manner in which goods can be sensed.
Joint demand: occurs when two or more items are used together in a final
product. for example, a decline in the availability of memory chips will slow the
production of microcomputers, which will, in turn, reduce the demand for disk
drives.
Licensed products: clothing and sports goods manufacturers, such as Nike,
Adidas, Fila and Reebok, hold licences to manufacture and sell products bearing
the logos and trademarks of professional and amateur sports entities, e.g. ASICS
and the Springbok logo owned by SARU.
Major equipment: capital goods, such as large or expensive machines,
mainframe computers, blast furnaces, generators, aircraft and buildings; such
items are depreciated over time.
Non-business organisation: a firm that exists to achieve some goal other than
the usual business goals of profit, market share or return on investment.
Non-profit organisation marketing: the effort by non-profit organisations to
bring about mutually satisfying exchanges with target markets.
OEM: original equipment manufacturer.
Perishability: a characteristic of services that prevents them from being stored,
warehoused or inventorised.
Physical evidence: both the physical environment in which a service is delivered
and all the tangible components that facilitate the performance or
communication of the service.
Processed materials: materials that are used directly in the manufacturing of
other products; unlike raw materials, they have undergone some processing (e.g.
sheet metal, chemicals, speciality steel, wood and plastics) and unlike
component parts, processed materials do not retain their identity in final
products.
Product packages in travel and tourism: standardised, quality-controlled,
repeatable offers comprising two or more elements of transport,
accommodation, food, destination attractions, other facilities and services (such
as travel insurance).
Replacement market: organisations and individuals that buy component parts
to replace worn-out parts.
Services marketing mix: an extended version of the marketing mix for goods; in
addition to product, distribution, promotion and pricing, services marketing
includes people, process and physical evidence.
Social marketing: the use of marketing methods to spread socially beneficial
ideas or behaviours.
Sponsorship: the marketing activity whereby a sponsor contractually provides
financial and/or other support to a firm or individual in return for rights to use
the sponsors name (company, product, brand) and logo in connection with the
sponsored event or activity.
Supplies in business-to-business markets: consumable items that do not
become part of the final product, such as lubricants, detergents, paper towels,
pencils and paper.
Unique characteristics of services: the four characteristics that distinguish
services from physical goods: intangibility, inseparability, heterogeneity and
perishability.
REFERENCES
1 CIA. 2014. The world fact book United States. Available,
https://www.cia.gov/library/publications/ the-world-factbook/geos/us.html
2 Bloom, P.N. & Reve, T. 1990. Transmitting signals to consumers for
competitive advantage. Business Horizons, JulyAugust 1990, pp. 5866.
3 American Marketing Association. 1994. Thats entertainment. Service
Marketing Today, MayJune 1994, p. 4.
4 Lovelock, C. & Wirtz, J. 2011. Services marketing (7th edition). Upper Saddle
River: Pearson Education International, pp. 4043.
5 Changing the game. Outlook for the global sports market to 2015.
PricewaterhouseCoopers Global. December 2011. Available,
http://www.pwc.com/en_gx/gx/hospitality-leisure/pdf/changing-the-gameoutlook-for-the-global-sports-market-to-2015.pdf (Accessed 17 August
2014).
6 Super Bowls by average advertisement cost up to Super Bowl XLVIII in 2014
Available http://www. statista.com/statistics/217134/total-advertisementrevenue-of-super-bowls/ (Accessed 17 August 2014).
7 Wilson, Jeremy (1 September 2013). Gareth Bale joins Real Madrid from
Tottenham for a world record fee of 86. London: The Telegraph.
8 Wolk, M. Super Bowl advertisers take to the Web. Available,
http://www.msnbc.msn.com/id/10992887 (Accessed 30 June 2010) and
Mullin, B.J., Hardy, S. & Sutton, W.A. 2000. Sport marketing (2nd edition).
Champaign: Human Kinetics, p. 4.
9 Kesler, L. 1979. Man created ads in sports own image. Advertising Age, 27
August 1979, pp. 510.
10 Mullin, B.J., Hardy, S. & Sutton, W.A. 2000. Sport marketing (2nd edition).
11 Bennett, R., Bove, L., Dunn, S., Drennan, J., Frazer, L., Gabbott, M., Hill, R.,
Lawley, M., Matear, S., Perry, C., Sparks, B., Summers, J., Sweeney, J., Ward,
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
T. & White, L. 2003. Services marketing a managerial approach. Milton:

John Wiley & Sons Australia, pp. 446457.
Enis, B. & Roering, K. 1981. Services marketing: Different products, similar
strategy. In Donnelly J.H & George W.R (eds) Marketing of services. Chicago:
American Marketing Association, p. 1; Loy J. 1968. The nature of sport. Quest,
10 May 1968, pp. 115.
Jones, D., Houlihan, A., Battle, R., Bosshardt, A., Bridge, T., Hanson, C.,
Savage, J. Andy Shaffer, A., Stenson, C. and Thorpe, A. All to play for: Football
Money League. 2014. Sports Business Group at Deloitte, Manchester, January
2014, p. 10.
Mullin, B.J., Hardy, S. & Sutton, W.A. 2000. Sport marketing (2nd edition).
Real Madrid C.F. Official website. 2014.
http://www.realmadrid.com/en/about-real-madrid/the-club/sponsors
Jones, D., Houlihan, A., Battle, R., Bosshardt, A., Bridge, T., Hanson, C.,
Savage, J. Andy Shaffer, A., Stenson, C. and Thorpe, A. All to play for: Football
Money League. 2014. Sports Business Group at Deloitte, Manchester, January
2014, p. 10.
Association of Marketers. 1997. Sponsorship guidelines. Bryanston:
Association of Marketers, pp. 23.
Dean, O. 2012. Ambush marketing and protected events.
http://blogs.sun.ac.za/iplaw/files/2012/08/Ambush-marketing-andprotected-events.pdf (Accessed 18 August 2014).
Meenaghan, T. 1996. Ambush marketing a threat to corporate sponsorship.
Sloan Management Review, fall 1996, pp. 107108.
Andreasen, A.R. & Kotler, P. & 2007. Strategic marketing for nonprofit
organisations (7th Ed). Upper Saddle River: Prentice Hall.
Kinnell, M. & Macdougall, J. 1997. Marketing in the not-for-profit sector.
Oxford: Butterworth Heinemann.
Bingham, F.R. (Jnr) & Raffield, B.T. III. 1995. Business marketing
management. Cincinnati: South Western, p. 12.
OBrian, B. 1991. Airlines ailments give most of their suppliers big headaches
as well. Wall Street Journal, 31 December 1991, p. A1.
World Travel & Tourism Council. 2014. Available, http://www.wttc.org/
Ibid.
World Travel & Tourism Council. 2014.Travel & Tourism Economic Impact
2014. South Africa, p.1.
Middleton, V.T.C., Fyall, A., Morgan, M. & Ranchhod, A. 2009. Marketing in
travel and tourism (4th edition). Oxford: Elsevier, pp. 5152.
28 Middleton, V.T.C., Fyall, A., Morgan, M. & Ranchhod, A. 2009. Marketing in

travel and tourism (4th edition). Oxford: Elsevier, p. 429.
CHAPTER
16
Sustainable marketing
LEARNING OUTCOMES
1
2
3
Understand the concept of sustainable marketing

Distinguish between green marketing and social marketing
Evaluate the key sustainability issues and how they put pressure
on businesses to adopt more sustainable business practices
4 Discuss consumer social responsibility and the stages in the
move towards sustainability
5 Discuss the role of marketing in sustainability
6 Comment on the impact of sustainable marketing on the product
life cycle
7 Appreciate the impact of a sustainable marketing approach on
the marketing mix
8 Consider the limitations of adopting a sustainable marketing
approach
9 Advise marketers on the steps to implement the concept of
sustainability into marketing
above outcomes.

Eco is epic, Dude!
Any young surfer (known in the surfing sub-culture as a
grommet) starts out by surfing foamies (the foam
wave that is formed after a wave has broken) and hopes
to graduate to surfing green water, the unbroken or
breaking ocean swell. However, despite surfing green
water, the surfboards used by surfers in South Africa
(and the rest of the world) are anything but green.
The problem associated with greening the business
of surfing is that consumers have few options to buy
sustainable products, and manufacturers are reluctant
to create such products because of perceived lack of
interest and fears over lower profits.
Two people who are passionate about transforming
the surf industry are Kevin Whilden and Michael
Stewart, the founders of the non-profit organization,
Sustainable Surf. Stewart says making a typical
surfboard involves a fairly toxic stew of petrochemical
materials. But we can change that by working together.
And if we can succeed at transforming the surfboardmaking industry into a sustainable model, it can be a
catalyst for spurring the larger surf apparel businesses
to follow suit.
It may appear that transforming the industry may
be an improbable goal, but Whilden and Stewart have a
proven track record of market transformation in the
energy efficiency and appliance world.
The first step in any market transformation plan is to

identify major barriers, and work out how to get around
them. Engagement and education are keys, says
Stewart. Most surfers dont know sustainable
surfboard materials even exist, while surfboard makers
dont have enough experience with these newer
materials to trust their performance.
Consequently, Stewart and Whilden have launched
a program called Waste-to-Waves which encourages
surfers to gather up expanded polystyrene foam (EPS)
also known as Styrofoam from waste packaging, and
bring it to their local surf shop, where it gets collected
in Waste-to-Waves branded bins. It is then picked up
and recycled into new EPS material, which is bought by
surfboard core manufacturers to make new, recycled
surfboard cores. These blanks which have a CO2
footprint of less than 50 per cent of conventional
surfboards can be used by top shapers to create a
complete, high-performance surfboard.
Alongside education and engagement, acceptance of
the new materials by manufacturers is another major
key to success. A few years ago, there was a push
toward sustainable materials in surfboards, but the
technology wasnt mature and the end product
underperformed. This created skepticism in the
market. The new materials perform much better, so
much so that even pro surfers cannot tell the
difference. Consequently, renowned surfboard shapers
(manufacturers) are starting to use recycled surfboard
blanks.
Sustainable Surf is preparing to launch the

ECOBOARD Project, designed to encourage surfers to
buy surfboards made of environmentally-friendly
materials. Surfers, like anybody else, want to know the
products they buy actually bring a meaningful benefit
to the environment and human health, says Whilden.
The ECOBOARD Project uses incentives to increase
customer demand. Our market research strongly
suggests that demand for ECOBOARDs will grow
rapidly because many surfers feel its the right thing to
buy, and performance is on par with the more toxicmaterials-based counterparts. says Whilden. Although
incentives are important, Whilden says that the surfing
lifestyle is strongly connected to environmentallyresponsible consumption, provided the knowledge and
opportunities are there. Once the program becomes
established, this sense of community will provide a
stronger motivation than money.
SOURCE: Stoiber, M. 2012. Market Transformation: A 3 Step Plan to Clean
Up the Surf Industry, Sustainable Brands, 28 May. Available from
http://www.sustainablebrands.com/news_and_views/articles/markettransformation-3-step-plan-clean-surf-industry (Accessed 13 November
2012)
QUESTIONS
1
2
What environmental trends created the opportunity for Sustainable

Surfing to launch its ECOBOARD project?
Conduct a SWOT analysis of Sustainable Surfing and identify the
companys main sources of competitive advantage.
WEBSITE
Read more about environmentally-friendly surfboards at the
following websites:
http://sustainablesurf.org
http://wastetowaves.org
http://www.sustainablesurf.org/ecoboard
1. Introduction
In Chapter 1 we referred to the integrated nature of
contemporary marketing practices which have as their
foundation the understanding and meeting of consumers
needs. As consumer needs have changed (and extended
beyond the introspective focus reflected in Maslows
hierarchy of needs, discussed in Chapter 3) to include the
need for products which in their form or production do not
harm the environment or society, the concept of sustainable
marketing has become a key strategic issue in business
today. This change in the values of some consumers means
that businesses have to revisit not only the way their
products are communicated, but also the way their goods
and services are produced.1
This chapter attempts to explain what is understood by
the concept of sustainable marketing, why it is important,
and the implications of this phenomenon for the marketing
process.
2. The concept of sustainable marketing LO1

Sustainable marketing is underpinned by the philosophy of

creating sustainable economic development1 which was
defined by the Brundtland report2 as a development which
meets the needs of the present without compromising the
ability of future generations to meet their own needs.
Although the concept of sustainable economic development
may be interpreted in a number of ways, sustainability is
primarily about limiting the throughput of resources, while
making the most efficient use of the resources available in
the environment.3 For example, to ensure sustainable
development in India may mean addressing issues of
poverty alleviation, water and biodiversity; for Brazil, it may
be deforestation and poverty; for sub-Saharan Africa, water
and peace; for many developing countries, access to
opportunity, education, finance and markets; for the
European Union (EU), the United States and China, it may
be energy security and climate change. On a global basis,
the issue of sustainability is global equity.4
EXAMPLE >> According to Nielsens 2011 Global Online Environment

and Sustainability Survey (http://www.nielsen.com/us/en/insights/pressroom/2011/global-warming-cools-off-as-top-concern.html) of more than 25 000
Internet respondents in fifty-one countries, three out of four global consumers
rated air pollution (77 percent) and water pollution (75 percent) as top concerns,
both increasing 6 percentage points compared to 2009. The areas where concern
is mounting fastest is over the use of pesticides, packaging waste, and water
shortages, with reported concern increasing 16, 14, and 13 percentage points,
respectively. Top environmental concerns among Asia Pacific consumers include
water shortages and air pollution. Water pollution was the main concern for Latin
Americans, Middle Easterners, Africans, Europeans, and North Americans.
Environmental sustainability attempts to maintain or

prolong the physical environment in the face of
development. Essentially it emphasises the use of renewable
rather than finite raw materials, as well as the minimisation
and eventual elimination of polluting effluents and toxic or
hazardous waste.5 Sustainable marketing contributes to the
goal of environmental sustainability by considering
environmental issues and reducing environmental damage
by creating, producing and delivering sustainable solutions
while continuing to satisfy the needs of customers and other
stakeholders.6
Thus, sustainable marketing is a broader management
concept which focuses on addressing the triple bottom line
by creating, producing and delivering sustainable solutions
with higher net sustainable value, at a profit, whilst
continuously satisfying customers and other stakeholders.
Irrespective of the size of the business, every firm makes a
contribution to the growth of the economy, but this
development needs to be sustainable. China, for example,
has been criticised for embracing short-term economic
growth without regard for the sustainability of this
development. In particular Chinas economic development
has used coal to generate energy which is not only a nonrenewable resource but is also harmful to the environment.7
WEBSITE
A global group of companies led by BT
Group, Carlsberg, Coca-Cola, Marks &
Spencer and Unilever believes
mainstream media coverage of
sustainable consumer lifestyles is too
subdued. So they teamed up in October
2014 with non-profit Forum for the Future
to create their own dialogue in the form of

a new site, called Collectively, which
predominantly targets millennials. Its
mission: expose the most sustainable
options and innovations from the world of
fashion, food, design, architecture and
technology, among other things.
Visit the Collectively website
(https://collectively.org/en/) to read
about how to become actively involved in
supporting sustainable initiatives.
Sustainable marketing comprises several dimensions that

are controllable to a lesser or greater extent by the individual
firm. The marketers understanding of sustainable
marketing has evolved in recent times to its current
conceptualisation as the embracing of the philosophy and
practice by the individual firm of green marketing and
encouraging socially responsible consumption practices by
its customers. These two elements are considered in the
sections below.
WEBSITE
Visit the following websites to read more
about organic suppliers:
www.doleorganic.com
www.organicbabychick.com
2.1 Green marketing
LO2
Green marketing is not restricted to the development and

marketing of products that are not harmful to the
environment, but also extends to ensuring that the
distribution and other business processes associated with
delivering the product to the consumer are environmentally
friendly.
EXAMPLE >> One of the biggest concerns about the distribution of

products is the carbon footprint associated with their transport from their
production facility to the markets. Dole Organic, for instance, is a supplier of
organic bananas and pineapples and is committed to establishing a carbon
neutral product supply chain. To demonstrate their commitment, Dole Organic
has an application on their website that allows the consumer to enter a number
(reflected on a sticker pasted on the fruit) which will disclose the place where the
fruit was grown.
Another example is Organic Baby Chick (www.organicbabychick.com/) an
online boutique where parents can shop for all-natural, chemical-free, earthfriendly, baby-safe products, ranging from diapers to furniture.
The contemporary conceptualisation of green marketing is
restricted to those business processes which the company
can directly control or influence. However, green marketing
alone is not sufficient to implement sustainable marketing.
Unless green principles are embraced by consumers in
their consumption habits, green goods and services will not
be able to be successfully produced and marketed. However,
when green marketing is combined with social marketing,
this can be an effective strategy to set sustainable marketing
solutions in motion. Social marketing attempts to change
the behaviour of the firms target market to realise certain
goals to benefit the social or public good.
2.2 Social marketing
LO2
Social marketing, like traditional marketing, focuses on

changing consumers attitudes (and consequently their

behaviour). However, rather than focusing on increasing
market share or turnover, social marketing focuses on
changing the behaviour of consumers for the benefit of
society as a whole.8 For example, excessive electricity
consumption is clearly bad for the environment the more
electricity produced, the more coal used which (some
activists say) contributes to global warming. Consequently
Eskom encourages consumers to embrace environmentallyfriendly practices such as using solar-powered geysers and
compact fluorescent lamps. Thus, Eskoms strategy moves
South African domestic electricity consumers away from an
intensive form of consumption to a much lower utilisation of
electricity.
This social marketing approach is based on the societal
marketing concept (see Chapter 1) which considers the
needs and wants of individual consumers along with
perceived accountability to society.9 For example, if a
company encourages the consumption of organic products
(which are grown without the use of pesticides), the whole
ecosystem will benefit from the change in consumption
patterns as the physical environment will be less polluted.
Against this background social marketing has been defined
as the use of marketing principles and techniques to
influence a target audience to voluntarily accept, reject,
modify, or abandon a behaviour for the benefit of
individuals, groups or society as a whole.10
Although many of the established practices associated
with traditional marketing are applicable to social
marketing, a number of unique principles need to be
applied to successfully implement a social marketing

campaign.11
Set behavioural goals. Unlike traditional marketing the

measure of success of a Social Marketing Intervention is
vaguer. Therefore there needs to be clear focus on
behaviour with specific behavioural goals.
Base the intervention on prior consumer research.
Make sure that intervention is consumer-orientated and
based on consumer research which ideally is
triangulated from several different sources (discussed in
Chapter 5).
Use theory to guide the strategy. Interventions should
preferably be based on behavioural theory (which is
discussed in Chapter 3)
The strategy needs to be insight-driven. The focus
should be on gaining a deeper understanding of what
moves and what motivates the consumer. Identification
of key factors and issues relevant to influencing
behaviour allows actionable insights to be developed.
This could be based on either primary or secondary
research data as is set out more fully in Chapter 5.
Apply the principles of segmentation and targeting (as
set out in Chapter 6). This will allow interventions to be
tailored to specific segments. Targeting is considered in
more detail below.
Use the whole of the marketing mix and do not restrict
the social marketing campaign to promotion. Consider
other innovative ways of influencing consumer
behaviour, such as changing policies or training
consumers in new ways of behaving with respect to their
consumption behaviour.
Create attractive motivational exchanges with the
target group. Establish what will motivate people to
engage voluntarily with the intervention and offer them
something beneficial in return. The offered benefit may
be tangible (rewards or incentives for participation or
making behavioural changes) or intangible (for example,
personal satisfaction, improved health and wellbeing).
Address the opposition to the desired behaviour.
Resistance to the desired behaviour should be analysed
and the intervention should take into account the appeal
of competing behaviours. For example, consumers of
beverages may prefer to purchase their cooldrinks in
non-recyclable disposable cans when going away for a
weekend on the Wild Coast because they are easier to
transport. However, social marketing communications,
attempting to change holiday-goers consumption habits
to use environmentally-friendly returnable bottles,
might emphasise the positive impact that action will
have on their holiday destination by way of less
dumpsites and litter.
3. The origins of sustainable marketing

Sustainable marketing has its origins in the concept of
sustainability which implies that any economic activity
needs to balance immediate human needs with the longer
term imperative of preserving the environment. Marketers
have to balance the often competing interests of
shareholders, customers, society and the environment.12

While this concept is fairly straightforward in theory, in
practice it is a complex process to manage the
contradictions inherent in sustaining development in the
contemporary business environment. As a result, the
development of the concept of sustainable marketing has
been evolutionary in nature.
The first signs of what we now refer to as sustainable
marketing emerged in the 1970s but it was not until the
1980s and 1990s that sustainable marketing gained
mainstream appeal. In the 1970s the focus was on ecological
marketing that focused on particular environmental
problems, such as air pollution, the depletion of oil reserves
and the impact of pesticides on the environment. The focus
was on the acknowledgment of an impending ecological
crisis and the willingness and ability of marketers to accept
responsibility for avoiding this catastrophe. In essence this
approach to marketing had its roots in the societal
marketing approach,13 as is discussed in Chapter 1.
In the 1980s the emphasis moved to environmental
marketing that focused on advocating clean technology, and
understanding and targeting the green consumer
(discussed below). This approach views responsible socioenvironmental practices as a potential basis of sustainable
competitive advantage and encourages marketers to take a
physical systems view of business. As a result of changing
consumption patterns (and a legislative push) towards
improved, environmentally friendly corporate practices and
products, the concept of green marketing emerged.14 In
essence this is a conventional micromarketing approach.15
This marketing strategy became feasible as changing

societal values dictated that consumers were prepared to
pay additional costs for products with environmentally
friendly characteristics.16 In addition, environmentally
responsible business practices often contributed directly to
the profitability of the firm by encouraging practices that
used fewer raw materials, generated less waste, and were
less likely to incur financial sanctions as a result of polluting
the environment.17
EXAMPLE >> In the late nineties Woolworths wrote their first internal
green newsletter, followed by a workshop at head office entitled: Towards
Sustainable Retailing. These actions drew in enthusiastic staff who got together
to form a voluntary group. Members of this group became the internal
champions to generate wider staff interest and involvement. They brought in The
Natural Step who provided sustainability awareness training to middle and senior
management, and work-shopped practical applications of sustainability for
products. Next, Woolworths drafted a corporate environmental policy, and
produced a staff training and induction video, as well as an internal ecoinformation intranet site. The voluntary group later became a formal
Sustainability Forum - with a company director as chairman. As a result of these
actions, Woolworths published its first Sustainability section in their annual report
in 2004. They then went on to be named the Responsible Retailer of the Year in
the 2008 World Retail Awards.18 Another example is found in the consumer
electronics sector which used green marketing to attract new customers. One
example of this was Hewlett-Packards promise to cut its global energy use by 20
percent by the year 2010. To accomplish this reduction below 2005 levels, the
Hewlett-Packard Company announced plans to deliver energy-efficient products
and services and institute energy-efficient operating practices in its facilities
worldwide.
Consequently, many contemporary business plans take into account their
customers concerns of the environment when formulating their marketing plans.

Take the visible example of the McDonalds fast food chain. McDonalds was
critised for using Styrofoam packaging that was not biodegradable and difficult to
dispose of in an environmentally-friendly manner. Responding to this concern,
McDonalds has replaced the plastic packaging with paper packaging so that
they were seen by their customers as being concerned about the environment.
Similarly, the South African government promulgated regulations, in May 2003,
which restricted the proliferation of plastic bags, by forcing retailers to sell plastic
bags to consumers because of the litter and waste associated with their use.
Following this legislation a consumer packaging trend that developed is the use
of reusable shopping bags at grocery stores. Consumers and retailers are
recognising this, encouraging new behaviour, and now it is almost fashionable to
bring your reusable shopping bags to your local store.
Similarly, the New Zealand government decided that since the country was
already known for its clean and green environment, anything connected with the
New Zealand brand would benefit from the association. As a consequence fruit,
vegetables, lamb, agricultural equipment and other products were automatically
tagged with the Made in New Zealand label, which signalled environmental
responsibility.
WEBSITE
To view Unilevers Sustainable Living Plan,
visit
http://www.unilever.com/images/slp_UnileverSustainable-Living-Plan-2013_tcm13388693.pdf and go to page seven.
Although many firms seem to follow the New Zealand

branding approach of green selling, commonly referred to
as post-hoc identification of environmental features in
existing products, this hop on the green bandwagon is
usually short-term. This approach is consistent with a
typical sales orientation, since interest in the environment
tended to be limited to promotional activity, with little or no

input into product development. The same products
continued to be produced, but green themes were added to
promotional campaigns in order to take advantage of any
environmental concerns of consumers.19 Some firms take
the concept of green selling, even further and use
greenwashing, defined in the Oxford English Dictionary20
as disinformation disseminated by an organisation so as to
present an environmentally responsible public image. In
other words, firms mislead consumers to believe that certain
products are green, eco-friendly or organic when in fact they
are not.
Another failed approach to green marketing has been
enviropreneur marketing, whereby a committed individual
or firm places innovative green products into the market.
This has resulted in an emergence of new green brands in a
wide range of markets such as cleaning products, paper
goods, cosmetics and food. All efforts are focused on
producing the most environmentally-orientated products,
rather than the products that consumers actually wanted.
Thus, many firms ended up with products that were
perceived as under-performing, or over-priced, or just
unworthy and unsexy. For example, consumers would not
understand that green washing-up liquids would not
produce a big fluffy bowl of soap bubbles because they
lacked polluting, cosmetic ingredients. Although the
enviropreneur marketers may have meant well and had the
right environmental goals, they were always destined to
have problems establishing a sustainable market presence
because of their lack of market orientation (see Chapter 1).
They failed to successfully research, understand or educate
their customers.21
Nevertheless, since marketing operates at the interface
between the firm and its environment it is uniquely
positioned to lead the move towards more sustainable
products and strategies. Although changing environmental
considerations and standards can be a threat to firms, they
can also provide opportunities.
EXAMPLE >> Toyota has responded to environmental trends by

successfully launching the Toyota Prius hybrid car, which supplements normal fuel
with an electric-powered engine. The electric engine starts the car and operates
at low speeds using a battery. At higher speeds the Prius automatically switches
to normal engine and fuel. This switch-over saves fuel and results in less
pollution. The success of the Prius has led many of its rivals, including Honda,
launching similar hybrid cars and has led to the development of electric-powered
cars using lithium-ion batteries. Similarly, a South African consortium has
developed a prototype of an electric car known as the Joule. Its manufacturing
has, however, been temporarily halted due to lack of government funding and the
consortium is now focusing on producing electric busses.
The problems associated with bringing the Joule car to
market, despite its obvious benefit and its contribution to
the sustainable development suggest that implementing
sustainable solutions to meet the needs of the consumer are
complex and influenced by many different factors. In
particular, consumers attitudes towards the additional cost
(transactional or monetary) associated with the use of many
sustainable products varies markedly and for this reason it is
important to understand the different green market
segments.
3.1 Green consumer segments

The idea that concern about the environment could
influence consumer behaviour developed into the concept
of the Green Consumer during the early 1990s.22 This
change in the values of some consumers (i.e. the Green
Consumer) meant the emergence of an opportunity for
firms who were prepared to develop new products and
services tailored to this emerging market segments needs.
On the other hand, for firms with a poor environmental
record, a threat was posed by the increase in information
(with the emergence of the Internet during the early 1990s)
available to green consumers, along with the increasing
sophistication of pressure groups and the growing media
coverage devoted to the environment.
While buying green products may not appeal to everyone,
there are many consumers who are potentially receptive to a
green appeal. However, as with any individual consumer,
there are substantial differences in their attitudes and ways
of thinking in respect of the green movement as well as
green products. Understanding the target consumer will
help marketers to appreciate whether greenness is an
appropriate attribute and how it should be incorporated into
the broader marketing mix. As discussed above, it may well
be that consumers do not embrace environmentally-sound
consumption patterns, and any green marketing strategy
may have to be integrated to a social marketing element to
encourage changes in behaviour. The green market
comprises a number of different market segments: 23
True Blue Greens (9 per cent): True Blues have strong
environmental values and take it upon themselves to try

to effect positive change. They are over four times more
likely than other market segments to avoid products
made by firms that are not environmentally conscious.
Greenback Greens (6 per cent): Greenbacks differ from
True Blues in that they do not take the time to be
politically active. But they are more willing than the
average consumer to purchase environmentally friendly
products.
Sprouts (31 per cent): Sprouts believe in environmental
causes in theory but not in practice. Sprouts will rarely
buy a green product if it means spending more, but they
are capable of going either way and can be persuaded to
buy green if appealed to appropriately.
Grousers (19 per cent): Grousers tend to be uneducated
about environmental issues and cynical about their
ability to effect change. They believe that green products
cost too much and do not perform as well as the
competition.
Basic Browns (33 per cent): Basic Browns are caught up
with day-to-day concerns and do not care about
environmental and social issues.
These figures indicate that somewhere between 15 and 46

per cent of the overall consumer market could be receptive
to a green appeal, depending on the product category and
other factors such as social, cultural and economic trends
(which could cause the size of this target market to grow).
One trend worth noting is the ageing of the baby boomers
(see Chapter 2) their concern about living longer, healthier
lives is leading them to place a high priority on
environmental quality.
During the second half of the 1990s, it became clear that
the logic of generating sustainable competitive advantage
from good environmental performance was often difficult in
practice. Products marketed on an environmental platform
often proved vulnerable to competitor tactics such as
discounting, or attacks on the level of technical performance
offered, or on the credibility of their environmental claims.
Capitalising on good eco performance in search of
competitive advantage was also made difficult by the
attitude of the media.24 The Body Shop, for instance, who
sought to take a lead in the greening of their industry,
found that the media was more inclined to attack them on
the basis of any absolute shortcomings, than to highlight the
relatively poor eco-performance of their more conventional
rivals. Although their products are more expensive than
most competitors and other green brands, and despite
periodic media attacks, their credibility and customer
loyalty have remained strong. This suggests that the
sustainable marketing is a complex exercise with myriad
issues that need to be considered when targeting the green
consumer. Some of the most important issues influencing
the development and marketing of sustainable products are
considered below.
3.2 Key sustainability issues
LO3
From the discussion above, it is clear that sustainable

marketing is marketing that serves firms triple bottom line.
Its marketing that aims to empower communities by
enriching their social capital (People), protecting and

restoring the environment (Planet) and generating
prosperity for the organisation and its stakeholders
(Prosperity). Sustainable marketing therefore returns to the
roots of marketing by discovering and understanding
peoples needs and then developing a marketing mix that
satisfies these needs, while generating prosperity and
restoring the environment.25 In order to be successful in
sustainable marketing, a number of key issues need to be
considered.26
Population pressure. The worlds population has

doubled from around 3 billion to over 6 billion in the last
50 years. The United Nations (UN) forecasts the addition
of a further 3,3 billion people between the years of 2000
2050 as the most likely future scenario. Only a rapid
decrease in the birth rate in the next decade can halt the
expected severe degradation of our natural habitats,
many of which are already under pressure. This pressure
will be felt most acutely in developing regions where
over 90 per cent of the forecasted population growth will
occur and where environmental controls are still being
developed. This ever-increasing population is placing
pressure on the available natural resources either
directly or indirectly via its production processes.27
Product and consumption. Population growth leads to
increased levels of production and consumption. This
growth is intensified by the fact that a growing
proportion of the world has expectations for improved
material living standards and an increasing number have
more discretionary spending power. The growth in
consumption of energy, water and wood in particular is

creating concern about future social and environmental
impacts.
Globalisation. The globalisation of trade has often been
proposed as a means of closing the gap between rich and
poor nations and better meeting the worlds
consumption needs. Practical experience is casting
increasing doubt on this assertion. Many individuals are
becoming increasingly aware of the North-South divide,
the need for more sustainable development, the ethics of
third world marketing and use of child-labour in outsourced factories. As public awareness increases, people
are starting to focus on the activities of transnational
corporations. The globalisation movement is also
targeting major brands such as Nestl, Nike and Gap that
are perceived not to be acting socially responsible. The
growth of Internet usage and access to global news
networks is moving everyone ever closer towards the
concept of the global village.
Global warming and climate change. A quadrupling of
carbon dioxide (CO2) emissions over the last 50 years has
raised concerns about the potential for global warming
and climate change. Although the effects of climate
changes are difficult to predict accurately, climate-based
impacts on industries such as insurance and agriculture
are already growing. To avoid irreversible consequences
it has been internationally agreed that two forms of
preventive action are required, namely the reduction of
CO2 emissions and a ban on the use of
chlorofluorocarbons (CFCs).
Ozone depletion. CFCs and greenhouse gases deplete

the ozone layer letting through increased levels of
harmful ultraviolet radiation (UV rays), with potentially
devastating health effects. The global response began
with the 1987 Montreal Protocol but increased
participation from all countries is required to return the
protective ozone layer to its previous levels.
Acid rain. Air pollution as a result of sulphur dioxide
(SO2) and nitrogen oxide (NO3) emissions leads to
acidification and environmental damage, particularly to
forests and lakes. Acid rain is also damaging to buildings,
cars and even to human health. The US Government
values the potential indirect health benefits of
significantly reducing acid rain at over $50 billion
annually.
Genetic engineering. The use of genetically modified
organisms (GMOs) as a means of increasing crop yields
has been suggested as an important contribution to
reducing world hunger. Critics point to the potentially
disastrous effects that any mistakes would have, if there
were unintended flows of genes and characteristics
between species or unforeseen impacts on the balance of
natural systems.
Loss of habitats and species diversity. Biological
diversity is the wealth of life plants, animals, microorganisms and the genes they contain. All this is
maintained by a range of different habitats. Retaining
this diversity is essential for many reasons. It allows us to
adapt crops and livestock to changing conditions and to
retain the yet unknown medical applications for many
plant-based compounds.
Changing values and attitudes. Many of the accepted
human norms and values have changed in the last few
decades. In particular, many consumers do not accept
that large multinational corporations are acting in good
faith or that their assertions are necessarily based on
fact. In addition many consumers have realised that the
environment is a finite resource and is susceptible to
misuse; the environment is precious and its protection
cannot be taken for granted. As a result environmentally
concerned consumers would prefer to support a
takeaway that uses biodegradable cutlery (made of such
materials as bamboo or mielie/potato starch) rather than
the plastic cutlery that is common in most South African
fast-food outlets.
Pressure group activity. In the last 20 years, the budgets
and communications strategies of pressure groups
concerned with the socio-environmental impact of
businesses have increased dramatically. The
communications strategies of many of the green interest
groups have evolved to be as sophisticated as that of
many of the large multi-national corporations.
Media interest. Environmental issues are a focus of
many of the large news corporations and poor
environmental performance is deemed to be especially
newsworthy. For example, CNN (which currently has a
reach of 200 million households and hotel rooms in over
200 countries), could potentially ruin a companys
reputation in one day should that companys perceived
environmental misdemeanour be deemed newsworthy.
Political and legal interest. The quantity and
complexity of social and environmental legislation faced

by firms continues to grow. In South Africa, our
constitution (in particular Section 24a) provides that
everyone has the right to an environment that is not
harmful to their health or well-being and to have the
environment protected while promoting justifiable
economic and social development. This requirement has
influenced much of our current legislation, but even if
specific topics or concerns have not been specifically
considered in legislation, Section 38c of the Constitution
provides for certain persons listed in that section (which
includes anyone acting in the public interest) to
approach a court if their rights in terms of Section 24 of
the Constitution has been infringed or threatened.28
READER 66 >> Vodafone unveils Africas greenest

building
On 24 January 2012, Vodacom unveiled the completed Vodafone Site
Solutions Innovation Centre, the first ever in South Africa, at its head office in
Midrand. The Green Building Council of South Africa rating validates the centre
as the greenest building in Africa. The concept started with an idea to create a
centre to speed up the development of Vodafones sustainability goals to meet
the groups target of reducing global CO2 emissions by 50 per cent by 2020,
and to achieve a 20 per cent carbon intensity reduction target for emerging
markets by March 2015. What makes this building so environmentally ahead
of the curve are the following elements:
Recycling: Wherever possible, demolition material from the site had
been reused or recycled.
Structure of building: The project reduced the amount of concrete
used in the foundations and sub-structure by 34 per cent.

Energy efficiency: Usage of Solyndra photovoltaic panels reduced the
wind load, absolute weight and ultimately the total amount of wood and
structural material required for the roof.
Water efficiency: Efficient water fixtures and fittings had been installed
resulting in significant savings in water consumption.
Indoor environmental quality: The mechanical air conditioning,
heating and ventilation system was designed to deliver 2
500 litres/second of fresh air to the office during normal operations, and
1 250 litres/second of fresh air in heating mode.
Emissions: The chiller uses Lithium Bromide as the refrigerant which
has both a zero Ozone Depleting Potential (ODP) and a zero Greenhouse
Warming Potential. All thermal insulants have an Ozone Depleting
Potential (ODP) of zero.
Vodafone and its local partner, Vodacom, have already started making
some significant progress in their commitment to developing sustainable
technology while remaining at the forefront of the mobile industry. In
November 2011, they developed an environmentally focused hybrid cell
tower that uses a combination of solar, wind and fuel cell technology.
This cell tower was used to connect delegates at the Conference of the
Parties (COP17) in Durban late last year. Vodafone (and Vodacom) also
launched a community power programme that showed how mobile
operators can bridge the energy divide in communities without power, by
oversupplying base stations in an area with renewable energy which could
be diverted to critical points within the (usually disadvantaged)
community. The community power initiative could become a game
changer for rural areas that have no access to power. If power is, for
example, being supplied to the community high school, it also has the
potential to increase the quality of education in the area. Both projects
are a good example of how a sustainable approach can reduce both
environmental impact and operational costs while increasing the tangible
and intangible value of a firm.

SOURCE: Press release, 24 January 2012. Vodafone unveils Africas greenest building. Available from
http://www.vodacom.com/news_article.php?articleID=1162&pid=press_group (Accessed on 5 March
2012)
4. Consumer social responsibility and the

LO4
move towards sustainability
As the different marketing management philosophies can
influence a firms marketing activities (see Chapter 1) so is
sustainable marketing a firm-wide practice that is usually
embedded in an underlying philosophy or set of values such
as corporate social responsibility. Corporate social
responsibility (CSR) is the actions of the firm to act in a
socially responsible manner to protect and enhance the
various stakeholders that have an interest in the firm, the
community in which it operates, the environment that
surrounds it, and society.29 Although CSR is perceived as
comprising altruistic (or charitable) actions by the firm
without any expectation of an immediate financial return,
sustainability practices are often at the core of the firms
business model. Nevertheless, the approach to succeeding
in both these strategies is similar and businesses should
start to progressively move towards a policy of excellence in
environmental performance and CSR. This process will take
time and as such needs to be planned for, with appropriate
targets and resources. Firms may move through several
stages, as indicated in Figure 16.1. The process set out in
Figure 16.1 implies that the first step in achieving excellence

in sustainable practices would be to formulate a policy
which will give direction to the efforts of the firm in moving
towards sustainability. Thereafter, the process is gradual
with a firm first starting off with a single sustainable product,
thereafter moving to a position where all its products are
sustainable. Ultimately the firm would aim for its production
processes to be sustainable, including sourcing inputs to the
production process from sustainable sources. One obvious
step that firms could take would be to source goods required
for the production process from local suppliers which would
in turn reduce carbon emissions. Although the argument
against implementing sustainable practices in production
processes (which include the supply chain) would be that
this practice would add additional costs, it can often reduce
costs. For example, General Motors managed to reduce their
costs by over $12 million annually entering into a reusable
container program with their suppliers.
Figure 16.1 The stages in the move towards sustainable excellence30
The process that sets out the stages in the move towards
sustainable excellence implies that the firm needs to move
beyond considering the impact of particular products and
services towards consideration of the impact of the firm as a
whole. Consequently the firm will need to think differently
about traditional organisational boundaries. The inter"****** DEMO - www.ebook-converter.com*******"
relationship of environmental and CSR considerations will

affect each business function in the firm, and it will be
essential that a holistic view is taken. For example, firms
could use alternative energy sources such as solar or wind
power to heat and light buildings. This will also involve
broadening perspectives to take account of the wider role of
stakeholders in the development of more sustainable
solutions. For example, since 2012, Nike has assessed its
suppliers not only on the traditional supply-chain measures
of quality, cost and delivery but also their sustainability
practices.31 Another example of sustainable marketing is
BPs regular publishing of its Sustainability Report, which
details the companys efforts to build goodwill and
corporate social responsibility amongst its stakeholders by
means of sustainable practices.
The change in values of the broader society are an
important contextual consideration for businesses and
although firms must still focus on wants and needs of
consumers (consistent with the market orientation referred
to in Chapter 1), this is no longer sufficient. Firms must not
only produce excellent goods and services and healthy
profit, but also be concerned with their relationship with
society at large as well as with the environment. Not only do
consumers expect that business firms will operate legally
and fairly, they also want them to act ethically, help
charitable causes, clean up the environment and improve
conditions for citizens locally, regionally, nationally and in
some cases even internationally. In other words, firms must
now be socially responsible. In South Africa, companies
listed on the Johannesburg Stock Exchange (JSE) are able to
prove their social responsibility by being accredited by
the Socially Responsible Investment (SRI) index (see Reader

67 Investing in social responsibility).
READER 67 >> Investing in social responsibility

South Africas first Socially Responsible Investment (SRI) index was launched
on the Johannesburg Stock Exchange (JSE) in July, putting South Africa in line
with global trends in corporate governance. Companies apply to be listed on
the index, and have to meet the conditions of 94 criteria gauging, among
other things, a businesss commitment to black economic empowerment,
tackling HIV/Aids in the workplace, labour policies and environmental
practices. These criteria are consistent with the King reports code of good
corporate governance - or the triple bottom line principles of environmental,
social and financial sustainability.
Additionally, if it can be shown that socially responsible business practices
do mean more profit in the long run, it will be a way of incen-tivising
businesses generally towards better corporate governance. According to some,
the index will put big companies in the spotlight and hold companies
accountable, and even place peer pressure on those not listed to toe the line
of sustainable business.
Most agree that the index is a step in the right direction. Marketing
companies are looking to brand corporates differently, and are investigating
the potential of socially responsible marketing, or combining a social message
with brand identity. Its a combination that has been shown capable of
strengthening a brand immeasurably.
SOURCE: Finlay, A. 2004. Investing in social responsibility. Available from
http://www.southafrica.info/business/economy/development/socialindex.htm
(Accessed 21 May 2012)
5. The role of marketing in sustainability LO5

As with the marketing of any product (or idea), the precise
role of marketing in responding to sustainability issues will
vary among firms depending on their industry, size,
corporate culture and whether the style of marketing they
practice is classically customer-led, technology (product)
led or communications focused. For firms in markets
characterised by green pressure from customers, marketers
may lead the move towards more sustainable products,
services and strategies. In essence, the marketing of
sustainable products should resonate with the values of the
target market. For example it is relatively easy to market
energy efficient (fluorescent) bulbs because their higher
price (compared to conventional bulbs) is offset by lower
electricity costs. Compare this to the marketing of a Toyota
Prius, where the running costs of this environmentally
friendly vehicle will never be able to offset the initial
purchase costs. In the case of the fluorescent bulbs, the
marketing would probably focus on the issue of price
whereas for the Toyota Prius, a feasible marketing strategy
would be to emphasise the long term benefits of the product
for the environment and society at large.32
In firms where the decision to pursue sustainability is
based more on the firms core values, or broader issues of
social responsibility, marketers may well be handed a
mandate to pursue sustainability through the revision and
re-alignment of the firms business strategy. This may
involve the marketing of the firm in addition to more
conventional product-business related marketing. To
respond effectively, marketing as a business function needs

to address a range of questions from the broad and strategic,
to the specific and technical. Some of the broad, corporate
level questions that will need to be tackled include:33
Has the marketing plan analysed the effect of

sustainability issues on firm activities? In South Africa, a
recent study by TNS Research Surveys indicates that the
number of consumers in South Africa unconcerned with
sustainability issues has dropped from 41 per cent to
22 per cent, indicating a rise in consciousness. The issue
for marketers is to appreciate how this change in attitude
will translate into buying behaviour. For example, will
consumers be prepared to pay a premium for
sustainable products?34
Has the firm conducted market research into the
probable impacts on the firm of sustainability issues?
SABMiller, for example, recently conducted a study in
conjunction with the World Wildlife Fund (WWF) to
understand the water footprint of its beer production.
The study revealed that it takes the equivalent of 155
litres of water for every litre of beer brewed. About
98,3 per cent of the water footprint is generated by the
cultivation of both domestic and imported crops. As a
result, SABMiller commissioned water engineers to
assist suppliers in finding ways to reduce their water
usage in order to reduce SABMillers water footprint.
Can the firm modify existing products, services or
processes to take account of sustainability
considerations? Or will new innovations be required?
Take for example Coca-Colas answer to the notoriously
unreliable distribution systems of developing countries.

Instead of using traditional routes to market, Coca-Cola
built a network of smaller, local distribution centres, run
by entrepreneurs, who often use environmentallyfriendly bicycles, and in so doing reduce the carbon
footprint of distributing the product to the many small
shops and retail outlets in an area. The solution both
helped to deliver on Coca-Colas promise of always
being available and to provide a network of employment
to the community.35
Is the firm developing positive links with environmental
and human rights groups? In conducting research
together with the WWF, SABMiller clearly showed its
concern for the environment and built up a good
working relationship with the WWF. Similarly, Hewlett
Packard has set specific packaging reduction goals and
product content targets, and its working with the
Carbon Disclosure Project to measure supply chain
carbon footprints.
Do communications strategies accurately emphasise
environmental and social considerations?
Developing more sustainable marketing strategies can place

unique demands on marketers. It involves familiar activities
such as the researching of customer needs, preferences and
expectations and the analysis of the firms ability to meet
those expectations compared to its rivals. It can also require
new types of information on stakeholder attitudes to
sustainability issues relevant to the sourcing, production,
use or disposal of the product.
EXAMPLE >> HiFi Corporations commitment to managing its

environmental impact was formalised with the completion of its sustainable
charter during 2011. Its programmes include an in-store initiative to promote
electronic waste (e-waste) recycling in eight stores, rolled out to all HiFi
Corporation stores during 2012. To reduce the use of plastic bags, HiFi
Corporation is charging customers for bags and is in the process of introducing
environmentally responsible hemp bags manufactured by local communities.
Another example within the JD Group is Incredible Connection which recycled
122 tons of e-waste in 2011, in partnership with an external electronic recycling
specialist. Customers and other members of the public use the e-waste bins
located in each of the Incredible Connection stores throughout the country to
dispose of their used computer and electronic components. The waste is
collected and transported to a processing plant in Gauteng where mainstream
waste is manually dismantled, sorted and recycled. Independent parallel
electricity consumption metering systems have been installed across the cash
retail division. These have highlighted instances of abnormally high consumption
and savings of up to 15 per cent of costs are being achieved.36
Selling a simple cup of coffee, for example, already requires
much more knowledge than how to brew and serve it.
Where was the coffee grown, under what labour conditions
and with what pesticides? Is the cup made from recycled
paper, and how many trees were cut down and how much
water was used to manufacture it? Does the plastic lid leak
toxins and does it secure and seal the cup well enough to
prevent burns from spills? Key strategic choices in
sustainable marketing involves identifying markets that are
likely to grow as a result of sustainability concerns, and
products or services which can be positioned as market
leaders in social or environmental markets. Success in many
markets will require a change in focus away from products
towards services or total product/service packages, for

example, moving to offering sustainable mobility solutions
rather that providing cars (i.e. shifting mindsets to satisfying
customer needs through functional solutions rather than
through products per se).
WEBSITE
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conscious, connected generation
searching for a sense of meaningful
action.
The objective: to transform the idea of
being sustainable from a destination into
a lens for evaluating ones current
lifestyle, and through which opportunities
to make simple yet meaningful behaviour
changes become apparent not to
mention fun and collaborative. Along the
way, it aims to create new opportunities
for companies to evolve more personal,
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6. The impact of sustainable marketing on

LO6
Traditionally, products are said to go through a series of life

cycle stages from development, launch, to growth, maturity
and decline (see Chapter 9). This is an economic view of a
products evolution based on sales volume. It is also
important to think of the environmental and social impacts
of the product over time. Life Cycle Thinking (LCT) should
be used to evaluate the sustainability impacts of the product,
service or system from cradle to grave (i.e. from extraction,
to manufacturing, to transport, through use and disposal). It
is important not to confuse LCT with Life Cycle Assessment
(LCA), which is an appropriate instrument to analyse the
environmental impact of products. The relevance and
importance of social and ecological issues vary from one
product category to the other. Take for example, beverages:
fair trade with third world countries is a key issue in the
coffee market; obesity is becoming increasingly important
for sugared soft drinks and in the case of milk products the
main issues are organic farming, genetically modified
organisms (GMOs) and packaging.37 Similarly, Germanys
AEG, a producer of white goods, recovered from near
bankruptcy in the early 1980s by manufacturing a washing
machine that used less detergent, energy and water than its
rivals. Therefore Life Cycle Assessment (LCA) is one
example of an environmental evaluation tool that may be
used in the product development process. Nike for example
has developed a five stage ecological lifecycle for their sports
footwear: 38
1
Research and design: Where they aim to design in postconsumer materials and design their products to avoid
the use of hazardous materials.
Manufacturing: Working with business partners to

implement improvements such as their Regrind
technology to utilise excess mold rubber
Retail: Where box styles have been reduced from 18 to 2
and 100 percent post-consumer recycled corrugated
cardboard boxes have been developed.
Consumers: The Reuse-A-Shoe scheme has already kept
more than 7,5 million post-consumer and defective
shoes out of landfills.
Downcycling: Where reclaimed shoe material is
recycled into sports surfaces like tennis courts.
What then is special about sustainable marketing? To which

extent does it differ from other marketing approaches?
There are at least six distinctive characteristics of
sustainable marketing when compared with conventional
marketing.39
Socio-ecological problems. The analysis and

identification of ecological and social problems are
points of departure in sustainable marketing. Social and
ecological aspects are integrated throughout the whole
process of sustainable marketing. This requires our
understanding that environmental consequences (the
products aggregate impact on everyone affected by its
use) are more important determinants of its acceptability
than either user satisfaction or corporate profitability.40
The true socio-ecological product is thus one that
becomes a consumers first choice, since it meets their
consumption needs along with their need for a healthy,
sustainable physical environment.
Intersection. Sustainable marketing tries to find

solutions to the socio-ecological problems and at the
same time satisfy customers needs.
Normative aspects. Sustainable marketing pursues
sustainable and profitable relationships with customers,
the natural environment and the social environment.
Besides common marketing goals such as sales, market
share and profits, ecological and social objectives are
taken into consideration and balanced in a responsible
way.
Information asymmetries. Social and ecological
qualities of products are often very important qualities.
This is why signalling, credibility and trust are essential
in sustainable marketing.
Transformational aspects. Within the existing
framework, there are few economic incentives to behave
in a sustainable way, either for producers or consumers.
By engaging in public and political discourses and
changing the institutional design in favour of
sustainability, firms set the conditions for the successful
marketing of sustainable products beyond niches.
Time. Sustainability marketing aims at building lasting
relationships with customers, the social environment
and the natural environment. Thus, long-term thinking
are fundamental components of sustainable marketing.
Sustainable marketing means more than pollution

reduction and life-cycle responsibility. The goal must be to
make the manufacturing, use, and disposal of products
more compatible with sustainable development.
Nevertheless, as with marketing traditional products, the
marketing mix is a critical element in sustainable marketing.
READER 68 >> Walmarts Packaging Sustainability

Initiative41
Walmart has pledged to eliminate twenty million metric tons of greenhouse
gas emissions from their global supply chain by the end of 2015. That is 150
per cent of the companys estimated global carbon footprint growth over the
next five years. As part of this initiative, Walmart is planning to reduce its
packaging globally by 5 per cent versus their 2008 baseline. Through a
sustainable packaging scorecard that Walmart has developed and put in
place to help monitor their suppliers efforts, Walmart can track and use their
immense weight to push suppliers to help them achieve their goals. The
following are some of their notable successes with their suppliers to date: 42
The transition of all liquid laundry detergents to concentrated versions
has saved more than 125 million pounds of cardboard, 95 million
pounds of plastics, and 400 million gallons of water.
Packaging of Apple iPods was changed to 100 per cent renewable,
recyclable, and more sustainable materials.
By reducing the packaging size of its Kid Connection line of toys, Walmart
claims to have saved over $2,4 million in freight costs.
The apple juice sold under the Members Mark label at Sams Club now
uses 35 per cent renewable energy in producing half the corrugated box
packaging, and 50 per cent of that corrugated packaging is from 100 per
cent recycled corrugated cardboard.
All of Walmarts cut fruit and forty-ounce vegetable trays and some of the
nine-ounce trays are packaged with NatureWorks PLA, a biodegradable
polymer. According to the company, by making that change to PLA in
2005 on just four produce items, they saved about eight hundred
thousand gallons of gasoline and avoided more than eleven million
pounds of greenhouse gas emissions.
7. Making the marketing mix more

sustainable
LO7
Business sustainability is a holistic concept and many

firms are uncomfortable with this, preferring to keep
environmental and CSR issues separate. Sustainable
marketing requires an aware, open and targeted approach
to environmental and social issues which takes account of
all direct and indirect stakeholders. Firms embarking on
environmentally and socially-related strategies need to
debate the total effect of launching a more sustainable
product or service programme. Heightened media attention
is likely to focus attention on the firms other market
operations and on the firm, in general. This means there is a
need to consider the environmental and social impacts of
products and services from the procurement of materials
and manufacturing to the distribution, consumption and
disposal, both from an environmental and social point of
view. It also means that all the aspects of the marketing mix
need to be considered, although the emphasis across the
mix will change dependent on the firm, its product or
service portfolio, its markets and its particular
circumstances.43 As is evident from the discussion to follow,
existing marketing practices need to change to allow
products and their production and consumption to become
more sustainable. To implement sustainability marketing
strategies, a consistent marketing mix has to be developed
aimed at particular target group(s).
7.1 Product
At the heart of sustainability marketing are sustainable
products. Sustainable products are products that have a
higher socio-ecological efficiency than other products in the
same category.44 Product development processes must be
guided by the firms sustainable development objectives,
must understand the nature of the customers interest in
sustainability issues, and the potential market for
sustainability focused products and services. The paper
manufacturer Mondi, for example, is conscious of the need
to develop sustainable products, both to meet their
responsibility as a corporate citizen in South Africa and to
meet the growing demand from customers for more
environmentally responsible packaging. Their pioneering
Sustainex biodegradable packaging is a range of sustainable
plastics, including extruded film and coated materials based
on biodegradable polymers made from renewable
materials.45 Other desirable products in the age of
sustainability should:
Be energy efficient (e.g. reduced CO2 emissions)

Be easily repairable
Be designed to last
Be re-usable and recyclable
Have environmentally-friendly packaging
Be manufactured from renewable resources
Be free of hazardous materials
Be manufactured from locally sourced material to

minimise transport costs
Provide sufficient information on contents
Not be tested on animals
Not use child or forced labour in the manufacturing
process (in-house or contract)
Be developed in partnership with not-for-profit firms or
government agencies.
In the future products and services will need to be modified

and adapted to changing customer attitudes and tougher
legislation. In some cases firms may need to work with
various stakeholders to bring about changes in the overall
consumption system, and not simply change corporate
activity. When looking at a sustainable-marketed product,
consideration should be made for sourcing of materials,
ingredients used, and the manufacturing of the product.
This includes using all natural and organic materials,
sourcing local and fair trade suppliers, utilising
environmentally friendly materials, and using lean
manufacturing and distribution methods that minimise the
companys carbon footprint. Fair trade is a global trade
system that ensures producers get a fair price for their
goods. It is the cornerstone of a sustainable economy.
Starbucks began purchasing Fair Trade Certified coffee in
2000, helping to grow the market for Fair Trade Certified
coffee in the United States. Fair Trade Certified coffee
empowers small-scale farmers organised in cooperatives to
invest in their farms and communities, protect the
environment, and develop the business skills necessary to
compete in the global marketplace.46
7.2 Price
Price is a key element of the sustainable marketing equation.
Traditionally, many environmental and social costs are
treated as externalities and are not included in existing
market structures. This means that external costs, such as
those linked to pollution, are not reflected in the prices of
the products that we buy, or the cost accounting of the firms
that produce them. This situation is gradually changing.
Many of these external costs now have a price attached to
them by legislation and stakeholder pressure. For
sustainable products, pricing has often been an issue
limiting a products or services mass acceptance and
market growth. Green products tend to be more expensive
because the ingredients may cost more than their
conventional counterparts. For example, organic food
grown with natural fertilisers may be more expensive than
those foods not utilising natural fertilisers. Legislation is
making firms more responsible for emissions and the use of
new fiscal measures such as carbon taxes is increasing costs
for business. Marketers can, for example, link a proportion
of the product price to a relevant social or environmental
cause (i.e. cause-related marketing), identify opportunities
to increase margins and/or improve price competitiveness
through environmental efficiencies. Marketers can also
identify any price premium that can be captured by the
sustainability attributes of the products, and factor the full
social and environmental costs of products into the price.47
The problem is that marketing has tended to focus on the
price that a consumer pays for product or service, rather
than the total cost to the consumer. An example is the car

industry and car purchasers, who do not directly pay for the
costs associated with air pollution, global warming, oil
depletion or road deaths and injuries. In theory,
governments can raise taxes on consumers and firms to
meet the external costs. However, in an era when tax
minimisation dominates election debates, and when
national regulators struggle to contain the lobbying power of
global firms, this looks increasingly like wishful thinking.
Similarly the costs of raw material replacement or associated
environmental impacts are often not met. Therefore, the
costs of the fishing industry reflect the costs of fishing, but
not the costs of over-fishing. As a result the full costs of the
environmental capital are not covered, which means that
the environment effectively provides a subsidy.
Environmentally-orientated products often encounter
problems because they are perceived as unrealistically
expensive. They are, in fact, competing with products
effectively subsidised by the environment and therefore are
unrealistically cheap.48
7.3 Promotion
A firms marketing information and promotional claims
must be based on sound research and must be
communicated consistently and effectively to all
stakeholders. A variety of approaches can be taken using a
range of promotional media, but the keywords for all
communication strategies are that it must be appropriate,
consistent and coordinated. Measures to ensure
sustainability in the marketing and product process include:

emphasising the sustainability attributes of products in
promotions, examining the strength of existing claims
regarding social and environmental attributes of products,
ensuring that existing marketing materials are in line with
the social and environmental performance of the firm, and
developing adequate control procedures to identify possible
product risks and inform consumers of such risks. Nike
made a big splash with its marketing focused on creating a
better world through sports. Their efforts included the first
100 per cent recycled television advertising, reusing and
remixing film from their previous campaigns over the years
to create a new spot to introduce their Better World
campaign. The digital mash-up showcases the inspiration
and history of the brand while bringing attention to the
sustainability concept of reusing and reducing resources.
This is also a good example of sustainability principles
actually benefitting the bottom line. By reusing existing film,
Nike did not have to spend the thousands of dollars to
produce a new television commercial nor expend energy
costs for a production shoot - the cost of an average
television commercial exceeds $300 000.49 Consider the
Toyota Prius example discussed earlier in this chapter.
Interestingly, the Prius was not strongly marketed on its ecofriendliness but more on its fuel efficiency and the likelihood
of reduced fuel costs. This highlights that impacts upon
sustainability do not need to be the headline-grabbing act in
a marketing effort but can still be made.50
7.4 Distribution
The physical distribution, wholesaling and retailing of

products and services have both direct and indirect
environmental impacts. These can be reduced through
careful management. As the environmental costs of fossil
fuels are more accurately reflected through measures such
as the climate levy, so distribution systems may focus more
strongly on localised production and distribution systems.51
Consideration should be given to attract customers through
new distribution channels such as the Internet, which
minimises social and environmental impacts, and to identify
markets in which products will promote social inclusion and
economic regeneration.
READER 69 >> Cherubs: flushable, biodegradable

products
During 2010, one of South Africas most established and trusted baby brands,
Cherubs launched their new-look packaging as well as innovative product
upgrades and range extensions. In addition to the existing Classic, Sensitive
and Sticky Fingers variants, Cherubs has introduced a new Eco-Care baby
wipe, which is fragrance, chlorine and alcohol-free, as well as bio-degradable
and flushable. Also part of the green range are Cherubs Eco-rounds and
Cherubs Eco-buds, both of which are flushable. The bud is currently the only
ear-bud on the market available in this country that is flushable, because the
stalk is made from paper and not plastic.
SOURCE: Press Release supplied by Mrs Jessica Rycroft, Marketing Manager of Cherubs (July October
2010)
7.5 People
An integral part of business sustainability is to keep in mind
that people are the business and they have to implement
change. Any firm that embarks on the process of making
itself more sustainable is likely to face a difficult and
turbulent time. It will mean that projects will need to be
looked at in different ways, and inter-disciplinary skills will
be needed. Implementation of strategies and policies will be
more likely to succeed if employees are involved in decisionmaking and are given a sense of strategy ownership.
Therefore to ensure that management and staff accept
projects, internal marketing programmes should be
carefully introduced and monitored. Initiatives should be
clearly communicated to staff through presentations,
workshops, Internet resources and newsletters, and

encouraged to participate in environmental and social
programmes. It is important for firms to recognise that
although their workforce might be quite happy to endorse
such programmes, the concept of sustainability and many of
the issues that are central to it are not yet widely understood
throughout society. This means that it is just as important to
inform and educate the workforce about key environmental
and social issues as it is to communicate professionally
about the firms response and the importance of supporting
it. The process of tackling these issues should lead to them
being interwoven into corporate strategy and culture, for
example by introducing sustainability issues into
recruitment and training programmes.52
7.6 Processes
In 2008 the Direct Marketing Association (DMA) made
public its goal to reduce carbon emissions from the directmarketing community by 100 million tons by 2013, through
more highly targeted mail and better list and data
management, in an effort to green the digital process they
follow. During 2012 the DMA began asking its online and
offline members to commit to 15 triple-bottom-line (profitplanet-people) principles for improving marketings
sustainability.53 Despite this there is still a dearth of
information on greening the digital-marketing process. This
has begun to change, beginning with a focus on the greening
of IT and energy conservation.
EXAMPLE >> Standard Bank South Africa developed a tool during

2010 to help customers measure and manage the carbon footprint of their fleet
vehicles. Standard Bank receives information on how much it costs to run fleets
by looking at how many litres are bought and the cost from their customers fleet
management cards. Using this information Standard Bank calculates the
resultant carbon emissions per fleet. In addition, their ECO2 Fleet Management
unit provides consulting services to help the banks customers manage their
fleets more efficiently. For example, by comparing the actual emissions produced
by a vehicle against the vehicle manufacturers specifications they are able to
identify which vehicles are not being used efficiently. Inefficiency could be as a
result of various factors such as the way the vehicle is being driven, that it is not
suited to the function it is being used to perform or that the vehicles age is such
that it may have reached a point where fuel consumption is excessive. By
identifying these factors Standard Bank is able to help their customers reduce
their carbon emissions, as well as their costs to run the fleet. Customers can also
access a database of their information and compare vehicles and identify where
other vehicles might be more suitable and efficient for their requirements.54 For
more information visit www.standardbank.co.za/eco2fleet
7.7 Physical evidence

Physical evidence is the environment in which the service is
delivered and where the firm and customer interact, and any
tangible components that facilitate performance or
communication of the service. Due to the intangible nature
of services, customers search service cues from physical
evidence. The physical evidence design includes facility
design, equipment, signage, employee dress, and other
tangibles such as reports, statements and guarantees. In
terms of physical evidence the firm can communicate its
environmental orientation with the help of tangibles, for
example ISO14000, Life Cycle Assessment (LCA) and

different kinds of third party eco-labels and certificates. An
environmentally sustainable service provider should use
eco-labelled machines, durable furniture, clothes and
materials as well as recycled paper. In a sports centre for
instance, physical evidence would also include a second
hand shop and repair service to promote reuse. Eco-labels
can cover a range of environmental attributes and they allow
consumers to make comparisons among products/services
as well as include environmental aspects as criteria in their
purchasing decisions.55
8. The disadvantages of a sustainable

marketing approach
LO8
Although sustainable marketing practices can be a source of

sustainable competitive advantage for firms when
consumers associate these actions as being socially
responsible, the outcome of these actions on the perception
of the firm is uncertain.56 One study found that the fact that a
firm follows ethically sound business principles does not
mean that the consumers will buy that firms products if the
products do not meet the consumers minimum standards
in terms of price and quality. Nevertheless, consumers will
expect firms to follow certain minimum standards when it
comes to being socially responsible and following green
marketing practices.57
EXAMPLE >> In the 1990s Nike was accused of selling shoes

manufactured in sweatshops using child labour. Despite initial denials of
responsibility, Nike succumbed to pressure from action groups and persuaded its
manufacturing partners to change their production processes. However, the
extent to which green and socially-responsible marketing practices impact on
consumer behaviour will depend on the nature of the business.58 For example, a
firm manufacturing chemicals and discharging toxic effluent into a recreational
river such as the Nahoon river near East London will be under a lot more pressure
to embrace environmentally-friendly manufacturing principles than Eskom which
releases toxic coal fumes into the environment in the rural parts of Limpopo in its
production of electricity.
Compounding the matter is the fact that many consumers
do not embrace the green movement. Importantly, they do
not find any altruistic reasons for supporting green firms or
green products and the decision-making process would be
no different from that in respect of any other product. In
addition many of those who initially embraced the green
movement are now suffering from green fatigue which is
where consumers are worn out by the constant barrage of
stories of the enormity of climate change and as a result start
to question whether their contribution (such as buying a
particular green product) is largely irrelevant within the
bigger scheme of things.59
9. Implementing sustainability
LO9
As evident from the discussion so far in this chapter

sustainable marketing essentially means getting better
results using fewer resources. It means using strategies and

tactics to effectively grow profits, increase business
efficiencies, speed up sales cycles, enhance customer loyalty
and improve employee attraction and retention with lower
costs and lower environmental impact. In order to
accomplish the above, it is recommended that marketers
follow the following seven steps to sustainable marketing:60
Step 1: Think long-term. Sustainability is above all

about taking a long-term perspective of your business. It
means more than your operational footprint. Sustainable
marketing is about meeting immediate business
objectives like creating a competitive advantage,
increasing revenue, retaining employees, establishing a
green corporate image while ensuring efforts have the
staying power to sustain long-term results. Building
genuine, enduring relationships with staff, suppliers,
customers, community and the environment also builds
lasting value for the business.
Step 2: Create a sustainable brand position. As a
marketer one must know the brands core values and key
strengths. This must then be translated into a brand
position that delivers real value to customers. By doing
this, marketers develop a brand position that exploits
their natural competitive advantages that will genuinely
appeal to ones customers and that has the potential to
strengthen and grow. This will also help marketers make
quicker, wiser choices to support sustainable success.
Sometimes marketers will want to fundamentally change
their brand positioning, which involves transforming the
entire business strategy and investing in new resources
to bring that positioning to life. Many companies have

initiated efforts to reformulate products to either remove
the harmful ingredients, like phosphates in detergent, or
make them more energy efficient. Repositioning
products as environmentally friendly offers an
opportunity to gain early market recognition and
support of the conscious consumer and it also provides
higher visibility in the already cluttered advertising
media. With the largest environmental product portfolio
worldwide, Siemens is a leader in climate protection
technologies. In order to strengthen their green brand,
they aimed to further position themselves as an
environmentally-friendly and ecologically-sustainable
company whilst simultaneously creating awareness
around nature and the environment for consumers.
Coca-Cola, LOreal and Cadbury have all acquired
brands (Innocent Smoothies, The Body Shop and Green
& Blacks Organic respectively) with strong sustainability
credentials. It is important to realise that brands are
becoming increasingly important in consumer markets,
and a strong brand is something that firms are keen to
develop, nurture and sustain. Increasingly sustainability
issues are becoming linked to reputation management
and brand trust. Within increased outsourcing and
contract manufacturing there is a need to be highly
sensitive to societal and consumer concerns, and to
reduce environmental and social impacts within supply
networks. A strong brand implies high visibility and
brings the threat of targeting by the media or pressure
groups following any social or environmental incidents
or scandals.
Step 3: Maintain focus. The marketing budget should be

concentrated on one or two segments and craft clear,
targeted messages that appeal to those specific
customers. Marketers must stay focused on the defined
segments and consistently repeat the marketing
messages. In this way marketers will build brand
recognition faster, get a greater response with less
expense and maximise the return on investment. Doing
this can then leverage ones profits to broaden ones
marketing messages and branch out into other customer
segments.
Step 4: Actively engage with customers.
Communication with existing and potential customers is
a two-way activity in sustainable marketing. When
marketers build genuine relationships with customers,
they will truly understand their needs, their motives and
their desires. One of the best ways to engage with ones
target customers is by hanging out where they hang out.
In the digital age, this often means using the social
mediums they use and participating in their online
communities.
Step 5: Use technology. Technology can be used to build
strong relationships, improve collaboration with
suppliers and staff, get to market faster and reduce costs.
From online forums to video conferencing to the iPad,
its a strategy that uses minimal resources to attract a
large number of targeted customers.
Step 6: Apply genuine green certifications and logos.
Consumers are on the lookout for easy identification
marks to give them confidence in the product and help
them make quick purchase decisions. Consumers want
to make decisions that will help the environment, but

they dont always trust promotional claims. If marketers
sustainability efforts are genuine and can be backed up
by certifications or logos, use them to increase consumer
confidence and sales. They must, however, be authentic
and relevant.
Step 7: Include the whole workforce. One of the most
effective methods of introducing and maintaining
sustainable marketing is by extending it to include all
employees and suppliers. Asking your suppliers to
complete sustainability checklists, like Wal-Mart has
done, establishes a firm as a concerned corporate citizen
and helps build brand credibility. Motivating employees
to become sustainability ambassadors, and giving them
the tools to do so, increases satisfaction and retention.
Its also about attraction, with many generation Ys
making career decisions based on their desire to work for
green firms. Marketings critical role in development will
be appreciated only when, through sustainable
marketing as explained above, it meets the needs of the
present without compromising the ability of future
generations to meet their own needs.
EXAMPLE >> Levis boasts of designer jeans made out of used plastic
bottles. The strapline to their advertisement is These jeans are made of garbage
as displayed below. Each pair of Levis Waste<Less collection of jeans, launched
in Spring 2012, is made from about eight recycled plastic bottles.
Nike takes a similar approach with the FlyKnit shoes it debuted in 2012,
which are marketed as a high-tech advancement using yarn instead of leather
uppers for a better fit and a reduction in waste. FlyKnit is a great example of
Nikes innovation and commitment to products and services that are better for
athletes, our planet and our investors. Both these products may be the tip of a
marketing iceberg, as new research shows a growing pool of global consumers
are demanding that mainstream brands be sustainable. 61
SUMMARY
Marketers must take cognisance of sustainable development
in their marketing practices. Taking a broad view of social,
environmental and economic outcomes, the interests and
rights of current and future generations and an inclusive
approach to action which recognises the need for all people
to be involved in the decisions that affect their lives, will
ensure the sustainability of the firm, the people and
communities on which a firm depends. Incorporating
sustainability into business strategy and embedding it into
marketing has become a very compelling business case,
either for defensive or offensive reasons. The inescapable
writings are on the wall and early examples are apparent
peer, customer, investor and societal pressures will continue
to increase. In an era of transformation, high performers are

most likely also high earners, as they see the value of values
and have an open mind and flexible agenda to adapt and
adopt. In addition, for businesses, the cost of doing nothing
on sustainability may be expensive. The prize for leadership
is, however, a source of significant sustainable value
creation through responsible sustainable marketing, as can
be seen in the Marketing in Practice box on page 561.

1
2
3
4
5
6
7
Discuss the concept of sustainable marketing and its

origins.
Evaluate the pressures on businesses (key sustainability
issues) to adopt more sustainable business practices.
Explain consumer social responsibility and the stages in
the move towards sustainability.
What role does marketing play in sustainability?
How does sustainable marketing affect the product life
cycle?
Discuss the impact of a sustainable marketing approach
on the marketing mix.
Identify and discuss the limitations of adopting a
sustainable marketing approach in contrast to the
positive influence it can have.
Advise marketers on the steps to implementing the
concept of sustainability into marketing.
STRATEGY READER >> South Africas largest retailers:

How do they weigh in at the sustainability arena? 62

The retail sector in South Africa has been singled out as one that does not
perform well in terms of sustainability. Located at the centre of the consumer
goods value chain, retailers have the power to impact all other elements of
this value chain, and are beginning to use that power responsibly. Retailers
influence consumers on the one end, but also have the ability to impact the
supply chain on the other end of the value chain including farmers and
product manufacturers, as well as logistics firms transporting goods to stores.
As integrated reporting gains traction in South Africa, there are an increasing
number of indices assessing sustainability. Environmental and societal
impacts of a company, along with financial data and results, strategy, risks
and governance processes, must all be reported to give investors a
transparent view of an organisation. In South Africa, and particularly among
the top retailers (Shoprite, Pick n Pay, Massmart, Spar, and Woolworths),
there are vast differences in the quality and quantity of information provided
in the sustainability report. The use of different metrics also makes it difficult
to compare information. The closest thing to a uniform sustainability reporting
framework is said to be the Sustainability Reporting Guidelines (GRI
Guidelines) by the Global Reporting Initiative (GRI), which is the most-used
sustainability reporting framework in South Africa and globally. The GRI is a
voluntary standard and lacks any regulatory mandate at this time. A study
conducted in the US highlights the links between sustainability practices and
financial performance, and claims that during the global financial crisis,
companies that showed a true commitment to sustainability appear to
outperform their industry peers in the financial markets. However, the JSEs
Sustainability Reporting Index (SRI) noted that in 2011, the retail and food
producing sectors in South Africa displayed the poorest performance on the
index. Woolworths was the only retailer that was included in the Carbon
Disclosure Leadership Index (top 10 per cent in terms of disclosure for JSElisted companies), which recognises leaders in terms of transparency and
accountability regarding climate change related issues, and the quality of their
data management practices. An important point to remember is that

Woolworths produces a lot of its own branded products, and thus does not
rely on outside suppliers to the extent that other retailers in South Africa do
making it somewhat easier to monitor the supply chain. The CDP is certainly
an important source of climate change related information about listed
companies, and as well as providing figures (where available) it also provides
information on company performance bands from A to E, which are an
indication of the extent to which companies are addressing the potential
opportunities and risks presented by climate change. In terms of retailers,
Pick n Pay and Woolworths were given A-scores in 2011, which represents a
fully integrated climate change strategy, driving significant maturity in climate
change initiatives. Massmart and Spar received C performance band scores,
indicating some activity on climate change with varied levels of integration of
those initiatives into strategy. Shoprite, which answered the CDP questionnaire
but would not allow the information to be made public, was not given a
performance band score.
KEY CONCEPTS
Corporate social responsibility (CSR): The actions of the firm to act in a socially
responsible manner to protect and enhance the various stakeholders that have
an interest in the firm, the community in which it operates, the environment that
surrounds it and society.
Enviropreneur marketing: The practice of bringing green products to market
without properly considering the needs of the consumers.
Green Consumers: These are consumers who embrace the concept of buying
products produced in an environmentally sustainable manner.
Green Marketing: Production and distribution of products environmentally
friendly manner.
Greenwashing: The practice of misleading consumers to believe that certain
products are green, eco-friendly or organic when in fact they are not.
Social Marketing: Focuses on changing consumers attitudes (and consequently
their behaviour) for the benefit of society as a whole.
Sustainable development: Making the most efficient use of the resources
available in the environment.
Sustainable Marketing: Meeting the needs of customers in a sustainable

manner while minimising harm to the environment and society.
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Jobber, D. 2010. Principles and Practice of Marketing, 6th Edition. New York:
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Kennedy, B. 2012. Leaner, faster, greener: Nikes new supply chain goals,
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Index
A
acid rain 569
advertising
appeals 419420
and brand loyalty 385
campaigns 417420, 429430
and the consumer 384
effects of 382383
media, choosing 422427
message, executing 420422
types of 386388
Advertising Standards Authority (ASA) of South Africa 66
agents 374
age segmentation 208
AIDA and the hierarchy of effects 398399, 399
All Media Products Survey (AMPS) 56
allowances 482483
alternative media 425427
analysers 506
attitudes 102103, 184186
attributes, changing beliefs about 103
available funds 403404
B
Baby Boomers 53, 208
bargaining power 140141
base prices, tactics for finetuning 482488
Basic Browns 567
behaviour, opposition to desired 565
behavioural goals 564
behavioural segmentation 205207

behavioural theory 564
beliefs 102105
benefit segmentation 216217
biogradable products 578
black diamonds 54
Boston Consulting Group portfolio matrix 46, 507509
brand equity 283284
brand familiarity 206207, 289
branding
benefits of 281284
co-branding 287288
copyright 292
favourable conditions 287
green selling approach 566
legal implications of 290291
names, effective 284
new brands, positioning 250254
sports products 534
strategies 284285
sustainable position 580
trademarks 289290
[i]See also[n] packaging
brand loyalty
and advertising 385
generic versus branded products 285286
break-even pricing 473475
brokers 374
Brundtland Report 562
business analyses 311312
business environment 41
business mission 500502
business-to-business marketing
consumer markets,
differences to 546548
customers 544545
products 548550
purchase process 550551
Standard Industrial
Classification (SIC) 545546
buyers bargaining power 140141
buying decisions
individual factors in
consumers 9596
involvement of consumers 9295
purchase situation, influence of 106107
social factors influencing 107108
and technology 118
types of 403
C
carbon footprint 563
career opportunities 32
central government legislation 6870
channel crowding 138
channel leadership 353354
climate change 73, 569
co-branding 287288
Code of Advertising Practice 67
Code Revision Committee 67
commercialisation, of new products 315
communication process 390394
comparative advertising 387388
competition
and industry structures 134136
and non-profit organisations 540541
and pricing decisions 475477
foreign competitors 48
international 72
laws limiting 67
Competition Act 67, 69, 77
competitive advantage 47, 49, 64
classifying industries
according to 237239
importance of 2328
and marketing planning 510
competitive advertising 387
competitive arena, defining 134137
competitive environment 77, 503504
competitive factors 7273
competitors 41
actions, anticipating 151153
cultures of 146
current, understanding 144147
direct rivalry among 154155
foreign 48
identifying 127134
key, analysing 143144
objectives and commitment 146
potential, understanding 147148
reaction patterns, likely 151153
strengths and weaknesses, evaluating 148151
to attack, to avoid, deciding which 156157
concentrated targeting 223224
concept development and testing 310311
consulting service 243
consumerism 66
consumer markets, and business-to-business markets, differences 546550
consumer orientation 1314
consumer products 272
consumers 574
and advertising 384
and market reactions to economy 76
behaviour 8283
branding, benefits 281284
buying decisions and involvement 9295
decision-making process 8492
evaluation of alternatives and purchase 8990
individual factors influencing buying decisions 95106
needs 39, 562
older 5354
research 564
rights 66, 67
sales promotions to 437439
social factors and buying decisions 107117
spending patterns 61
values 49
[i]See also[n] customers
Consumer Protection Act 69
contact efficiency 339340
consumption 568
environmentally-sound patterns 567
patterns 62, 564, 565
socially responsible practices 563

convenience products 273274
corporate culture 504506
corporate social responsibility (CSR) 570, 583
cost, as determinant of price 470475
cost efficiency 41
cost structures, of competitors 146147
creativity 308309
criticisms of marketing 2932
culture 107108
customer-based approach to identifying competitors 129131
customer choices 130
customer loyalty 910
customers
actively engaging with 581
business-to-business 544545
training 243
[i]See also[n] consumers
customer satisfaction 59, 2526
customer value 25, 171172
D
data, collection and analysis 188
database marketing, and micro-marketing 165
decision-making 49
improving quality of 169170
decision-making process, of consumers 8492
decision support systems (DSSs) 163165, 167
decline stage 319, 320321
decoding, of advertising messages 392393
defenders 505
delivery 242
Delphi Technique 45
demand
as determinant of price 462469
fluctuations 552553
demographic factors 5556, 58, 76
demographic segmentation 207213
Department of Trade and Industry 66
development stage of new products 312
differentiation 235236, 239247

Direct Marketing Association (DMA) 578
discounts 482483
discrepancies, overcoming 338339
discretionary income (disposable income) 51
disintermediation 343
distribution 40, 577
channels 351352
decisions, and non-business organisations 542
strategies 476, 513
diversification 506
division of labour 338
double-income families 50
downcycling 574
dual-career families/households 49, 50
durability 241
E
economic
environment 76
factors 6163
economy 41
economies of scale 138
ecosystem 564
education and literacy 59
effective differentiation and high switching costs 138
effects, of advertising 382386
elasticity of demand 467469
Electronic Communications and Transactions Act 70, 77, 167
Electronic Communications Security (Pty) Ltd Act 72
electronic surveys 179
emissions 569, 570
employees, as competitive advantage 2627
encoding 392
energy
conservation 578
efficiency 570
entry barriers 148
environment (Planet) 568
environmental damage 569
environmentally friendly ingredients 7475
management 48
marketing 563
sustainability 562563
variables or trends 48
environmental-scanning 44
process 43
enviropreneur marketing 566
European Union (EU) 563
ethnic segmentation 210213
evaluation, of alternatives, and purchase 8990
exchange 1011
exit barriers 147
experiments to collect primary data 184
exploratory research 173176
external environment 41, 42, 47
of marketing and impact 75
understanding 4345
F
factor cost advantages 138
fads and trends 5051
failure of new products 315
fair adjudication 67
families, changing role of 50, 114115, 213
families and gender, changing influence of 50
family brands versus individual brands 287
features, of products 239240
feedback 393
fertility 55
financial services ombudsman 66
firms
business of 2023
existing, implementing marketing concept in 19
focus and goals 17
marketing, position and role of 29
fixing, of prices 481
focus, maintaining 580
foreign markets 65
formal trade agreements 77
four Ps 39
focus groups 180
franchising 369371
free-market economic systems 65
G
gender segmentation 209
General Agreement on Trade and Tariffs (GATT) 71, 77
General Electric market attractiveness/company strength matrix 509
General Export Incentive Scheme 71
general merchandise retailers 364365
generation X 52
generation Y 52
generations 5154
generic products versus branded products 285286
genetically modified organisms (GMOs) 569, 574
genetic engineering 569
geodemographics 215
geographic segmentation 207
governments 545
global
equity 563
warming 569
globalisation 569
goals 39
Greenback Greens 567
green certification and logos 581
green consumers
segments 567568
targeting of 565
greening of IT 578
green marketing 563564
greenwashing 566
Gross Domestic Product (GDP) 55
Grousers 567
growth stage 319320, 323
H
habitats, loss of 569
heterogeneity 529
hierarchy of effects 398400
HIV/Aids 51
horizontal conflict 350

household incomes 50
monthly 58
Housewives League 66
I
idea generation 307308
idea screening 309310
image, of competitors 144145
image differentiation 244247
importing, protection against 48
income segmentation 210
individual brands versus family brands 287
indoor environmental quality 570
industries
classifying according to potential for differentiation and competitive
advantage 237239
structures 134136
infant mortality rate 55
inflation 6162, 76
and pricing 489490
and recession 6263
external sources 45
internal sources 45
information asymmetries 574
information, managements need for 162
information search 8689
informative marketing communication 395
inseparability 528
insight-driven strategy 564
installation 243
institutional advertising 386
institutions 545
[i]See also[n] non-profit organisations
intangibility 528
integrated marketing communications (IMC) 350351
interest rates 61
intermediaries
retailers 361372
wholesalers 372374
internal environment 41
international agreements 71
International Charter of Consumer Rights 66
international competition 48
Internet 64, 65, 76, 567
Internet, and consumer markets 64
intersection 574
intrapreneurs 317
introductory stage 318319, 321323
inventory control 358
J
just-in-time (JIT) inventory management 358359
K
key success factors (KSFs) 149151
Kyoto Protocol 73
L
labelling 295
language 5960
laws [i]See[n] legal factors
laws and regulations as threat or opportunity 68
leadership of channels 353355
leads 442443
learning 101102
leased departments 371
legal factors and implications 43, 6768, 290291, 481482, 533, 534535
legal interest 569
legislation 48
businesss attitude towards 77
licensed sports products 533535
life-cycle, in families 107, 213
[i]See also[n] product life cycle
Life Cycle Assessment (LCA) 574, 579
Life Cycle Thinking (LCT) 574
life expectancy 55
lifestyle 50, 106107, 213
Likert scale 185186
lines, of products 276280
literacy and education 59
Living Standards Measure (LSM) 5558, 76

clothing per group 60
magazine exposure per group 60
number of people per group 59
use of to understand markets 5859
location, of shop 366368
long-term thinking 575
M
macro environment 42
magazines 423
mail surveys 179
management uses of marketing research 168169
managerial information, need for 162
manufacturing 574
manufacturers brands versus private brands 286
market area, size of 368
market communication strategies 513
market development 506
marketing
adoption process, implications 330331
business, importance to 3132
career opportunities 32
communication strategy 40
defined 5
environment 4043
marketing environment, influence on 4043
to non-profit organisations 537544
position and role in firms 29
reasons for studying 3133
of services 526531
strategies 41
strategies during recession 6263
through sport 532537
trends in environment 44
marketing channels
alternative arrangements 343345
and benefits 337340
choice, factors influencing 345347
conflict. potential 349350, 354
distribution intensity, levels of 347349
functions of 340341
leadership 353355
power in 351353
strategies, factors that influence 345347
structures 341343
[i]See also[n] physical distribution; products
marketing communication advertising 382388
AIDA and the hierarchy of effects 398405
budgets 408409
decisions 543
factors affecting the mix 400404
integrated 395
objectives, setting 407408
objectives and tasks of 396398
personal selling 390
plans, steps in developing 405409
and pricing 476
process 390394
public relations and publicity 388390
sales promotion 390
marketing concepts, implementing in existing firms 1920
marketing environment competitive factors 7273
demographic factors 5658
economic factors 6163
influence of marketing on 3940
language 5960
legal factors 6772
management of 48
opportunities and threats 4849
physical forces 7375
political factors 6567
scanning methods 4344
social factors 4955
technological factors 6365
marketing mix 39, 564
marketing communication, role of 381
for services 529531
in strategic marketing planning 512513
in travel and tourism 553554
sustainable 575579
marketing myopia 21
marketing orientation [i]See[n] customer orientation

marketing process 2829
marketing research
in analyses of marketing 406407
characteristics of good research 191
criticisms of 192
functions of 167
projects 172190
role of 167
when to conduct 190191
market penetration 506
markets, understanding 170171
market share
and advertising 383
mark-up pricing 472
Maslows hierarchy of needs 99, 99100, 562
materials handling 357
maturity stage, of products 320, 324325
media
scheduling 429
selection and evaluation 427429
media interest 569
Media Monitoring Group 66
merchant wholesalers 373
message transmission 392
micro-marketing approach 565
micro-marketing and database marketing 165
monopolistic competition 136, 504
monopoly 134
monthly household income 58
motivation 99100
multi-segment targeting 224226
N
National Council Against Smoking 66
National Credit Act 68, 70, 77
nature of the product 401
needs assessments 443
new entrants 137139
new opportunities, importance of 1920
new products
categories of 305306
development process 306315, 316317
failure, reasons for 315316
importance of 303304
innovation, diffusion of 328331
market acceptance of 328
organising for 316317
pioneer advertising 387
positioning 250254
product characteristics and rate of adoption 329330
[i]See also[n] product life cycle
newspapers 422423
new-to-the-world products 118
non-business marketing 537538
non-probability samples 187188
non-profit organisations 538541
[i]See also[n] institutions
non-shop retailers 371372
non-wasteful packaging and recycling 74
normative aspects 574
O
objectives 39
objectives, of non-business organisations 541
observation research 182184
occasions, as bases for market segmentation 206
older consumers 5354
oligopoly 134
opinion leaders 113114
opportunities 39, 43, 4547, 70
identifying 4849
to utilise 502, 506507
opportunity-utilisation strategies 506507
order processing 359360
organic products 564
outdoor media 425
ozone depletion 569
P
packaging
functions of 292296
non-wasteful 74
people, in services 529530
people and business sustainability 578
perception 9599
perceptions and attitudes, measuring 184185
performance, of products 240241
perishability 529
personal interviews 177
personality 106107, 213
personal selling 390, 440444
personnel differentiation 243244
persuasive marketing communication 397, 402
philosophies, of marketing management 1118
physical distribution importance of 355
subsystems 355361
physical evidence, of services 579
physical forces 7375
pioneer advertising 387
place, see distribution objective place strategies 512
political
factors 6667, 76
interest 569570
pollution 7374
population 55
female 55
growth 55
pressure 568
positioning
competitors strategies 145
differentiation 234237, 239247
errors 259261
failure to select 234234
in the market 227
nature of 234
new products or brands 250254
of products 247250, 254258
repositioning 254258
strategy 233234, 259261
tools and approaches 261
Postal Services Act 67
post-purchase behaviour 91
post-purchase dissonance 9192
power, in distribution channels 351353
pressure group activity 569
pre-teens 51
price and pricing
base price, tactics for fine-tuning 482483
cost determinant 470475
decisions 543544
demand as determinant 462469
difficult economic times 489491
fixing 481
geographic 484485
marketing managers, importance to 458459
objectives 459462, 478
penetration pricing 480481
predatory pricing 481482
and quality 477
skimming 480
special tactics 485
status quo pricing 481
strategies 479481, 513
and sustainable marketing 576577
privacy and data protection 6869
private brands versus manufacturers brands 286
probability samples 187
problem recognition 8586
problems
defining 172
identifying 170
processes 578579
process, in services 578579
process of market communication 390394
producers 544
[i]See also[n] manufacturers
products 502
biodegradable 578
and consumption 568
life cycle 574575
strategy 39
sustainability 576
product benefits 418

product decisions, in non-business organisations 542
product development 506
product differentiation 239242
production orientation 1112
product life cycle
concept, evaluation of 328
stages in 318321, 401403, 475476
strategies during 321327
[i]See also[n] new products
product orientation 12
product range 242
products
advertising 387
attributes 385385
consumer products 272276
defined 270
items, lines and mixes 276280, 432433
levels of 270271
nature of 356
positioning 247250, 254256
pricing of 424427, 488
sports 532535
in travel and tourism industry 553
warranties 296
[i]See also[n] marketing
channels; services
product strategies 512
profit maximisation pricing 472473
profitability 43
profit-orientated pricing objectives 459460
promotion 577 [i]See[n]
marketing communication strategy 39
prospectors 505
prosperity 568
Protection of Personal
Information Act (POPI) 68
provincial government legislation 70
psychographic segmentation 213216
public relations and publicity 388390, 433434
purchase process, business-to-business 550551

purchase situation, influence on buying behaviour 117118
purchasing patterns 50
pure competition 135
pure-use associations 130131
push and pull strategies 404405
pyramid schemes 66
Q
quality
fostering 171172
and price 477478
questionnaire design 180188
R
radio 424
reactors 505
rebates 482483
receivers, of advertising
messages 392393
recession 6263, 76
and inflation 6163
and pricing 490491
recycling and non-wasteful packaging 74
Recycling and Economic Development Plan 73
reference groups 111113
[i]See also[n] families
Regulation of Interception of Communication and the Promotion of Access to
Information Act 72
reintermediation 343
relationship marketing orientation 1516
relationship with other businesses 369
reliability 241
reminder marketing
communication 398
repairs 243
reparability 241
repositioning 254258
research and design 574
research design 176188
research objectives, formulating 176

reseller brands 242
resellers 544
[i]See also[n] intermediaries
resources, scarce 74
retail 574
retailers 78
bricks-and-mortar 48
non-shop 371372
retailing intermediaries 361374
retail operations, classification 361374
retail shops, types 362
risks
co-branding 288
rivalry
among competitors 154155
in segments 141143
S
sales 43
sales force 448450
sales management 444450
sales-orientated pricing objectives 461462
sales orientation 1213, 1617
sales promotion 390, 436439
sales tasks 440
sampling procedures 186188
scanning, of external
environment 4344
scarce resources 74
scenario planning 45
seasonality of demand 552553
secondary data, collecting 173176
segmentation, of markets bases for 204217
criteria 203204
importance of 202203
nature of 201202
positioning 227
steps in 220221
target markets, strategies for selecting 221226
segmentation principle 564
segment rivalry 141143

self-concept 105106
self-regulation, advantages of 66
self-regulatory agencies 6667
semantic differential scale 186
senders, of advertising message 392
service quality, as competitive advantage 2425
service rendered, type of 368369
services
accompanying products 242243
marketing mixes for 529531
physical products, differences 527529
in the travel and tourism industry 552
shop location 366368
shopping mall intercept interviews 178
shopping patterns 59
shopping products 274275
simultaneous product development 317
situation analyses 502503
social capital (People) 568
social classes 115117
social factors 43, 4954, 76
social marketing 564565
social responsibility and consumers 570571
investing in 572
social trend 49
or a fad 5051
societal values, changing 565
socio-ecological problems 574
societal marketing orientation 1415
South Africa
cultural values 108109
subcultures 110111
South African Advertising Research Foundation (SAARF) 55, 76
Southern African Customs Union 71
Southern African Development Community (SADC) 71, 77
South African Law Reform Commission 68
specialisation 338
speciality products 275276
species diversity, loss of 569
sponsorships 434435
sports marketing 532537

[i]See also[n] marketing, through sport
Sprouts 567
State Information Technology Agency (SITA) Amendment Bill 72
status quo pricing objectives 462
Strategic Business Units (SBUs) 507
strategic-group approach to identifying competitors 131134
strategic management tools 507509
strategic marketing plans and planning
competitive advantage 510
elements of 499502
formulating the strategy 511513
implementation, evaluation and control of 513514
management tools, strategic 507509
marketing mix 512513
objectives 502, 510511
opportunity-utilisation strategies 502, 506507
outline of 515517
value of 499
writing 514
strategic planning, effective 514517
strategies, of competitors 146
strategy 564
strengths and weaknesses 39
of competitors 148151
structure of building 570
style 241
subcultures 109110
substitute products 139140
success of new products 315316
suppliers, bargaining power 141
survey research 177180
sustainability
corporate level questions 572573
desirable products 576
implementation of 580581
key issues 568570
role of marketing 572573
sustainable development 567
sustainable economic development 562
sustainable excellence, stages in 571
sustainable marketing 568

concept 563565
disadvantages of approach 579580
impact on product life cycle 574575
origins of 565570
strategies 573574
SWOT analyses 47
T
target markets 3940
characteristics 403
and non-business organisations 541542
strategies 221226, 512513 [i]
See also[n] segmentation, of markets
motivational exchanges with group 565
audiences 407
targeting, concentrated 223224
targeting principle 564
teamwork, as competitive advantage 2728
technological factors 43, 6365
technology 48, 6365, 76, 581
sustainable 570
threat 64
and buying behaviour 118
teenagers 5152
television 424425
test marketing 313314
threats 44, 4547, 75
in the external environment 44
time 575
Tobacco Products Control Act 69
tourism marketing [i]See[n] travel and tourism marketing trade loading 483
trademarks 289292
transformational aspects 575
transportation 360361
travel and tourism marketing 552554
trends and fads 5051
triple bottom line 563, 578
True Blue Greens 567
U
undifferentiated targeting 221223
Universal Living Standards Measure (LSM) 5556
unsought products 276
urban areas 55
usage-rate segmentation 205206
Usury Act 68
V
values 102103, 108109
values and attitudes, changing 569
venture teams 317
vertical conflict 350
W
warehousing 356
warranties 296
water efficiency 570
wholesaling intermediaries 361374
workforce 581
working women 50
World Trade Organisation (WTO) 71
Contents
Cover
Title
Copyright
Citation
Abridged Table of Contents
Table of Contents
CHAPTER 1: An overview of marketing
Introduction
What is marketing?
Customer satisfaction
Measuring customer satisfaction
Customer satisfaction or customer
dissatisfaction?
The benefits of customer satisfaction and
loyalty
The concept of exchange
Marketing management philosophies
Production orientation
Product orientation
Sales orientation
Consumer orientation
Societal marketing orientation
Relationship marketing orientation
Differences between sales and consumer
orientations
A word of caution
Implementing the marketing concept in
existing firms
Changes in authority and responsibility
The importance of new opportunities
The firms business
The importance of a competitive
advantage
The marketing process
The position and role of marketing in the firm
Why are there critics of marketing?
Why study marketing?
Marketing plays an important role in
society
Marketing is important to businesses

Marketing offers outstanding career
opportunities
Marketing influences your life every day
Looking ahead
Looking back
Summary
Key concepts
References
CHAPTER 2: Analysing the external environments
influence on marketing
Introduction
The marketing environment
Marketings interaction with the internal
and external environment
Understanding the external environment
Opportunities and threats
Environmental management
Identifying opportunities and threats
Social factors
Consumer values
The changing influence of families and
gender
Is it a new social trend or a fad?
Todays pre-teens: Born to shop
Teenagers: Demanding and opinionated
Generation Y
Generation X
Americas baby boomers and South
Africas prime timers
Older consumers: Not just grandparents
The Black diamonds
Survivors
Demographic factors
Universal Living Standards Measure
Using LSM and other demographic
factors to understand markets
Education and literacy
Language
Economic factors
Inflation
Recession
Technological factors
Political factors
Self-regulatory agencies
Legal factors
Central government legislation
Provincial government legislation
International agreements
The marketing implications of legislation
Competitive factors
Physical forces
Climate change
Pollution
Scarce resources
Recycling and non-wasteful packaging
Environmentally-friendly ingredients
Looking back
Summary
Key concepts
References
CHAPTER 3: Understanding consumer decisionmaking
Introduction
The importance of understanding consumer
behavior
A model of consumer behavior
The consumer decision-making process
Problem recognition
Information search
Evaluation of alternatives and purchase
Post-purchase behavior
Types of consumer buying decisions and
Factors determining the level of
The marketing implications of consumer
involvement
Individual factors influencing consumer
buying decisions
Perception
Motivation
Learning
Values, beliefs and attitudes
Personality, self-concept and lifestyle
Social factors influencing consumer buying
decisions
Culture
Subculture
Reference groups
Opinion leaders
Family
Social class
The influence of the purchase situation on
buying decisions
Buying new-to-the-world products
Buying behaviour and technology
Looking back
Summary
Key concepts
References
CHAPTER 4: Analysing the competitive situation

Introduction
Identifying competitors
Approaches to identifying competitors
Using the strategic-group approach to
identify competitors
Defining the competitive arena
The four industry structures
The competitive structure of an industry
Threat of new entrants
Threat of substitute products
Threat of buyers growing bargaining
power
Threat of suppliers growing bargaining
power
Threat of intense segment rivalry
Analysing key competitors
Understanding current competitors
Size, growth and profitability
Image and positioning strategy
Competitor objectives and commitment

The current and past strategies of
competitors
Competitor culture
Cost structure
Exit barriers
Understanding potential competitors
Entry barriers
Evaluating competitors strengths and
weaknesses
Step 1: Identify key success factors in the
industry
Step 2: Rate the firm and competitors on
each KSF
Step 3: Consider the implications for
competitive strategy
Anticipating competitors actions
Likely reaction patterns of competitors
Direct rivalry among competitors
Deciding which competitors to attack and
which to avoid
Looking back
Summary
Key concepts
References
CHAPTER 5: Information for marketing decisionmaking and marketing research
Introduction
The need for managerial information
Marketing decision support systems
Database marketing and micro-marketing
The importance of database marketing
The role of marketing research
The functions of marketing research
The relationship between marketing research
and DSS
Management uses of marketing research
Improving the quality of decision-making
Identifying problems
Understanding the market
Fostering customer value and quality
The steps in a marketing research project

Step 2: Exploratory research by collecting
secondary data
Step 4: Planning the research design
Step 5: Collecting the data
Step 6: Analysing the data
Step 7: Preparing and presenting the
report
When should marketing research be
conducted?
The characteristics of good research
Why is marketing research criticised?
Looking back
Summary
Key concepts
References
CHAPTER 6: Segmenting and targeting markets
Introduction
The nature of market segmentation

The importance of market segmentation
The criteria for successful segmentation
Bases for segmenting consumer markets
Behavioural segmentation
Geographic segmentation
Demographic segmentation
Psychographic segmentation
Benefit segmentation
Qualifying and determining bases for
segmentation
Steps in segmenting a market
Strategies for selecting target markets
Contrasting target marketing strategies
Positioning
Looking back
Summary
Key concepts
References
CHAPTER 7: Positioning the firm and its products
Introduction
Planning a positioning strategy
The nature of positioning
The consequences of failing to select a
position
Differentiation the cornerstone of
positioning
Classifying industries according to their
potential for differentiation and competitive
advantage
Bases for differentiation
Product differentiation
Differentiation based on services
accompanying the product
Personnel differentiation
Image differentiation
Bases for positioning products
The process of positioning a new product or
brand
Repositioning a product or brand

The repositioning process
Repositioning in the maturity phase of
Development of a positioning strategy
Typical positioning errors
Tools and approaches to facilitate positioning
Looking back
Summary
Key concepts
References
CHAPTER 8: Product decisions
Introduction
What is a product?
Product levels
Classifying consumer products
Types of consumer products
Shopping products
Speciality products
Unsought products
Product items, lines and mixes
Organising related items into product
lines
Adjustments to product items, lines and
mixes
Branding
Benefits of branding
Features of effective brand names
Branding strategies
Generic products versus branded
products
Manufacturers brands versus private
brands
Individual brands versus family brands
Conditions favourable to branding
Co-branding
Levels of brand familiarity
Trademarks
Packaging
Packaging functions
Containing and protecting products
Promoting products
Facilitating storage, use and convenience
Facilitating recycling and reducing
environmental damage
Labelling
Universal product codes
Product warranties
Looking back
Summary
Key concepts
References
CHAPTER 9: Developing and managing products
Introduction
The importance of new products
Categories of new products
The new-product development process
Idea generation
Creativity
Idea screening
Concept development and testing
Business analysis
The development stage
Test marketing
Commercialisation
Why some new products succeed and others
fail
Organising for new-product development
New-product committees and
departments
Venture teams and intrapreneurs
Simultaneous product development
The product life cycle
Stages of the product life cycle
Strategies during the product life cycle
Strategies during the introductory stage
Strategies during the growth stage
Strategies during the maturity stage
Strategies during the decline stage
Evaluating the product life cycle concept

The market acceptance of new products
Diffusion of innovation
Looking back
Summary
Key concepts
References
CHAPTER 10: Marketing channels and the role of
intermediaries
Introduction
The benefits of marketing channels
Providing specialisation and division of
labour
Overcoming discrepancies
Providing contact efficiency
The functions of a marketing channel
Marketing channel structures
Utilising alternative marketing channel
arrangements
Factors that influence marketing channel
strategies
Market factors
Product factors
Producer factors
Levels of distribution intensity
Intensive distribution
Selective distribution
Exclusive distribution
Potential channel conflict
Horizontal conflict
Vertical conflict
Power in the distribution channel
Reward power
Coercive power
Legitimate power
Referent power
Expert power
Channel leadership
Manufacturers as channel captains
Retailers as channel captains

Wholesalers as channel captains
The importance of physical distribution
The nature of physical distribution
subsystems
Warehousing
Materials handling
Order processing
Transportation
Retailing and wholesaling intermediaries
The classification of retail operations
Looking back
Summary
Key concepts
References
CHAPTER 11: Marketing communication strategy
Introduction
The role of marketing communication in the
marketing mix
The elements of the marketing

communication mix
Advertising
Public relations and publicity
Personal selling
Sales promotion
The marketing communication process
Elements of the communication process
The communication process and the
Integrated marketing communications
The objectives and tasks of marketing
communication
Informing
Persuading
Reminding
AIDA and the hierarchy of effects
The hierarchy of effects and the
Factors affecting the marketing
communication mix
Push and pull strategies

Steps in developing the marketing
communication plan
Setting marketing communication
objectives
Developing a marketing communication
budget
Deciding on a marketing communication
mix
Looking back
Summary
Key concepts
References
CHAPTER 12: Implementing marketing
Introduction
Steps in creating an advertising campaign
Formulating campaign objectives
Making creative decisions

Identifying product benefits
Developing and evaluating advertising
appeals
Executing the message
Deciding which advertising media to use
Media evaluation and selection
considerations
Media scheduling
Evaluating the advertising campaign
Pre-tests
Post-tests
Public relations
Public relations tools
Managing unfavourable publicity
Sales promotion
The objectives of sales promotion
Tools for consumer sales promotion
Tools for trade sales promotion
Personal selling
Contrasting personal selling with other
forms of marketing communication

Sales tasks
Steps in the personal-selling process
Sales management
Defining sales objectives and the sales
process
Designing the sales organisation
Developing the sales force
Directing the sales force
Evaluating the sales force
Looking back
Summary
Key concepts
References
CHAPTER 13: Pricing concepts and setting the
right price
Introduction
The importance of price to marketing
managers
Pricing objectives
Profit-orientated pricing objectives

Sales-orientated pricing objectives
Status quo pricing objectives
The demand determinant of price
The nature of demand
How demand and supply determine
prices
Elasticity of demand
The cost determinant of price
Mark-up pricing
Profit maximisation pricing
Break-even pricing
Other determinants of price
Stages in the product life cycle
The competition
Distribution strategy
The relationship between price and quality
How to set a price on a product
Formulating pricing objectives

Choose a price strategy
The legality and ethics of price strategies
Tactics for fine-tuning the base price
Relationships between products
Pricing during difficult economic times
Looking back
Summary
Key concepts
References
CHAPTER 14: Putting it all together: The strategic
marketing plan
Introduction
The nature of strategic planning
The strategic marketing plan
The value of a strategic marketing plan
The elements of a marketing plan
Defining the business mission
Strategic marketing objectives
Identifying opportunities to utilise
Conducting a situation analysis

Assessing the competitive environment
Strategic windows
Assessing the corporate culture
Opportunity-utilisation strategies
Strategic management tools
Competitive advantage
Setting marketing-strategy objectives
Formulating the marketing strategy
Implementation, evaluation and control
of the marketing plan
Writing the marketing plan
Effective strategic planning
Looking back
Summary
Key concepts
References
CHAPTER 15: Marketing in specialised markets
Introduction
Services marketing
How services differ from physical
products
Marketing mixes for services
Sports marketing and marketing through
sport
The special characteristics of sport
The sports product
Licensed and branded sports products
Marketing through sport
Factors contributing to the acceptance of
marketing by non-profit organisations
The dual role of marketing in non-profit
organisations
Sources of competition faced by nonprofit organisations
The unique aspects of non-business
marketing strategies
Business-to-business customers
Classification of business and

government markets
Differences between business-tobusiness and consumer markets
Types of business-to-business products
The business-to-business purchase
process
Travel and tourism marketing
The main sectors of the travel and
tourism industry
The special characteristics of travel and
tourism services
The marketing mix in travel and tourism
Looking back
Summary
Key concepts
References
CHAPTER 16: Sustainable marketing
Introduction
The concept of sustainable marketing
Green marketing
Social marketing
The origins of sustainable marketing
Green consumer segments
Key sustainability issues
Consumer social responsibility and the move
towards sustainability
The role of marketing in sustainability
The impact of sustainable marketing on the
product life cycle
Making the marketing mix more sustainable
Product
Price
Promotion
Distribution
People
Processes
Physical evidence
The disadvantages of a sustainable marketing
approach
Implementing sustainability
Summary
Key concepts
References
Index

Marketing 5e

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"******

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Oxford University Press is a department of the University of Oxford.

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Editor: Sarah Floor

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This edition of Marketing is dedicated to all the

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Abridged Table of Contents

PART ONE Introduction to marketing

Analysing the external

Understanding consumer decisionmaking

Analysing the competitive situation

Information for marketing

Segmenting and targeting markets

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Positioning the firm and its

PART TWO Implementing marketing mix strategies

Developing and managing products

Marketing channels and the role of

Marketing communication strategy

Pricing concepts and setting the

Putting it all together: The strategic

PART THREE Specialised marketing

Marketing in specialised markets

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Relationship marketing orientation

CHAPTER 2: Analysing the external environments influence on

The marketing environment

CHAPTER 3: Understanding consumer decisionmaking

The importance of understanding consumer behavior

Buying behaviour and technology

CHAPTER 4: Analysing the competitive situation

CHAPTER 5: Information for marketing decisionmaking and marketing research

The role of marketing research

CHAPTER 6: Segmenting and targeting markets

CHAPTER 7: Positioning the firm and its products

Planning a positioning strategy

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PART TWO Implementing marketing mix strategies

CHAPTER 9: Developing and managing products

The development stage

CHAPTER 10: Marketing channels and the role of

CHAPTER 11: Marketing communication strategy

The marketing communication process

CHAPTER 12: Implementing marketing communication mix

Steps in the personal-selling process

CHAPTER 13: Pricing concepts and setting the right price

Profit maximisation pricing

CHAPTER 14: Putting it all together: The strategic marketing

The strategic marketing plan

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PART THREE Specialised marketing

Travel and tourism marketing

CHAPTER 16: Sustainable marketing

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To reflect a South African and southern African

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Todays marketers face a market environment that is

marketed, but our emphasis is on the marketing of products.

do? Which marketing strategies can I use? What are

Learning outcomes: Chapter learning outcomes are the

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