BBPM2103 Bi PDF

OUM Business School
BBPM2103
Marketing Management I
Copyright © Open University Malaysia (OUM)

BBPM2103
MARKETING
MANAGEMENT I
Zahari Mohamad
Nor Pujawati Md. Said
Abdul Rahim Othman
Sany Sanuri Mohd. Mokhtar
Noor Hasmini Abd. Ghani
Loo Sze Wei

Project Directors: Prof Dato’ Dr Mansor Fadzil
Prof Dr Wardah Mohamad
Open University Malaysia
Module Writers: Zahari Mohamad

Nor Pujawati Md. Said
Abdul Rahim Othman
Sany Sanuri Mohd. Mokhtar
Noor Hasmini Abd. Ghani
Universiti Utara Malaysia
Loo Sze Wei

Moderator: Dr Rosli Salleh

Universiti Putra Malaysia
Developed by: Centre for Instructional Design and Technology

First Edition, August 2007

Second Edition, December 2013 (rs)
Copyright © Open University Malaysia (OUM), December 2013, BBPM2103
All rights reserved. No part of this work may be reproduced in any form or by any means
without the written permission of the President, Open University Malaysia (OUM).

Table of Contents
Course Guide ix-xvii
Topic 1 Marketing in the New Era 1

1.1 Business Dynamics 2
1.2 Marketing Management 2
1.2.1 Needs 3
1.2.2 Wants 3
1.2.3 Offer 4
1.2.4 Business Transaction 5
1.3 Development of Concept of Marketing 6
1.3.1 Production 7
1.3.2 Product 7
1.3.3 Sale 7
1.3.4 Marketing 8
1.4 Elements and Scope of Marketing Management 9
1.4.1 Elements of Marketing Mix 10
1.5 Challenges of Marketing Management 11
Summary 11
Key Terms 12
Topic 2 Marketing Adaptation in the New Economy 13

2.1 Main Drivers of New Economy 14
2.1.1 Digitalisation and Connectivity 14
2.1.2 Disintermediation and Reintermediation 15
2.1.3 Customisation and Customerisation 15
2.1.4 Industry Convergence 16
2.2 Changes in Business Practice 16
2.2.1 Marketing Management Based on Customer
Segmentation 16
2.2.2 Customer Lifetime Value 17
2.2.3 Financial Scorecard and Marketing Scorecard 17
2.2.4 Stakeholders 17
2.2.5 Marketing Activity by Workers 17
2.2.6 Branding through Company Performance 18
2.2.7 Customer Retention 18
2.2.8 Detailed Yardstick of Customer Satisfaction 18
2.2.9 Under-Promises and Over-Delivery 18
2.2.10 New Hybrid 19

iv TABLE OF CONTENTS
2.3 Changes in Marketing 19

2.3.1 Internet Domain: B2C (Business to Customer) 20
2.3.2 Internet Domain: B2B (Business to Business) 20
2.3.3 Internet Domain: C2C (Customer to Customer) 21
2.3.4 Internet Domain: C2B (Customer to Business) 22
2.4 Changes in Marketing Practice: Website 23
2.4.1 Designing an Attractive Website 23
2.4.2 Placement of Advertisements and Promotion Online 24
2.4.3 Construction of Revenue and Profit Model 24
2.5 Changes in Market Practice: Customer Relationship
Marketing (CRM) 25
2.5.1 Customer Database and Database Marketing 26
2.5.2 Utilising Customer Database 26
2.5.3 Problems of Database Marketing 27
Summary 28
Key Terms 29
Topic 3 Attaining Customer Satisfaction, Value and Retention 30

3.1 Customer Satisfaction 31
3.1.1 Customer Value 32
3.1.2 Customer Satisfaction 33
3.2 Maximising Customer Satisfaction and Value 34
3.2.1 Quality in Marketing 35
3.2.2 Relationship Marketing 37
3.2.3 Customer Retention 37
Summary 38
Key Terms 39
Topic 4 Market-Oriented Strategic Planning 40

4.1 Marketing Management Process 41
4.2 Process of Strategic Marketing Planning 41
4.2.1 Business Definition 42
4.2.2 Market Environment Analysis 44
4.2.3 Business Portfolio Analysis 46
4.2.4 Setting Goals and Objectives 51
4.2.5 Designing Marketing Strategy 52
4.2.6 Designing Marketing Tactics 52
4.2.7 Marketing Control 53
4.3 Marketing Plan 54
4.3.1 Content Format of Marketing Plan 55
4.3.2 Report Format of Marketing Plan 55
Summary 58
Key Terms 58

TABLE OF CONTENTS  v
Topic 5 Obtaining Information and Measuring Market Demands 59

5.1 Marketing Information System 60
5.1.1 Internal Record 61
5.1.2 Marketing Intelligence 62
5.1.3 Marketing Research 62
5.1.4 Marketing Decision Support System 63
5.2 Implementation of Marketing Research 63
5.2.1 Implementation of Marketing Research Process 64
5.2.2 Criteria of Good Research 65
5.3 Research Process 67
5.3.1 Identifying Issues and Setting Research Objectives 68
5.3.2 Designing Research Plan 69
5.3.3 Information Gathering 76
5.3.4 Information Analysis 77
5.3.5 Reporting Research Results 77
5.4 Market Forecasting 78
5.4.1 Market Demand Measurement 78
5.4.2 Defining the Market 79
5.4.3 Demand Measurement and Estimation 81
5.4.4 Current Demand Estimation 83
5.4.5 Potential Demand Estimation 84
Summary 87
Key Terms 87
Topic 6 Market Environment Analysis 88

6.1 Macro Environment 89
6.1.1 Demography 89
6.1.2 Economy 90
6.1.3 Natural 90
6.1.4 Technology 90
6.1.5 Legal 91
6.1.6 Cultural 91
6.2 Micro Environment 92
6.2.1 CompanyÊs Internal Environment 93
6.2.2 Suppliers 93
6.2.3 Distribution Channel 94
6.2.4 Customers 94
6.2.5 Competitors 94
6.2.6 Public 94
Summary 95
Key Terms 96

vi TABLE OF CONTENTS
Topic 7 Understanding Individual ConsumersÊ Behaviour 97

7.1 Influencing Factors 98
7.1.1 Cultural 98
7.1.2 Social 99
7.1.3 Personal 100
7.1.4 Psychology 101
7.2 Buying Roles 103
7.3 Buying Behaviour 104
7.4 Stages in Buying Decision Making 106
7.4.1 Identifying the Problem 106
7.4.2 Searching for Information 107
7.4.3 Evaluating Alternatives 107
7.4.4 Buying Decision 108
7.4.5 Post-Purchase Behaviour 108
Summary 109
Key Terms 110
Topic 8 Understanding Organisational ConsumersÊ Behaviour 111

8.1 Organisational Market Product and Services Categories 112
8.1.1 Organisational Market Products 112
8.1.2 Organisational Market Services 113
8.2 Characteristics of Organisational Market 113
8.2.1 Type of Demand 114
8.2.2 Informed Buyers 115
8.2.3 Market Size 115
8.2.4 Promotion Techniques 115
8.2.5 Buying Centre 116
8.3 Main Influencers of Organisational ConsumersÊ Behaviour 116
8.3.1 Environment 117
8.3.2 Organisation 117
8.3.3 Interpersonal 118
8.3.4 Individual 118
8.4 Buying Situations 118
8.4.1 New Task Buying 119
8.4.2 Modified Rebuy 119
8.4.3 Straight Rebuy 120

TABLE OF CONTENTS vii
8.5 The Buying Process of Organisational Market 120

8.5.1 First Stage: Identifying Problem 121
8.5.2 Second Stage: Identifying Product Specification 121
8.5.3 Third Stage: Listing Suppliers and Making Offer
to Suppliers 122
8.5.4 Fourth Stage: Selecting Supplier and Routine
Order Specifications 122
8.5.5 Fifth Stage: Post-Purchase Consumer Behaviour 122
8.6 Membership in Organisational Purchasing Process 123
Summary 125
Key Terms 126
Topic 9 Managing Competition 127

9.1 Identifying the Competitors 128
9.1.1 Analysing Competition from Market Concept 128
9.1.2 Analysing Competition from Industrial Concept 128
9.2 Analysing Competitors 130
9.2.1 Strategy 131
9.2.2 Objectives 131
9.2.3 Strengths and Weaknesses 131
9.2.4 Reaction Pattern 131
9.3 Designing Competition Intelligence System 132
9.4 Designing Competition Strategy 133
9.4.1 Market Leader Strategy 133
9.4.2 Market Challenger Strategy 134
9.4.3 Market Follower Strategy 135
9.4.4 Market Nicher Strategy 135
9.5 Balancing Competition and Consumer Orientation 136
Summary 137
Key Terms 138
Topic 10 Identifying and Selecting Market Segment 139

10.1 Level of Segmentation 140
10.1.1 Mass Marketing 140
10.1.2 Segment Marketing 141
10.1.3 Niche Marketing 142
10.1.4 Individual Marketing 142
10.2 Individual ConsumersÊ Market Segmentation Bases 143
10.2.1 Segmentation Based on Geographical Factor 143
10.2.2 Segmentation Based on Demographic Factor 143
10.2.3 Segmentation Based on Psychographic Factor 144
10.2.4 Segmentation Based on Consumer Behaviour 145

viii TABLE OF CONTENTS
10.3 Segmentation Bases for Industrial/Organisational

Consumers 148
10.4 Characteristics of a Good or Effective Market Segment 149
10.5 Market Targeting 150
Summary 153
Key Terms 153
Answers 154

COURSE GUIDE

COURSE GUIDE xi
COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through
the course material. It also suggests the amount of time you are likely to spend in
order to complete the course successfully. Please keep on referring to the Course
Guide as you go through the course material as it will help you to clarify
important study components or points that you might miss or overlook.
INTRODUCTION
BBPM2103 Marketing Management I is one of the courses offered by the Faculty
of Business and Management at Open University Malaysia (OUM). This course is
worth 3 credit hours and should be covered over a period of 15 weeks.
COURSE AUDIENCE
This course is offered to all students taking the Bachelor of Management, Bachelor
of Marketing, Bachelor of Business Administration, Bachelor of Tourism
Management and Bachelor of Human Resource Management programmes. This
module aims to impart the fundamentals of marketing management.
As an open and distance learner, you should be able to learn independently and
optimise the learning modes and environment available to you. Before you begin
this course, please ensure that you have the right course materials, understand
the course requirements, as well as know how the course is conducted.
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend 120
study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.

xii COURSE GUIDE
Table 1: Estimation of Time Accumulation of Study Hours
Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussions 3
Study the module 60
Attend 3 to 5 tutorial sessions 10
Online participation 12
Revision 15
Assignment(s), Test(s) and Examination(s) 20
TOTAL STUDY HOURS 120
COURSE OUTCOMES
By the end of this course, you should be able to:
1. Interpret the marketing management process and relate to the challenges of

marketing management faced by organisations in the new era;
2. Appraise the environments that affect marketing management process,

particularly consumers and competitors;.
3. Analyse marketing opportunities and ways to manage competition;
4. Distinguish between the behaviour of individual consumers and

organisational consumers; and
5. Select effective marketing segments.

COURSE GUIDE xiii
COURSE SYNOPSIS
This course is divided into 10 topics. The synopsis for each topic is presented
below:
Topic 1 provides a detailed scenario of marketing, an efficient and effective

marketing management process and the challenges faced by organisations in
enhancing competitiveness and sustainability in the new era. You will also be
exposed to strategies and tactics resulting from the development of new
technology such as advertisements in the mass media and communication with
users through websites.
Topic 2 focuses on marketing adaptation in the new economy. Some major

drivers of the new economy which will be discussed are digitalisation and
networking, elimination and reuse of distribution medium, customisation and
customerisation as well as industrial focus. The topic also discusses beliefs and
old business practices and changes in marketing practice such as the introduction
of e-commerce, websites and customer relationship marketing (CRM).
Topic 3 illustrates the need to create an efficient and effective marketing

management process to maximise customer satisfaction through high quality and
value offers which lead to consumer retention. The success of directly retaining
customers will help the organisation to survive in the market and compete in the
long run.
Topic 4 invites you to identify and understand the formative process of strategic
marketing planning. Through this topic, you will be exposed to the concept of
strategic marketing management, beginning with identifying a business venture
and ending with the measures needed to control and evaluate the implementation
of marketing activities. Marketing plan, which is the main strategic planning
method in marketing management, will also be discussed.
Topic 5 discusses the concept and importance of a marketing information system

in assisting marketing managers to select and plan effective marketing
management. Besides discussing all the components of the marketing
information system, this topic also explains the marketing research process and
method of estimating potential market and real market.
Topic 6 discusses in detail each macro factor that affects the marketing
management process. Among the factors discussed are the demographic, social,
cultural, economical, political, legal and natural environment factors.

xiv COURSE GUIDE
Topic 7 explains factors which affect individual consumersÊ decision-making

process in making purchases. These are consumers who buy products for
personal and household use. In addition to discussing their decision-making
process in detail, this topic also elaborates on the main factors that influence the
process.
Topic 8 focuses on organisational consumer behaviour. Other than discussing the

decision-making process in making purchases and its influencing factors, the
topic also explains why marketers need to differentiate consumers into the two
categories of individual consumer and organisational consumer. In addition, the
topic explains the main categories of organisational consumers, which are
business consumers (including industrial), government consumers and
institutional consumers.
Topic 9 explains the concepts of competition and competition management.

Through this topic, you will be able to classify marketers in certain markets
according to their relative control of market share and the type of competition
strategies practised. There are four categories of marketers, which are market
leader, market contender, market follower and market nicher. This topic also
presents the basics of marketing management to come up with a better and more
effective competition management strategy.
Topic 10 discusses market segmentation, which is marketersÊ approach of

grouping the market according to certain traits. It comprises a few important
phases. For example, the first phase illustrates basic marketing that can be used
by marketers to shape the market segment profile while the second phase will
explain the factors which need to be considered by marketers in evaluating and
deciding on the best market segment to be approached.
TEXT ARRANGEMENT GUIDE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:
Learning Outcomes: This section refers to what you should achieve after you
have completely covered a topic. As you go through each topic, you should
frequently refer to these learning outcomes. By doing this, you can continuously
gauge your understanding of the topic.

COURSE GUIDE xv
Self-Check: This component of the module is inserted at strategic locations

throughout the module. It may be inserted after one sub-section or a few sub-
sections. It usually comes in the form of a question. When you come across this
component, try to reflect on what you have already learnt thus far. By attempting
to answer the question, you should be able to gauge how well you have
understood the sub-section(s). Most of the time, the answers to the questions can
be found directly from the module itself.
Activity: Like Self-Check, the Activity component is also placed at various locations
or junctures throughout the module. This component may require you to solve
questions, explore short case studies, or conduct an observation or research. It may
even require you to evaluate a given scenario. When you come across an Activity,
you should try to reflect on what you have gathered from the module and apply it
to real situations. You should, at the same time, engage yourself in higher order
thinking where you might be required to analyse, synthesise and evaluate instead
of only having to recall and define.
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should
be able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.
References: The References section is where a list of relevant and useful

textbooks, journals, articles, electronic contents or sources can be found. The list
can appear in a few locations such as in the Course Guide (at the References
section), at the end of every topic or at the back of the module. You are
encouraged to read or refer to the suggested sources to obtain the additional
information needed and to enhance your overall understanding of the course.
PRIOR KNOWLEDGE
No prior knowledge is required.

xvi COURSE GUIDE
ASSESSMENT METHOD
Please refer to myINSPIRE.
REFERENCES
Bagozzi, R. P., Rosa, J. A., Celly, K. S., & Coronel, F. (1998). Marketing
management. New Jersey: Prentice Hall.
Dalrymple, D. J., & Parsons, L. J. (1999). Marketing management: Text and cases,
(7th ed.). New York: John Wiley & Sons.
Harrel, G. D. (2003). Marketing: Connecting with customers (2nd ed.). New

Jersey: Prentice Hall.
Hoffman, D. K., & Bateson, J. E. G. (2001). Essentials of services marketing (2nd

ed.). Fort Worth: The Dryden Press.
Kotler, P., & Armstrong, G., (2005). Principles of marketing (11th ed.). New
Jersey: Prentice Hall.
Kotler, P., Ang, S. H., Leong, S. M., & Tan, C. H. (2004). Marketing management:
an Asian Perspective (3rd ed.). Singapore: Prentice Hall.
Lamb, C. W., Hair, J. F., & McDaniel, C. (2001). Marketing (6th ed.). Canada:
South-Western Publishing.
Mowen, J. C., & Minor, M. (1997). Consumer behaviour (5th ed.). New Jersey:
Prentice Hall.
Shiffman, L. G., & Kanuk, L. L. (2003). Consumer behaviour (8th ed.). New Jersey:
Prentice Hall.
Zeithaml, V. A., & Bitner, M. J. (2002). Services marketing: Integrating customer

focus across the firm (3rd ed.). Boston: Irwin-McGraw-Hill.

COURSE GUIDE xvii
TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for the
use of its learners. This comprehensive digital library, which is accessible through
the OUM portal, provides access to more than 30 online databases comprising e-
journals, e-theses, e-books and more. Examples of databases available are
EBSCOhost, ProQuest, SpringerLink, Books24x7, InfoSci Books, Emerald
Management Plus and Ebrary Electronic Books. As an OUM learner, you are
encouraged to make full use of the resources available through this library.

xviii COURSE GUIDE

Topic Marketing in
1 the New Era
LEARNING OUTCOMES
By the end of this topic, you should be able to:

1. Identify the marketing mix elements of 4Ps and 7Ps and the scope of
marketing management;
2. Discuss the concept of marketing management;
3. Explain the four major concepts of the world trade development
philosophy;
4. Describe the elements and scope of marketing management; and
5. Assess the challenges of marketing management.
INTRODUCTION
The role of marketing in enhancing the competitiveness and continuity of an
organisation in the market has been realised by many organisations. In order for an
organisation to form an efficient marketing management process, it not only needs
to understand the concept of marketing but also the conceptÊs development,
elements and scope.
In this topic, we will discuss marketing knowledge from the aspect of marketing
concept, marketing management and marketing management process.

2 TOPIC 1 MARKETING IN THE NEW ERA
1.1 BUSINESS DYNAMICS

Human experiences in the past era have proven that every second, an
organisation will face new challenges. The attributes or intensity of the
challenges are becoming more complex and varied. The greatest and hardest
challenge that shapes the new era is that the world is becoming smaller and time
is moving faster. The development of technology has made users more sensitive
to information. The number of informed human beings increases day by day.
The rise of sophisticated technology has caused competitors to use new strategies
and tactics in business. Therefore, marketers have been forced to also use the
latest business strategies and tactics brought about by technological
advancement. For example, besides airing commercials through the mass media,
marketers also need to create websites and interact readily with consumers
through online communication. For instance, Nestlé (Malaysia) Limited practises
online communication marketing through its website at www.nestle.com.my.
Similarly, Proton Berhad has its own website at www.proton.com.my and TV3
has its website at www.tv3.com.my.
The formation of a marketing strategy which is marketing-oriented requires an

organisation to understand and embrace the marketing concept. This will enable
the organisation to apply marketing-oriented organisational management
processes. The discussion in the next part of this topic will help you to obtain a
better grasp of the concept of marketing management.
SELF-CHECK 1.1
What do you understand about the field of marketing management?
1.2 MARKETING MANAGEMENT

Marketing management is a combination of two major disciplines, which are
management and marketing.
Management is a process of planning, organising, leading and controlling

the efforts of organisation members and of using all other organisational
resources to achieve stated organisational goals. (Stoner et al., 1995).

TOPIC 1 MARKETING IN THE NEW ERA 3
Most business experts accept the definition of marketing provided by the

American Marketing Association (AMA). AMA defined marketing as follows:
Marketing is the activity, set of institutions, and processes for creating,

communicating, delivering and exchanging offerings that have value for
customers, clients, partners and society at large (AMA, 2007).
In essence, the concept of marketing management has four important elements:
(a) Needs;
(b) Wants;
(c) Offer; and
(d) Transaction.
ACTIVITY 1.1
How do you relate profit, which is the most important factor to ensure
that an organisation remains in the market, to market orientation?
1.2.1 Needs
The most basic concept in marketing is human needs (Kotler & Armstrong, 2005).
A need is a situation or a feeling of inadequacy which is felt by an individual that
needs to be fulfilled. For example, the basic needs of human beings are food,
shelter and safety.
1.2.2 Wants
While needs refer to the most basic necessities, wants refer to a higher level of
needs. For example, a man who is hungry needs to eat food but wants to eat rice,
laksa or bread. Wants are needs translated into the form of products or services.
Humans have unlimited wants but limited resources. As a result, they have to
choose products or services that offer the most value for their money.

1.2.3 Offer
Offer refers to marketing mix, which reflects a marketerÊs strategies and tactics to
influence a transaction. Marketing mix includes product, pricing, distribution
(place) and promotion, better known as 4Ps. Refer to Figure 1.1.
Figure 1.1: Marketing mix
After identifying the needs and wants of consumers, marketers have to provide
offers that are able to fulfil both needs and wants. Marketers have to:
Provide goods which suit customersÊ needs and wants;
Provide goods at a price that customers are willing to pay;
Distribute goods in locations that can be easily accessed by customers;
Customers must be aware of the goodsÊ existence and feel that by buying and
using these, their needs and wants can be fulfilled.
(a) Product
Products are marketersÊ offers to be seen, tested and used for personal
purpose, household, reproduction or resale. Products are divided into two
main categories tangible and intangible. Tangible products are known as
goods while intangible products are called services.
(b) Pricing
Pricing refers to final price management which has been adopted by a
marketer. Pricing decisions are usually influenced by three main factors
costs, consumers and competitors.

(c) Distribution (Place)

Products that are ready and matched with the price scale need to be
channelled to the market through a distribution channel to facilitate the
acquisition of the products by consumers. There are two important
decisions regarding the distribution channel, namely, on the type and
management of the distribution.
(d) Promotion
Promotion is the element in the marketing mix that is used to inform,
persuade and remind consumers about the existence of a product. The
methods of promotion are advertisement, sale promotion, personal sale,
public relations and publicity, or better known as promotion mix, have to
be managed to ensure overall success to persuade the consumer.
While managing every element in the marketing mix, marketers must manage
each element in balance. Marketers should not assume that attention should be
given to only one element, for example, stressing only on product strategy and
tactic management while ignoring all other elements. This is called marketing
myopia. The concept of marketing myopia will be discussed later in this topic. In
order to create an offer that is able to fulfil the needs and wants of consumers,
marketers must manage all the elements of the marketing mix equally.
1.2.4 Business Transaction

Business transaction refers to the process of exchanging offers between marketers
and consumers. In the concept of marketing, business transaction is the process
of exchanging offers that is able to maximise consumer satisfaction or fulfil the
objectives of an organisational consumer. All the steps in the marketing
management process should focus on maximising and fulfilling consumersÊ
objectives. The question is, how can such transaction be created by marketers?
The discussion on the development of marketing philosophy should be able to
answer this question.

EXERCISE 1.1
1. MarketersÊ offer is actually or better known as 4Ps. What is meant by

the term „marketing mix‰?
2. How much do the concepts of needs and wants differ (based on the
marketing perspective)?
3. Differentiate between marketing mix and promotion mix.
4. Which element of the marketing mix is the most important and can
be managed separately by marketers? Give your opinion.
1.3 DEVELOPMENT OF CONCEPT OF

MARKETING
The concept of marketing is not a philosophy or business concept that was the
first to be practised by organisations around the world. The development of
business world philosophy can be categorised into four major concepts:
(a) Production;
(b) Product;
(c) Sale; and
(d) Marketing.
All four concepts exist to fulfil environmental demands or current needs and are
the results of the failure of business concepts practised earlier. Although in terms
of history, the development of world business philosophy can be classified
according to period of years, and even though the decade of practising those
business philosophies have long gone, there are still some organisations which
still practise the concepts according to the trends or the history of the business
world.

1.3.1 Production
World business philosophy started when the world, more specifically Western
countries, underwent the Industrial Revolution at the end of the 18th century.
Since the world business is shaped by the growth of industries, most business
organisations practise the concept of production.
The concept presumes consumers tend to acquire low-priced products which are
easily obtained anywhere. Therefore, marketers focus on mass production at
lower cost. Mass production allows producers to enjoy the economy of scale
(higher number of products being produced means lower cost per unit). Besides
enjoying a relatively lower production cost, mass production allows producers to
offer their products at more locations closer to consumers.
1.3.2 Product
After the involvement of many nations in World War I and the recession of the
world economy in the 1920s, marketers were unable to market their products
because of abrupt decline in consumersÊ buying power. As a result, marketers
had to bear huge losses as they were unable to market as many products as
before. Hence, the idea to come up with high quality and attractive products
emerged.
This idea seemed practical as marketers assumed that even though a product was
expensive, consumers would still buy it because of its characteristics and quality.
This business philosophy is known as the concept of product. However, after the
world again went into recession in the 1930s, the concept also took a fall.
1.3.3 Sale
The decline of the concept of product forced marketers to come up with a new
concept which assumes that if left alone, consumers will not buy any marketed
products. Therefore, consumers have to be influenced to buy, through aggressive
marketing activities, namely, promotion and sales. This philosophy is known as
the concept of sale. However, this concept also took a fall when World War II
took place in the 1940s.

1.3.4 Marketing
In the three concepts mentioned previously, business orientations begin with
marketersÊ assumption of consumers (focused on the producer). Through the
fourth concept, all the business processes begin with consumers (focused on
consumers). This business philosophy is known as the concept of marketing. This
concept is very different from the earlier business concepts. Figure 1.2 explains
the differences between this concept and the other three concepts.
Figure 1.2: Difference between the concept of marketing and

the concepts of production, product and sale
Based on Figure 1.2, marketers who hold on to the concept of marketing have to
get to know the consumers first, particularly their needs and wants. Every strategy
of the marketer must focus on the maximisation of consumer satisfaction.
The success of this concept made it popular among many organisations until
today. The concept of marketing not only stays firm in world development but
continues to undergo positive changes in line with changes in the world such as
green marketing, societal marketing, relationship marketing and borderless
marketing.
Even though the marketing concept has been proven to be the only competitive
business philosophy, there are still some marketers who practise the concepts of
production, product and sale even though they are no longer popular. These are
marketers who are narrow-minded, focus only on short-term profits or still enjoy
the monopolisation of certain markets.

Marketers who only pay attention to one element out of the four elements in
marketing mix, particularly products, are said to have marketing myopia.
Marketing myopia refers to the practice of the wrong business orientation or

strategies by marketers. Usually, marketers with marketing myopia overly focus
on product strategies alone. Marketers with marketing myopia will usually face
failure as a result of ignoring consumer satisfaction in designing their marketing
strategies. There should be integrated marketing strategies which encompass all
the marketing mix elements in a harmonious balance.
1.4 ELEMENTS AND SCOPE OF MARKETING

MANAGEMENT
The elements and scope of marketing management are elaborated through the
marketing management processes. These processes are illustrated in Figure 1.3.
Figure 1.3: Marketing management processes

Source: Adapted by Bagozzi, et al (1998)

ACTIVITY 1.2
Based on Figure 1.3, briefly explain how a marketing manager can handle
the processes of marketing management.
Marketing management processes begin with effort by marketers to reconstruct all

their resources and suit them to the abilities, challenges and opportunities faced by
their organisation. Marketers may be able to understand the environment they face
with a thorough environmental analysis.
Marketing environment is divided into two: internal and external environment.

After identifying the abilities and external environmental factors, marketers have
to organise strategies and tactics through their efforts to design the product, price,
distribution and promotion, tactic and strategies.
After planning and organising the marketing mix strategies, marketers have to
carry out each strategy and tactic. This requires a marketer to lead (instruct) all
human and non-human resources to reach his goals and objectives. While the
processes are being carried out, the marketer has to make sure that each strategy
and tactic that has been planned is carried out efficiently and effectively. This
requires the marketer to come up with a mechanism to control, oversee and
evaluate the whole process.
The success of the marketer in creating an efficient and effective marketing

management process will benefit his organisation by increasing financial profit,
reducing production (operation) cost and enabling the organisation to be
sustainable in the market. It will also benefit consumers and the community.
1.4.1 Elements of Marketing Mix

Marketing mix, or better known as 4Ps, refers to the main strategy elements that
need to be designed and managed by marketers to come up with a value
exchange process that will maximise consumer satisfaction. Products, price, place
and promotion are the four elements that build the marketing mix.
However, for services marketing, the marketing mix for business organisations is
known as 7Ps. This is because service marketers also need to support the services
marketing process by having:
(a) Physical evidence such as a trademark, direction or interior design;

(b) Human management (persons) who are the staff and consumers; and
(c) A service delivery process.
EXERCISE 1.2
1. The essence of business philosophy based on marketing started from

____________________.
2. The marketing concept of ____________________ emphasises the

long-term relationship which benefits marketers and consumers.
3. What is the main reason marketers who practise other concepts

besides the concept of marketing fail in their business?
4. What does marketing myopia mean? How does it affect the ability of
marketers to be sustainable in the market of the new era?
5. How do you use the definition of marketing by the American

Marketing Association to explain the marketing process as illustrated
in Figure 1.3?
6. How does the marketing process influence the tastes of consumers

and the prosperity of the community?
1.5 CHALLENGES OF MARKETING

MANAGEMENT
The market is normally dynamic and has various life cycles; at times it prospers,
stagnates and even deteriorates. Every change that it goes through usually will
make the market more mature or raise the environmental quality. Therefore,
marketers must be ready to face challenges and market dynamics.
The new era of marketing promises new challenges that need to be embraced
by every organisation.
A strategic and effective marketing management needs to be enforced to

ensure dynamic business management.

Business Production
Dynamics Product
Marketing Pricing
Marketing mix Sale
Needs Transaction
Offer Wants

Topic Marketing
2 Adaptation
in the New
Economy
LEARNING OUTCOMES
1. Explain the main drivers of the new economy;
2. Discuss changes in business and marketing practice which are caused
by the new economy; and
3. Examine how marketers use the Internet, customer database and
Customer Relationship Management (CRM) to conduct their business.
INTRODUCTION
These days, companies need new thinking on ways to operate and succeed in the
new economy. The new economy, which emerged in the last few decades,
requires a new marketing and business practice. The new economy also
encompasses some traits of the old economy. Marketers must know what is
meant by the new economy and the steps needed to make their organisations
sustainable in the new economy.
In this topic, the main drivers of the new economy will first be explained. Next,
we will discuss how business marketing and practice have changed. After that,
we will see how companies use the Internet, customer database and Customer
Relationship Management (CRM) to improve their marketing performance.

14 TOPIC 2 MARKETING ADAPTATION IN THE NEW ECONOMY
2.1 MAIN DRIVERS OF NEW ECONOMY
SELF-CHECK 2.1
Globalisation, international trade agreements such as AFTA (Asean Free

Trade Agreement), development of information technology, changes in
information technology activities, shift in economic activities to become
knowledge based (in tandem with K-economy) and various new
challenges in the business and marketing world in the new millennium
have driven many organisations to form efficient and effective business
management in order to be competitive and proactive in addressing the
challenges and opportunities in the new economy. As one of the
successors who will lead and determine the rise and fall of the
Malaysian economy, why is it important for you to understand the new
economy?
There are many factors that shape and determine the new economy. This section
will discuss the four main drivers in shaping the new economy.
2.1.1 Digitalisation and Connectivity

At present, most electronic devices and information technology are in digital
form. Data and information can be sent from one electronic device to another
much easier, faster and more accurately. This can be done by connecting an
electronic device with another through wire communication or others. This
created the Intranet, Extranet and e-commerce which have changed the shape of
the old economy into the new economy.

TOPIC 2 MARKETING ADAPTATION IN THE NEW ECONOMY 15
ACTIVITY 2.1
Please visit http://www.angelfire.com/uitmsegamat/keuntungan.html

to learn about the development of the Internet, Intranet and Extranet and
their importance in the field of business and marketing.
You may also read an article on cyber-economy in:

http://www.globaltechnology.co.id/library/articles/eCommerce/
article003.htm
2.1.2 Disintermediation and Reintermediation

The advancement of technology allows a firm to offer goods and services online.
As a result, we now have pure click companies, which are companies that exist
only in digital form without any physical existence. Traditional companies are
facing the threat of being eliminated by these e-retailers.
Even though some intermediators have lost their businesses, new intermediators
have emerged to supply Internet services for businesses and customers to make
modern business trade a success. These are the main drivers of the new economy.
2.1.3 Customisation and Customerisation

Customisation is different from customerisation. Customisation means a
company can offer a variety of products and services according to a specific
order or a customer Ês taste, whether the products or services are ordered
personally, by telephone or online. Marketers design their products or services
according to customersÊ needs. The company acts as a provider of a facility or
service for the customer in order to complete the transaction.
On the other hand, customerisation means a combination of operational and

marketing customisation. A company has to be able to interact with each
customer personally in terms of the message, services and customer relations.
Customers can place an order for goods, services, price and distribution channel
according to their personal choice. A company is said to have a customerisation
trait if it is able to communicate with its customers individually and respond by
modifying its goods and services according to customersÊ taste. Customisation
and customerisation are among the main drivers that shape the new economy.

2.1.4 Industry Convergence

The borders of industries have become indistinct at an alarming rate day by day.
This is because more companies attempt to apply techniques and knowledge
from other industries to increase their competitiveness. For example, a
pharmaceutical company basically is a chemical company which uses its
technology and knowledge of biology to formulate new medicines. Film
companies such as Fuji and Kodak are also basically chemical companies.
However, these companies are undergoing a change to become electrical
companies as they start to use electronic technology to produce their films in
electronic form. Therefore, it becomes harder to identify the boundaries between
industries in the new economy environment.
ACTIVITY 2.2
To obtain more information on the Fuji and Kodak companies and learn
about their products and services, visit:
http://www.fujifilm.com
http://www.kodak.com
2.2 CHANGES IN BUSINESS PRACTICE

Changes that occur in technology and economy have resulted in a new set of
business beliefs and practice, which are explained in this section. .
2.2.1 Marketing Management Based on Customer

Segmentation
Usually, a company with more than one product will organise managers or a
marketing section to manage the products. However, now some companies
organise marketing groups to fulfil the needs of various customer groups such as
households and companies,, which have different purchasing behaviour. This
shows that marketing management has shifted from marketing management
based on product unit to marketing management based on customer segment.

2.2.2 Customer Lifetime Value

Usually, companies only need to focus on the profit of each transaction.
Companies in the new economy, however, have added one more convergence for
their trade, which is the convergence for customer lifetime value. These
companies will design offers and prices that will benefit both parties in the long
run.
2.2.3 Financial Scorecard and Marketing Scorecard

Other than the monetary balanced scorecard frequently used by company
management in the old economy, the company management will look at its
marketing balanced scorecard to interpret happenings in the stock market (not
only sales revenue), rate of lost customers, customer satisfaction, product quality
compared to its competitors and many more. Company management in the new
economy will use these markers to project company performance.
2.2.4 Stakeholders
The focus of the company management in the old economy is solely on the
benefits of the shareholders and views the cost of other stakeholders such as the
workers wages, goods distribution channelling cost and the supplier as a burden
that will only reduce the companyÊs profit. On the contrary, company
management in the new economy sees that these parties play important roles in
realising the companyÊs mission. They believe that the success of the company
depends on the performance of all the parties.
2.2.5 Marketing Activity by Workers

Usually, a company will form a marketing department to market its goods or
services. This will cause other departments in the organisation to assume that
their departments are not responsible for marketing products or services offered
by the company. However, in the new economy, every employee or department
plays an important role in making marketing activities successful and in turn,
accomplish the companyÊs mission.

2.2.6 Branding through Company Performance

In the old economy, advertising was effective to build knowledge and brand
inclination. However, brand recognition depends on customersÊ experience of
using a companyÊs goods and services and by word of mouth. Thus, the
company has to consider its performance in the process of fulfilling customersÊ
needs in order to create a high equity brand.
2.2.7 Customer Retention

Most companies in the old economy increased their sales by focusing on
customer acquisition and paying marketers a big sum of money for every new
customer acquired. As a result, marketers rarely focused on customer retention.
This caused some customers to be dissatisfied with a new product or service
offered by a company and subsequently stop using the product or service. On the
other hand, companies in the new economy pay more attention to customer
retention because the cost of acquiring new customers is considerably higher
than the cost of maintaining old customers.
2.2.8 Detailed Yardstick of Customer Satisfaction

Almost all of the old economy companies fail to measure customer satisfaction
and the factors affecting it. However, more and more new economy companies
have begun to emphasise and highlight the measuring of customer satisfaction.
These companies began to use knowledge and technology from other fields such
as statistics to design a measurement model that is intended to measure customer
satisfaction.
2.2.9 Under-Promises and Over-Delivery

In the old economy, some marketers make empty promises to customers. On the
contrary, companies in the new economy realise that customer satisfaction is
determined by customersÊ expectations of the companyÊs performance in
fulfilling the customersÊ needs. Therefore, companies demand message
customisation with their promises. As a result, some of the companies under-
promise and over-deliver to increase customer satisfaction. Thus, marketers need
to gauge the internal ability of the company before making promises to
customers. Marketers must avoid making empty promises to customers.

2.2.10 New Hybrid

Most companies at present are hybrids or a mixture of new and old economy
companies. Companies must maintain their efficiency and expertise which have
brought them success and acquire new efficiency and comprehension to develop
and grow. The market today is a combination of traditional customers (customers
who do not buy online), cyber customers (customers who buy online) and hybrid
customers (customers who do both). Therefore, companies should engage in both
traditional and online transactions to fulfil the needs of all customers.
ACTIVITY 2.3
In your opinion, how do the changes in business and marketing practice

influence a companyÊs retail business?
2.3 CHANGES IN MARKETING

E-commerce is the use of electronic methods and platform to perform a business.
E-commerce is more specific than e-business. E-commerce allows customers to
do their transactions online as well as obtain information about a companyÊs
background, policies, goods and services.
E-commerce has enabled electronic purchasing and marketing. E-commerce and

e-business can be classified into four Internet domains: business to customer
(B2C), business to business (B2B), customer to customer (C2C) and customer to
business (C2B).
ACTIVITY 2.4
To know more about the e-business model, visit this website:

http://www.ituris.com/English/EnterpriseInfo/E1 34.asp.

2.3.1 Internet Domain: B2C (Business to Customer)

B2C web page is the most useful in marketing goods and services when
customers desire and prioritise the comfort of ordering or a lower buying cost. It
is also useful when customers need certain information regarding the quality and
price of certain goods and services. However, the Internet is least useful for
products that must be felt or tested before purchasing. See Figure 2.1.
Figure 2.1: B2C model
2.3.2 Internet Domain: B2B (Business to Business)

Business activities conducted in B2B websites are larger in number than in B2C
websites. According to Forrester and Gartner, B2B activities are estimated to be
around 10 to 15 times more than B2C activities. Gartner also estimated that more
than 500,000 companies will venture into the e-market as buyers, sellers or both.
These firms use auction websites, foreign exchange, online product catalogues
and barter websites to get more attractive prices for goods and services.
B2B websites have improved the effectiveness of the market. Previously,

gathering information from suppliers in the whole world was very difficult and
expensive. However, with the utilisation of B2B websites, buyers have a chance
of obtaining more up-to-date information from:
(a) Supplier Ês websites;
(b) Market mediators who are middle men that gather information regarding
products;

(c) Market makers, who are the third party that build the relationship among
marketers, sellers and buyers; and
(d) Customer commodities that allow information exchange between the buyer
and the supplier Ês products and services. The mechanism also allows a
more transparent price of goods and services. See Figure 2.2.
Figure 2.2: B2B model
2.3.3 Internet Domain: C2C (Customer to Customer)

C2C shows that online customers are becoming more efficient and frequent in
circulating product information and no longer use goods or services alone. They
join Internet interest groups to share and circulate ideas regarding products or
services and suppliers. This has made C2C a main influencing factor in
purchasing decision making by customers. See Figure 2.3.
Figure 2.3: C2C model

2.3.4 Internet Domain: C2B (Customer to Business)

Communication between customers and businesses has become easier. This is
because companies use C2B to encourage communication between customers
and companies by inviting potential and existing customers to ask questions,
make proposals and send complaints through e-mail. See Figure 2.4.
Figure 2.3: C2C model
Difference between Pure Click Companies and Brick-and-Click Companies

A pure-click company is a company that launches a website without the
existence or creation of a firm prior to that. Meanwhile, a brick-and-click
company is an existing company that launches a website to circulate information
or conduct e-commerce.
There are several types of pure-click companies in the market, namely, search
engines, Internet service providers, commercial websites, software sites and
enabler sites.
For brick-and-click companies, most of them design websites to provide

information regarding the company, its products and services, but refuse to
conduct e-commerce in the website. This is because the company still has
concerns that online sales will create distribution channel conflicts for the
existing business. Distribution channel conflicts refer to contradiction in sale
channels between the online sale channel and the traditional business which uses
agents and existing wholesalers to sell products or services. Therefore, brick-and-
click companies face a dilemma on how to conduct online sales without having it
interfere with the traditional sale at the store, or with the wholesalers and agents.
Distribution channel conflicts are not a problem for pure-click companies as they
do not own any existing business or customers.

ACTIVITY 2.5
Use a table to simplify the differences between pure-click companies and

brick-and-click companies.
2.4 CHANGES IN MARKETING PRACTICE:

WEBSITE
Companies which choose to create a website need to attend to a few important
matters that need immediate attention. In this section, we will discuss three main
matters designing an attractive website, placing advertisements and promotions
online and constructing a revenue and profit model.
2.4.1 Designing an Attractive Website

The main challenge in designing an attractive website is how to encourage web
users to surf the website repeatedly. Rayport and Jaworski suggest that an
effective website must have a high score for the following aspects:

2.4.2 Placement of Advertisements and Promotion

Online
Advertisements and promotions online will not be the main advertising mediator
as users do not prefer online advertisements and promotions. However, they still
exist and can be seen on the website. Thus, the company has to make a decision
about the type of advertisement and promotion that is most efficient and cost
effective to achieve the advertising objective. Many types of advertisements and
promotions can be seen on websites. Here, we will discuss three main types of
online advertisements, particularly banner ads, sponsorship and microsite.
Banner ads are small squares or spaces that contain texts and pictures in a third-
party website. Interested users can click on banner ads to obtain information on
the products or services advertised. It is the most popular means of Internet
advertising. The company only needs to pay to advertise in this form and the cost
depends on the size of the website host. Hence, the company can choose the most
suitable banner ads for its advertising purposes.
Sponsorship is another form of advertisement available on the Internet. Here, a

company sponsors the cost of the web content. Usually, the content is in the form
of news, financial information, etc. With this sponsorship, the company gains the
means of advertising by displaying its name and logo in the website as a token of
appreciation for the sponsorship.
A microsite is a small space in a website managed by a third party. Microsite is

most suitable for companies that sell goods or services that attract less attention
from the website host such as insurance. Web surfers also tend to visit this type
of website less frequently. Therefore, companies such as insurance firms can
advertise their products and put a microsite in a used second-hand car for sale
website to advise potential used-car buyers about insurance. At the same time,
the insurance company also provides its insurance products to the same
customers. The owner of the website, however, will require some payment for
placing the microsite.
2.4.3 Construction of Revenue and Profit Model

Dot-com companies need to inform their investors how they generate profits. The
companies, therefore, require a revenue and profit model that will illustrate the
sources of income, revenue projection, estimated cost and profit that can be
gained by investors.

The revenue of a dot-com company can come from various sources such as
advertisements, sponsorship, alliance income, membership and subscription,
profile income, product sales and services, fee and business commission, market
research fee or information and referral income.
ACTIVITY 2.6
To know more about web as a marketing media, visit this website:

http://nakula.rvs.unibiefield.de/made/artikel/Web-Market/
2.5 CHANGES IN MARKET PRACTICE:

CUSTOMER RELATIONSHIP MARKETING
(CRM)
Companies nowadays are becoming more experienced in customer relationship
marketing (CRM) and database marketing. Customer relationship marketing
(CRM) permits a company to provide excellent real-time services by fostering a
more intimate relationship with each important customer through the effective
use of individual account information. From this knowledge, the company
outlines every offer according to the order and taste of its customers. Customer
relationship marketing (CRM) has become more important and acts as a main
affecting factor of the companyÊs profit, survival and competitiveness in the new
economy. Companies that have a competitive streak are companies that are more
productive in seeking revenue, customer growth and retention. Such companies
can increase the customer base value, to improve the effectiveness of CRM, by
utilising the following strategies:
(a) Lowering the rate of customers lost;

(b) Increasing the period of close relation with customers;
(c) Improving the growth potential of each customer through the sharing of
income, cross sales and upselling;
(d) Turning a less profitable customer into a more profitable customer or
ceasing transaction with a particular customer; and
(e) Paying more attention to customers with higher value.

2.5.1 Customer Database and Database Marketing

To identify and foster a closer relationship with customers, companies should
gather information regarding their customers and store the information in the
customer database and then perform database marketing. Customer database is a
collection of information on existing or potential customers as a whole, current
and ready-to-use for marketing purposes such as lead generation, lead
qualification, product and service sales or customer relation maintenance.
Marketing database, meanwhile, is the process of constructing, maintaining and
using the customer database and other database (product, supplier, and agent)
for the purpose of communication, conducting business and fostering a close
relationship with customers.
Unfortunately, marketers have always mistaken customer database with

customer mailing list. In reality, mailing list is only a set of customersÊ names,
addresses and telephone numbers. Customer database, on the other hand,
contains more comprehensive information. The company gathers information in
the customer database based on the previous transaction made by the customer,
registration information, telephone enquiries by the customer and all the
information from each interaction. A good customer database should contain a
record of purchases history, demography, psychography and mediagraphy of
other information that might be useful regarding the particular customer.
2.5.2 Utilising Customer Database

In general, the company may use the customer database in four ways as
described below:
(a) To Identify Potential Customers

Usually, a company generates sale by advertising its products or services.
In the advertisement, a toll-free phone number is usually provided for
potential customers to make enquiries. From these queries, the company is
able to build a customer database which is then used to determine potential
customers. Next, the company will contact the customer either through
e-mail or telephone to turn this potential customer into a real customer.
(b) To Identify Suitable Customers to Receive Special Offers

A company is interested in increasing product or service sales by cross-
selling and upselling. In order to do so, the company will determine the
criteria that describe the special offer. After that, the company can begin to
seek existing customers who fulfil the requirement for the next action by
referring to the customer database.

(c) To Enhance Customer Loyalty towards the Company

The company can build customer loyalty by sending gifts, discount
coupons or interesting reading material to customers. For example, a
bookstore frequently sends discount coupons through e-mail or booklets to
its customers to attract them to buy books there and increase customer
loyalty towards the company.
(d) To Reactivate Customer Purchasing

The company may reactivate customer purchasing with the use of an
automatic mailing programme to send birthday and anniversary cards as
well as reminders about promotions based on data in the customer database.
2.5.3 Problems of Database Marketing

Even though database marketing can provide a lot of benefits to a company, it
also has a number of problems that need to be considered before performing
database marketing.
There are three problems that may prevent companies from using database
marketing.
Firstly, the database needs a huge investment to build and operate in terms of
equipment and computer software, communication connectivity and skilled
workers. Thus, the use of customer database is neither suitable nor cost-effective
for these situations:
(a) The products will only be purchased once in a lifetime such as a piano;
(b) Customers who show the least loyalty to the company;
(c) Sales unit is very small, such as sweets; and
(d) The cost of gathering information is too high.
The second limitation is the fact that it is quite difficult for every worker to be
customer-oriented and use all the existing information in the customer database.
On the contrary, workers are more inclined to conduct traditional transactions
compared to customer relationship marketing (CRM).
The third obstacle is that not all customers wish for an intimate relationship with
a company. Some customers may not be comfortable when they find out that a
company is gathering their personal information. Therefore, it is important for
the marketer to obtain the views and attitudes of the customers towards the
privacy of their personal information.

ACTIVITY 2.7
What is the effect of the changes in marketing practice that you find in
your marketing environment?
EXERCISE 2.1
1. Differentiate between new economy and old economy.
2. How should a company founded with an old economy idea change so

that marketing performance can be enhanced in the new economy?
3. Describe the advantages and disadvantages of customer relation

marketing (CRM).
Advancement in technology and the drivers of the new market have

introduced a new economy that requires companies and marketers to change
their business and marketing practices in order to thrive.
The four main drivers of the new economy are digitalisation and connectivity,
disintermediation and reintermediation, customisation, customerisation and
industry convergence.
The new economy has changed a few practices in the old economy. For
example, now marketing management is based on customer segment and
there is focus on customer lifetime value.
Companies face many questions regarding e-commerce such as how to

design an attractive website, how to advertise their products or services
online and how to build the revenue and profit model for dot com companies
to win trust and support from interested parties.
Finally, companies are getting more experienced in customer relation

marketing (CRM) by giving priority to the enhancement of customer
satisfaction. This requires companies to construct a customer database to
detect channel flow, segment and customer needs.

Adaption Digitalisation
Attractive website Disintermediation
Customisation Industry convergence
Customerisation Internet domain
Customer database New economy
Connectivity New hybrid
Customer relationship marketing Reintermediation
(CRM)

Topic Attaining
3 Customer
Satisfaction,
Value and
Retention
LEARNING OUTCOMES
1. Assess the factors that affect customer satisfaction;
2. Explain the definition of customer value;
3. Discuss how to maximise customer satisfaction and value;
4. Analyse the concept and importance of relationship marketing to the
marketer; and
5. Evaluate the concept of customer retention.
INTRODUCTION
Customer is the most important asset for a business organisation. Various
strategies and great efforts are needed to maximise customer satisfaction. Among
the factors that determine customer satisfaction are customer values, quality in
marketing, relationship marketing and customer retention.
There are some guidelines available to allow the marketer to measure customer
value but bear in mind that it is quite tough as customer perception is abstract.

TOPIC 3 ATTAINING CUSTOMER SATISFACTION, VALUE AND RETENTION 31
The factor of quality will be stressed in this topic. Other than understanding the
concept of quality, marketers also need to understand the meaning and
application of total quality management and perceived quality to ensure that
consumers experience a high level of satisfaction.
To guarantee customer loyalty and retention, a close relationship between

marketers and customers must be fostered to avoid losing customers.
3.1 CUSTOMER SATISFACTION
Figure 3.1: Customer satisfaction
Try to recall the main focus in the concept or definition of marketing. If you
observe carefully, marketing puts much emphasis on attaining customer
satisfaction. The success of marketers depends on their accomplishment in
maximising customer satisfaction. If you take a look at the marketing activities of
giant marketing organisations such as Toyota, Honda, Sony and 3M, you will see
that they strive to ensure each marketing strategy is able to maximise customer
satisfaction.
The steps of awarding ISO series quality certificates as well as certificates for total
quality management, zero customer feedback time, zero product improvement
time and others are practised wholeheartedly by these companies.
In your opinion, why do giant companies such as Toyota, 3M or Sony need to

allocate a huge sum of money and energy to do so? The answer is, definitely, to
further improve their competitiveness and survival. Even though the concept of
customer satisfaction is complex, particularly because of the influence of various
perceptions and the dynamic behaviour of the customers (customer satisfaction),

32 TOPIC 3 ATTAINING CUSTOMER SATISFACTION, VALUE AND RETENTION
marketers do not have much choice but to do something to win the hearts of
customers. Marketers have to realise that customers are value- maximisers as
shown in Figure 3.1.
3.1.1 Customer Value

Customer value is a determining factor of customer satisfaction. Usually,
customers are more encouraged to buy and use products that offer the highest
customer value. Customer value is defined as follows:
Customer value is the difference between the value attained by the customer
from owning and using their products and the cost that has to be paid to
acquire the product. The customer Ês total cost includes an amount of cost
that needs to be paid by the customer in order to acquire and use the product
(Kotler, 2003).
However, to understand customer value, marketers need to measure the range or

difference between total customer value and total customer cost. Figure 3.2 may
help you to understand better the concept of total customer value and total
customer cost.
Figure 3.2: Customer value

Source: Adapted from Kotler & Armstrong (2005)

Based on Figure 3.2, customer value is determined by the difference between total
customer cost and total cost paid by the customer to own and use the product.
Customer value and part of the customer cost stated in Figure 3.2 are in reality
difficult for the marketer to estimate. This is because each customer value and
cost illustrated is influenced by the factor of customer perception, which is an
abstract factor, difficult to predict or estimate by marketers. Therefore, to exercise
the customer value concept as shown in the figure, marketers have to take into
account individual and group perception when estimating total value and
customer costs.
3.1.2 Customer Satisfaction

Following the discussion in section 3.1.1, customer value has a close relationship
with the concept of customer satisfaction. The following is the definition of
customer satisfaction:
Satisfaction is related to individual (customer) feelings, whether he is

comfortable comparing his perception of the output with the target or his
goals of uses.
Based on the definition of customer satisfaction, satisfaction and customer value

are two concepts that complement each other. However, marketers have to look
at customer satisfaction from a different perspective from the concept of
customer value. This is because, to estimate customer satisfaction, marketers
need to measure the difference or range of customer expectation and the end
product received by the customer from the marketer.
Even though different in terms of measurement, the result of both concepts is still
the same, which is customer action. Similar to measuring customer value,
marketers are also faced with the difficulty of measuring customer satisfaction
because of the influence of the individual and group perception. However,
measuring customer satisfaction is much easier because the act of purchasing or
not (making repeat purchase or not) is an indication of customer satisfaction.

3.2 MAXIMISING CUSTOMER SATISFACTION

AND VALUE
Based on the marketing orientation, marketers need to maximise customer
satisfaction. There are a few guidelines that can be used by marketers to ensure
that organisations and their marketing process are able to maximise customer
satisfaction. Among them are the production of an effective blueprint, quality
offers and marketing that emphasises the best relationship between marketer and
customer.
There are a number of methods and tools that can be used to establish a
marketing process that is able to maximise customer satisfaction. The two most
famous methods and tools are the blueprint and value link.
Blueprint is a concept that is applied from scientific results. There are many
models that can be used to design a marketing process blueprint. All the
blueprint models are designed using the same basic steps, which are the initial
step (start), execution, decision making and end. For example, a blueprint for a
car wash centre covers entry of car into car wash centre, exterior wash, interior
wash (wiping and vacuuming), waxing, payment and exit (end).
Porter (1985) introduced a comprehensive blueprint model that can be used by

marketers to create an efficient and effective marketing process. The model is
known as value chain model. The model is created based on nine activities that
can be classified into two categories: main activity and supporting activity. All
the activities are shown in Figure 3.3.
Figure 3.3: Value chain model

Source: Philip Kotler (1999)

Based on Figure 3.3, there are five main activities which are supported by four
supporting activities. Internal logistic activity refers to logistic activity that brings
the product (raw material) into the organisation. Operation refers to production
operation, while external logistic refers to the activity of carrying the product
(ready-made and half-ready) to the market. However, to acquire a market, the
organisation needs to perform marketing activity. During the process of
performing this activity, the organisation has to provide after-sales service to the
customers.
The success of performing the main activities mostly depends on the success of
managing the supporting activities. The organisation needs to create certain
facilities to implement the main activities. The organisation needs to create an
efficient process of human resource management as most of these activities are
performed by humans. All the organisational activities, including human
resource management, involve the use of technology. The process of production
(operation) depends a lot on the quality of the raw material purchased by the
purchasing officer. Thus, the activity of purchasing raw material directly
influences several activities, particularly the operation and internal logistics.
3.2.1 Quality in Marketing
SELF-CHECK 3.1
How far is the concept of quality considered important for an efficient

marketing management process?
We have been exposed to the concept of quality. What does the term „quality‰
actually mean? How is it measured? Is the quality measurement done by the
marketer and the user the same? How far is the concept of quality considered
important in business and marketing? All these questions need to be answered
before you are able to manage quality.
There are many definitions for the term „quality‰. However, in general, quality
may be defined as a comparison value between a subject and other subjects that
already exist or are experienced by certain individual or groups. This means
quality is an evaluation result and comparison between current and past results
(based on experience), comparison with a similar subject that is current, based on
unwritten or verbal standards and based on written certified standards.

You may assume a new product has more quality because the product has a
better performance from the product you previously purchased (based on your
experience) or you may find that the performance of the product is better than
the other product in the same category. You may assume a product has good
quality because it received praises from your friend (non-certified standard) or
you assume that all the products that have SIRIM mark or ISO9000 are of good
quality (based on certified standard).
Based on the discussion, it can be summarised that the concept of quality is a

concept of comparison. However, the definition of quality given by Morse, Roth
and Poston (1987) has been found to reflect the definition of quality from the
marketing aspect, which is:
Quality is a set of values (standard) that allows a product or a marketing

strategy to fulfil the customer Ês perception or expectation. As long as the
standard against quality is followed, the customer will reach a relatively
higher satisfaction level.
Other than understanding the concept of quality, marketers need to understand

the meaning and application of two concepts related to quality: Total Quality
Management (TQM) and perceived quality.
(a) Total Quality Management (TQM)

Total quality management is a concept designed to steer towards an
organisational management process that emphasises quality comprehensively,
systematically and continuously. It means that each member and process level
(steps) of the management must emphasise quality.
(b) Perceived Quality

This particular concept of quality refers to a benchmark or standard which
is determined by customer sÊ perception. A product can be considered to
have or lack quality by customers even though in reality the productÊs true
quality is lower or higher compared to the customer Ês perceived quality.
Usually, perceived quality by the customer is influenced by pricing strategy
and aggressive promotion.

3.2.2 Relationship Marketing

Relationship marketing is one of the latest marketing concepts that emphasises a
close relationship between marketer and stakeholders, particularly customers.
The close relationship emphasised by this marketing concept is permanent (long

term) and benefits both parties. Loyalty and customer retention are two
important concepts that have developed the concept of relationship marketing.
The explanation on the concept of customer retention is hoped to be able to assist

you to better understand the concept and importance of relationship marketing
for marketers.
3.2.3 Customer Retention
Figure 3.4: Customer retention
Customer retention refers to continuous efforts by marketers to maintain

customers and get them to continue making transactions with marketers. The
concept that must be avoided by marketers is the concept of lost customer. Both
these concepts must be really understood and managed by marketers effectively.
The accomplishment of marketers in maintaining customers means they have

ensured stable revenue, while losing customers means marketers have lost their
revenue. Both the concepts have cost implications to the marketer. The success of
customer retention means marketers do not have to allocate a huge budget to
seek new customers. Normally, the cost to maintain old customers is far less
significant than that of getting new customers. This is based on marketersÊ need
to allocate salesman cost (wages, commission and sales budget), advertising or
the cost of other promotion methods to get new customers.

Other than that, a marketer has to absorb higher costs for a new customer as not
all who are approached will turn into real customers. Marketers need to
approach many potential customers to gain one real customer. The number of
potential customers to be approached in order to gain a real customer differs
depending on the products and marketing environment. Often, marketers have
to approach at least two potential customers to gain one real customer.
EXERCISE 3.1
1. Warta Dunia, a producer of childrenÊs toys, is seeking the quality

award of ISO9000 to increase its market share in Malaysia and in the
international market. Provide justification for Warta DuniaÊs action.
2. How far does a marketer need to understand the concept of customer

retention?
The marketer and marketing manager need to understand and execute

marketing management processes thoroughly and systematically.
Other than understanding and embracing business world philosophies, the

marketer or the marketing manager also needs to understand several
concepts related to marketing such as the evolution of business world
philosophies, customer needs and demands, marketing mix, quality and
customer retention.
The understanding of these concepts will help marketers and marketing

managers to produce an exchange process or a transaction that is competitive
and able to maximise customer satisfaction.

Customer value Relationship marketing

Customer satisfaction Satisfaction
Customer retention Value
Quality

Topic Market-
4 Oriented
Strategic
Planning
LEARNING OUTCOMES

1. Relate the marketing management process with the strategic
planning process;
2. Discuss the main elements involved in the strategic marketing
planning process;
3. Describe the concept of strategic business unit and portfolio analysis;
and
4. Apply strategic marketing planning processes through the
development of a marketing plan.
INTRODUCTION
Management process requires a well-planned and systematic work frame to
drive towards the execution of the steps. The first step in the management
process is planning. Usually, an organisation uses strategic planning to plan all
its actions. On the other hand, strategic marketing is a process that involves a few
steps that must be performed thoroughly and in orderly fashion.
Other than the component of planning, the strategic planning process involves
three other important components, which are environmental analysis, formation
of strategy and control. The development of the strategic planning process has to

TOPIC 4 MARKET-ORIENTED STRATEGIC PLANNING 41
be done in writing. The strategic planning process is known as marketing plan. It

will be a guideline for all the units in the marketing-oriented business
organisation in executing their activities.
4.1 MARKETING MANAGEMENT PROCESS

Marketing management process is an activity of planning and implementation.
You learned the complete marketing management process in Topic 1. The
summary of the process was illustrated in Figure 1.3. Meanwhile, based on the
management theory, planning refers to the implementation of measures by the
organisation or the managers. However, there is a method of planning that can
be deemed the best to be chosen by the organisation or the manager, which is
strategic marketing planning.
4.2 PROCESS OF STRATEGIC MARKETING

PLANNING
Strategic planning refers to a planning process which is systematic and
comprehensive. It encompasses all the issues and factors in a series of steps that
are systematically structured. The strategic planning process begins with the step
taken to understand the nature of business ventured up to the execution of
control measures (Dalrymple & Parsons, 1999). Figure 4.1 briefly illustrates the
processes of strategic marketing planning.
Figure 4.1: Strategic planning processes
The development of strategic planning in an organisation can be classified into

four main stages, they are:
(a) Corporate stage;

(b) Section or unit stage;
(c) Strategic business unit (SBU) stage; and
(d) Product stage.

42 TOPIC 4 MARKET-ORIENTED STRATEGIC PLANNING
Corporate stage planning is a strategic planning prepared for the overall

organisation. The section or unit planning stage is prepared specifically for
certain section or unit such as the production section, marketing section and the
sales section.
The steps which need to be performed by the marketer while developing the
strategic planning processes are explained in the following sub-sections.
4.2.1 Business Definition

The main result of this step is to provide the answer to the question of
rationalisation on the existence of an organisation. This definition is needed to
answer the question of „Why is this organisation formed?‰. Therefore, the
organisation must work to have a clearer understanding of the business field it
ventured into. The result of this step is translated into the vision and mission
statement.
SELF-CHECK 4.1
1. What do you understand about vision and mission?

2. Is vision different from mission? Give your opinion.
3. What are the purposes of vision and mission?
(a) Vision
Vision is a statement of the target or genuine direction of an organisation.
Usually, vision requires the accomplishment of targets in the long term,
normally more than 10 years. Through the vision statement, the organisation
needs to clarify the target clearly and generally. The easiest way for you to
understand the concept of vision is by looking at Vision 2020.
Vision may be defined in general or specific terms. The next example may
explain the scope of general or specific business definition. TransCity Sdn
Bhd (TransCity) is a transportation company. If TransCity defines its
business as a transportation company, the company will concentrate on the
business of public transportation. However, if the company defines its
business as a goods transportation company, it will possess lorries and
coaches carrying goods only.

(b) Mission
Mission is a vision statement which is more specific. While through vision,
an organisation learns the business ventured in general, through mission,
the organisation must answer more specific questions such as the following:
(i) Who are its consumers?

(ii) What are the values sought by consumers?
(iii) What will happen to the business in the future?
(iv) What business should be ventured in the future?
Other than being different in terms of scope, vision and mission also vary in
terms of period. The period that is needed to realise a vision is relatively
longer than to realise a mission.
Kotler (2005) states that vision and mission must be founded on the
advantages of competition that the marketer has. The advantages of
competition can be categorised into six scopes as illustrated in Figure 4.2.
Figure 4.2: Scopes of competition advantages
(a) Industrial Scope

The organisation needs to be clear about the scope of business ventured.
Based on the example given of TransCity, if a company defines its business
as public land transportation, it will own buses, taxis and passenger trains.
(b) Product and Use Scope

Based on the products and their usage. For example, the Nestlé Company
offers a variety of nutritious food products to the whole world.

(c) Skill Scope

Based on the skill and advantages of competition of an organisation and its
members. For example, Telekom Malaysia will focus its development
efforts in the telecommunication industry.
(d) Market Segmentation Scope

Focuses on specific market segment continuously. For example, Zaiton
Industries Bhd emphasises on the production of a variety of product for the
use of Muslim consumers.
(e) Vertical Scope

Pays attention to all the business stages that exist in the marketing process
of a new product, beginning from the raw material until the distribution of
the goods to the consumers. For example, Proton Berhad dominates several
car components supplier and distribution companies in Malaysia as well as
a few other countries that import Proton cars.
(f) Geographical Scope

Focuses on business according to location such as Malaysia, ASEAN
countries, Asia Pacific and others.
ACTIVITY 4.1
Based on the vision and mission scopes, what is your opinion about the
undertaking of these companies?
1. If the company Modenas is well-known by Malaysians as the

ultimate motorcycle producer, what are the appropriate new
products to be produced by the company?
2. What is the business scope used by the companies Toys ÂRÊ Us and
Body Shop?
4.2.2 Market Environment Analysis

This step is the organisation effort to better identify the environment that will be
faced by the organisation. The development of market environment analysis
steps requires the organisation to choose an effective and efficient market
environment analysis.

Based on the process of strategic marketing management, the organisation vision

and mission will be used as the foundation in the attempt of identifying the
environment. For example, based on the case of TransCity company, if the
company defines its business as prime movers, then the company should only
focus its efforts on identifying the market environment of goods transportation
that use prime movers.
The market environment analysis can be classified into two:
(a) Internal environment analysis; and

(b) External environment analysis.
Internal environment analysis looks at factors that can be controlled by the

organisation such as staff, procedure, financial situation, production technology
and workplace condition from the aspect of strength and weakness. The external
environment analysis on the other hand, looks at the factors that cannot be
controlled by the organisation such as the macro environment (economy,
technology, social, cultural, political and legal, natural environment, etc),
consumers and competitors from the aspect of opportunities or threats.
The determination whether an internal factor is a strength or a weakness and

whether an external factor is an opportunity or a threat is made by the perception
of the factorÊs effect, whether it is positive (favouring) or negative. A factor
classified as strength or opportunity is an environmental factor that produces a
positive environment while a factor that is classified as weaknesses or threats
produces a negative effect. Refer to Table 4.1.
Table 4.1: Business Environment Analysis
Internal Environment Analysis External Environment Analysis

Staff Macro environment
Procedures Consumers and competitors
Financial situation Economy, technology, social, cultural,
Production technology political, legal, natural environment
Workplace condition
There are various methods for an organisation to perform environmental

analysis. Among these are the following methods:
(a) Strengths, weaknesses, threats and opportunities (SWOT analysis);

(b) Consumer analysis;

(c) Competitor analysis;

(d) Economy analysis methods;
(e) Boston Consulting Group (BCG) matrix; and
(f) General Electric Co. matrix (GE).
All the environmental analysis methods assist an organisation to identify and

study a certain environment more specifically. For example, competitor analysis
is used by the organisation to identify in-depth the strengths and weaknesses of
competitors.
However, SWOT analysis is different from the other analysis methods as it is a

more comprehensive environmental analysis method. It inspects and studies all
the environmental factors faced by the organisation, either internally or
externally. Since SWOT analysis is easy to implement, comprehensive and
systematic, it is the most popular method among business organisations.
What do you understand about the terms used in SWOT analysis? SWOT is an
acronym for strengths (S), weaknesses (W), opportunities (O) and threats (T). If
you still remember, earlier in the topic, all four of the terms refer to the factors
resulting from two environment categories based on two perspectives, which are
the internal and external environment based on the positive and negative aspects.
4.2.3 Business Portfolio Analysis

Other than the need to analyse the market environment for general business, the
marketer needs to develop an analysis for the strategic business unit analysis.
What is the meaning of business unit?
Business unit refers to a product line or subsidiaries (allied companies) that can
be differentiated, particularly in terms of consumers and competitors. For
example, Nestlé Company owns unit sectors based on product lines such as
snack food, breakfast cereals, baby milk and chocolates. Nescafe, Milo, Maggi
and Neslac are some of the business units of Nestlé Company. Meanwhile, the
Hicom-DRB company is involved in many business sectors. Therefore, the
corporate bodies form certain subsidiaries to operate in specific business fields.
After you understand the concept of business unit, you also need to understand
the concept of strategic business unit (SBU) as this is related to portfolio analysis.
What is meant by SBU? It is a business unit that will be the main contributing
factor to the overall corporate revenue acquisition of the marketer. SBU income
increases will also increase the overall corporate income, and the decline or
deterioration of SBU revenue will have a significant effect on corporate decline.
Other than being the main contributing factor in gaining corporate income, SBU
can be managed as a separate entity from the other business units. For example,
since the brand Maggi has a number of products and most of the products are
market leaders, the brand Maggi is made into the Nestlé companyÊs SBU.
The following are the most popular methods to analyse the market environment:
BCG Share-Growth Matrix (BCG);
GE Market Attraction Matrix (GE); and
Ansoff Growth Grid.
(a) BCG Share-Growth Matrix (BCG)

The portfolio matrix analysis was introduced by a consultant agency called
Boston Consulting Group. BCG Matrix is based on the combination of two
factors, market growth rate and market share domination by SBU
compared to the competitorsÊ market share domination.
Both of the market factors are working on two perspectives, which are high
and low. The combination produces four situations (two factors X two
perspectives). Each situation has a distinct difference and brings implications
to the market in different ways, particularly in terms of marketing
investments and strategies. Figure 4.3 can help you to understand the BCG
Matrix.
Figure 4.3: BCG matrix

Source: Adapted from Kotler & Armstrong. (2005)

Based on Figure 4.3, SBU, the market has relatively low market share
domination categorised as the dog and cash cow.
(i) For the dog situation, the SBU is lower compared to the competitor,
which means smaller market share domination as compared to the
competitorÊs domination of the market share. Therefore, the
corporation has two options, whether to increase its investment to
enhance the competitive SBU or remove the particular SBU from the
market (cease operation).
(ii) Meanwhile, the SBU in the cash cow situation is the SBU that enjoys
market leader position. This means the SBU market leader
successfully dominates the market and generates a relatively large
income, even though it is in a matured market or the one with a low
growth rate.
(iii) SBU in the market which are experiencing a high level of market
growth is divided into two, the star and the question mark.
(iv) SBU in the star situation is a successful SBU (having high competing
ability). Thus, to increase the corporate revenue and SBU strength, the
corporate needs to intensively invest in a selective way.
(v) Meanwhile the SBU in the question mark situation needs to redefine
its business definition, particularly in the aspect of improving the
competition level. This is because, even though it is in an attractive
market, the SBU has failed to dominate a large market share
compared to the competitor Ês market share domination. The increase
of investment and reconstruction of the market strategy is needed to
improve the ability of the SBU to compete in the market.
(b) GE Market Attraction Matrix (GE)

This particular portfolio analysis method is introduced by the giant
company in the electric and electronic field, General Electric Co. (GE). The
matrix has been developed after most parties came to the conclusion that
the BCG matrix has failed to take into account the medium factors in
environment.
Through this portfolio analysis, the medium factor is taken into account. So,
the matrix has nine quadrants as compared to the BCG matrix that only has
four quadrants or situations. Just like the BCG matrix, the GE matrix is
founded on two major factors, which are market attraction and SBU
business strength. Both factors are evaluated based on three perspectives:
high, medium and low.

The combination of the three perspectives and the two factors generate nine
(three X three) situations. If we look at it closely, the GE matrix and the
BCG matrix are actually the same. The differences of the two portfolios are
only from the aspect of perspectives intensity, which in the case of BCG
matrix does not take into account medium factors. Figure 4.4 may assist you
to better understand the concept of portfolio analysis of the GE matrix.
Figure 4.4: GE matrix

Based on the figure, there are nine business situations that the SBU may
come to face. However, all the situations can be categorised into three main
situation groups. Situations 1, 2 and 3 are in the first group, situations 4, 5
and 6 in the second group and situations 7, 8 and 9 in the third group.
Each group has a different implication on the investment and marketing

strategy.
(i) Group 1 (quadrants 1, 2 and 3) requires intensive increase in

investment increase and more inclined towards defense marketing
strategy;
(ii) Group 2 (quadrants 4, 5 and 6) requires selective strategic investment

(in certain aspects) and is a combination of defense and attack
strategy; and
(iii) Group 3 (quadrants 7, 8 and 9) can be divided into two smaller

groups, group 3a and 3b. Group 3a is made up of quadrant 7 and 8,
while group 3b includes quadrant 9. For group 3a, the marketer is
required to perform selective investment and harvesting certain SBU

activities. Group 3b on the other hand, requires the marketer to

remove the SBU from the market (shutdown the SBUÊs operation).
While deciding to use the GE or the BCG matrix to analyse the corporate
portfolio, the marketer has to choose whether to use the GE matrix or the
BCG matrix. This is because, based on the previous discussion, both matrix
are quite similar.
(c) Ansoff Market Growth Grid

Ansoff Market Growth Grid is one of a two-part portfolio analysis available
in the Ansoff growth-downsizing grid. Even though the analysis method is
meant for a specific business portfolio analysis, it can still be used to
conduct a general market environment analysis. Similar to the approach of
the GE and BCG matrix, Anfsoff grid analysis is founded based on two
major factors, which are the product category and the market. Both factors
are evaluated from two perspectives, new and existing.
The combination of the factors and perspectives creates four options of

growth situation. All the four growth strategies are market breakthrough,
market development, product development and diversity. Figure 4.5 can
help you to understand all the four growth strategies better.
Figure 4.5: Ansoff Growth Grid

Based on Figure 4.5, if the marketer works in increasing the participation of

existing (market) customers to use the products more frequently or suggest new
method of product application for the existing product, then the strategy is
known as the market breakthrough strategy. For instance, hair shampoo
producers suggest the shampoo to be used as dishwasher or car wash liquid.

Through the strategy of product development, the marketer will take an action to
introduce a new product category in the existing market. For example, Proton
Berhad introduces racing bicycles in the Malaysian market. Racing bicycle is a
new product category compared to the existing product marketed previously by
Proton Berhad in Malaysia. However, the market growth strategy refers to the
action of the marketer in marketing an existing product to a new market.
If the marketer decides to introduce a new product category into a new market,
the action is known as the diversification strategy. If Proton Berhad produces
motorcycles (Proton Berhad has never produced motorcycles before) to be
marketed in Laos, which is a new market for Proton, then the action taken by
Proton Berhad can be classified as diversification strategy.
ACTIVITY 4.2
1. How is the SWOT strategy inappropriate to be implemented together

with financial analysis, customer analysis and competitor analysis?
2. When do you apply the BCG matrix or the GE matrix to analyse the
market environment?
4.2.4 Setting Goals and Objectives

After successfully identifying and clustering the environment factors, an
organisation needs to determine a few short-term and medium-term targets to be
their goal. Similar to vision and mission, goals and objectives are different from
the aspect of target scope and goal accomplishment time limit. A goal is general
in character and must be accomplished in a moderate time period (a year or
more). Objective however is more specific in character and needs to be realised in
a short period or less than a year; for example in a day, a month, quarterly and so
on.
For instance, the company Restu Sdn Bhd sets the aim to increase its market
share up to 20 percent this year. This value is an increase of last year Ês 5 percent
market share domination. To ensure the target of 5 percent increase on market
share, the company has set a few objectives; such as to increase sales coverage for
every housing estate every week, to increase advertisement coverage for each city
every month, every market segment will experience half percent increase every
month and the increase of new customers as many as 800 people per month for
each product line.

4.2.5 Designing Marketing Strategy

After identifying the organisation ability and setting the short-term and medium-
term target, the organisation needs to come up with a method or ways to reach
the target based on its ability. Strategy coverage that needs to be designed can be
categorised into two: the segmentation strategy and the marketing mix.
Segmentation strategy refers to the organisationÊs effort to locate their product
and organisation in the market. This action is normally termed as market or
product positioning.
Through this segmentation strategy, other than the need to identify the market
target or the market segment, the marketer also has to determine the product and
organisation positioning in the consumer Ês mind. For example, Proton Berhad
wishes to position the Proton Perdana cars as the ultimate luxury car in Malaysia.
Proton Berhad therefore needs to identify the market segment to be approached

and the methods of how to approach and position the product (Proton Perdana)
in the consumer Ês mind.
However, for them to design the strategies, the marketer needs to differentiate
between the general strategy and the specific strategy. This step only requires the
marketer to design a general strategy, which are the product strategy, price, place
and marketing communication.
4.2.6 Designing Marketing Tactics

As stated in section 4.2.4, marketing tactics is a marketing strategy that is more
specific in character. Marketing tactics only involves marketing mix. As stated in
the example previously, tactics need to be design to support the marketing
strategy. For instance, the price RM99, 999.99 is used to support the price strategy
and product positioning for the Proton Perdana as the cheapest car in its class
(price strategy). Figure 4.6 may help you to better understand the pricing
strategy.

Figure 4.6: Pricing strategy
4.2.7 Marketing Control

Every implementation has to be controlled and monitored to ensure each step of
marketing strategy and tactic that needs to be performed is able to reach the aim
and objective that has been set. Control measure steps are divided into three,
which are the control mechanism, monitoring and performance evaluation. The
following are the explanation on the three parts of marketing control.
(a) Control Mechanism

There are four methods in the control mechanism and they are the yearly
plan control, profitability control, efficiency control and strategic control.
However, the preparation of the yearly expenditure and pro-forma

financial statement by the organisation is the easiest method to control
marketing activities.
(b) Monitoring
The operation process of the marketing plan requires monitoring measure
to ensure all that has been performed is in line with what has been set in the
early stage of the marketing plan. Through monitoring, the organisation or
the manager oversees and supervises all the activities performed so that
they are in accordance to the early planning.
(c) Performance Evaluation

In order to increase the capability of the human resource and to measure
how far the operation is in accordance with the planning, then comparison
measures of the real result for the operation and the expected result must be
taken. If the real result happens to be as or more than the expectation, then
a positive enforcement or incentive must be given. The easiest and cheapest
positive enforcement to be carried out by the organisation is through
appraisal, whether verbally or in writing (letter of appreciation).
EXERCISE 4.1
1. How far does defining the business done by an organisation

influence the strategic marketing planning process of the company?
2. How far can the internal environment be differentiated with the

external environment in marketing environment analysis?
3. Explain the meaning of SWOT analysis.
4. How do you classify environment as a factor of strength or

opportunity?
5. What is needed to be done by Petronas Berhad if it finds out that one

of its strategic business units is in a weak position in the market
share domination in the market, even when it is in an attractive
market condition?
6. How is a company able to apply the market break strategy and

market development as suggested by the Ansoff growth grid?
4.3 MARKETING PLAN

Marketing plan is a strategic marketing planning method that is most popular
with the organisations, particularly the business organisation, to plan marketing
activities in the medium and long term. Usually, marketing plan is prepared for a
period of one to five years (medium term).
However, for certain business organisations, specifically those that pay the most
attention to marketing orientation, the organisations prepare a long-term
marketing plan for each of their marketing plans, whether it is the organisation
direction or their products. For example, the Nestlé Company has prepared a
long-term marketing plan for their product Nescafe (instant coffee) since
venturing into the Malaysian market at the end of the 1960s until now.

4.3.1 Content Format of Marketing Plan

As stated previously, marketing plan is strategic marketing planning. Therefore,
the marketing plan format content must use the strategic marketing planning
content format as explained in section 4.2. Hence, all the steps in the strategic
planning process should be performed.
Similar to strategic marketing planning, marketing plans need to be developed

through a systematic and comprehensive method. Most marketing plans that
have been introduced do not have much difference with one another. However,
marketers need to pay attention to the execution of environment analysis
measures. If marketers are inclined to select SWOT analysis, they do not have to
use other environment analysis methods as the SWOT analysis has included all
the environmental elements in one systematic and comprehensive evaluation
method.
However, if marketers have no desire to use the SWOT analysis, they may choose
any environmental analysis method such as the customer analysis, competitor
analysis, neutral environmental analysis, economy analysis and the rest in
combination. If the marketer wants to perform situation analysis on the SBU,
other that using the SWOT analysis, they need to use either the BCG matrix or
the GE matrix analysis and the Ansoff grid to accentuate the SBU analysis and
planning. Other than using the environmental analysis method for SBU (if
applicable), marketers need to use perceptual map method in order to identify
and plan the positioning of the marketer and the product.
4.3.2 Report Format of Marketing Plan

The result of the strategic marketing planning performed need to be reported to
the higher management or the board of directors of the organisation to be acted
upon. Therefore, the marketing plan must be prepared in a written report form.
Various marketing plan report writing approaches have been introduced by
many writers. However, the following are some important guidelines in the
preparation of a marketing plan report.
Every written report should be comprised of three parts, which are:
(a) Pre-content;
(b) Content; and
(c) Reference list and attachment.

(a) Pre-content
This part provides a summary to the report, appreciation and the content
index. The appreciation page is prepared to express gratitude to certain
parties or individuals and it is found before the report summary. Report
summary or better known as the abstract or the executive summary
(executive summary is more popular) is the part that reports briefly all the
facts or important content of the marketing plan. Even though the executive
summary is written in the earlier section, it is the final part prepared in the
marketing plan report writing process.
Executive summary should be written with single spacing, not more than a
page long and use a smaller font size. Content index is usually in a separate
page after the executive summary. Numbering of the pre-content in type
using the Roman numbers (i, ii, iii⁄).
(b) Content
Content shows the result of all the steps of the strategic marketing planning
performed, beginning from the vision statement up to the marketing
control. However, the reporter should make some minor adjustment to the
report content of the marketing strategic plan appropriate to the target
audience and to add value as well as to grab the reader Ês attentions.
(c) Reference List and Attachment

It refers to the third and the last section of the marketing plan report. This
section lists all the reference and the material used to support the facts of
the marketing plan report content. Reference can be prepared in two forms,
either in a reference list or bibliography.
Reference list refers to the listing of all the reference made in preparing the
marketing plan report. Bibliography on the other hand, lists all the reference that
was used in the report and additional reference suggestion suitable as reading
materials or as reference to the readers (even though they are not referred to in
the preparation of the report content).
In brief, the marketing plan report formats that can be employed and are
illustrated in Table 4.2.

Table 4.2: Summary of Suggested Format for Marketing Plan Report
Section Content
Pre-content Executive Summary
Content Introduction
Environmental Analysis
Statement of Vision and Mission
Designed Strategies
Designed Tactics
Control
Conclusion
Attachment and Reference Reference List
Supporting Material Attachment
EXERCISE 4.2
1. List and explain all the main actions in the marketing plan report.
2. When do you need to prepare an executive summary?
3. How do you support the controversial arguments in the marketing

plan report?
4. Explain the marketing plan report format that is systematic and

effective.

Planning is the most important step in business.
Planning can be divided into four important stages corporate plan, unit or
section, strategic business unit and product planning.
All the planning structures need to be organised thoroughly, systematically

and comprehensively so that all the ability and the opportunities can be
exploited as optimum as possible by the organisation.
In order to generate a systematic and comprehensive planning process, the

organisation may use the strategic marketing planning or better known as the
marketing plan.
The organisationÊs success mostly depends on how far the organisation is

able to develop a real strategic planning process that works.
Many of the worldÊs giant organisations have enjoyed tremendous success

through the preparation of a systematic and comprehensive marketing plan.
Geographical scope Marketing management process

Industrial scope Market-segmentation scope
Mission Strategic planning
Market tactics Skill scope
Market environmental analysis Use scope
Market control Vision
Marketing plan Vertical scope
Market-oriented

Topic Obtaining
5 Information
and
Measuring
Market
Demands
LEARNING OUTCOMES
1. Explain the mechanism of marketing information systems;
2. Describe the marketing research process; and
3. Discuss the steps involved in market forecasting/prediction.
INTRODUCTION
The development of the marketing strategic planning process requires marketers
to obtain information comprehensively and systematically. Obtaining
information is the most important step in the marketing strategic planning
process. Other than employing several environmental analysis methods that have
been discussed in Topic 4, marketers also need to come up with a system of
information management that is known as Marketing Information Systems (MIS).

60 TOPIC 5 OBTAINING INFORMATION AND MEASURING MARKET DEMANDS
There are four important components in marketing information systems, and

they are the internal record, marketing intelligence, marketing research and
marketing decision support system. Other than discussing the marketing
information system, the topic also discusses the important items related to the
marketing information system which is market prediction. Market prediction is
an important step to determine market size and market potential for each
marketing strategy that has been developed by marketers.
5.1 MARKETING INFORMATION SYSTEM

Marketing information system is a system of information management
developed based on the management information system. Marketing information
system is a method to obtain, screen and distribute information to formulate
marketing decision. There are four main components in the marketing
information system, and they are the internal records, intelligence, research and
marketing decision support system. In general, marketing information system is
defined as follows:
Marketing information system encompasses human, tools and procedures to

obtain, arrange, analyse and distribute information required and fulfil the
requirement in the aspect of time and content in order to comply with the
marketing decision (Kotler, 2003).
Based on the definition given, the marketing information system encompasses all
the resources and procedures owned by the organisation to obtain information
from the marketing environment. Subsequent to gaining information, the
components in the marketing information system will arrange, analyse, evaluate
and screen the marketing information. Figure 5.1 may assist you to understand
the concept of marketing information system and the benefit of the system to
marketers and marketing managers.

TOPIC 5 OBTAINING INFORMATION AND MEASURING MARKET DEMANDS 61
Figure 5.1: Marketing information system

Source: Adapted form Kotler & Armstrong (2005)
Based on Figure 5.1, to perform the management process (marketing strategic

planning) requires information. Therefore, marketers need to evaluate whether
the information type and requirement level is suitable for the level and
requirements of market decision making that is being performed. Market
information can be obtained from the information system.
There are four main sources of information provided by four components of

marketing information systems, which are internal records, marketing
intelligence, marketing research and marketing decision support system.
The information provided in the information system is obtained from the

marketing environment, which are the internal environment, consumer,
competitors and other macro environment. The explanation of the four
components of marketing information system will be discussed in the next
section of the topic.
ACTIVITY 5.1
How far does marketing information system differ from management

information system?
5.1.1 Internal Record

Internal record refers to information or database that has been kept or recorded
by the organisation. Since it already exists in the organisation, it is easily
accessible and hence it is the most used marketing information system by the
organisation and marketing managers to make a decision.

The information contained in the internal record is known by many names such
as financial record (ledgers, profit loss statement, income statement), sales record
(unit and RM), human resource record (staff numbers, staff background), order
report, inventory level and others.
Internal record can be classified according to the period of time they are
prepared, for example new (current month or year), medium term (more than a
year but less than three or five years) and old (more than five years).
5.1.2 Marketing Intelligence
ACTIVITY 5.2
What is meant by the term „intelligence‰?
If an internal record system provides past information such as information from

yesterday, last month or five years ago, marketing intelligence will provide
current information or current trait (daily).
Being current or daily is the most important character that differentiates the level
of marketing intelligence information with the existing information in the
internal records. For example, if the information regarding the competitorsÊ price
in the period of a month ago may be obtained from the internal records, the price
fixed by the competitor in the present day is only available with the marketing
intelligence.
5.1.3 Marketing Research

Marketing research is the most crucial component in the marketing information
system. Even though the other two components, internal records and market
intelligence, may facilitate in developing effective marketing research, the
dependency of both components (internal records and marketing intelligence)
against the marketing research is higher compared to the dependency of the
marketing research to the two components.
Before executing marketing research, marketers need to understand precisely the

meaning and processes of marketing research. The following is the definition of
marketing research to help you understand the concept of marketing research.

Marketing research is a systematic process of information obtained from the

market environment, beginning from the effort to design, gather, analyse
and report the information and findings related to the particular information
(Kotler, 2003).
Based on the definition, it can be concluded that marketing research is a process

of obtaining and analysing information. It means that marketers and marketing
managers have to perform several steps to develop the research process. The
steps of marketing research process are discussed in detail in the next section of
the topic.
5.1.4 Marketing Decision Support System

Marketing decision support system is a systematic collection to manage data,
decision systems, method and technique through the use of information
technology in order to assist the organisation to obtain and interpret the
information.
Marketing decision support system actually is an information component that

exists or is needed in the other three components of information system. Specific
software is used to store data (database) in the internal records or daily records
conveyed through the online communication system (marketing intelligence).
This means, the component of decision support system is an important system
for the marketing information system to ensure marketers are able to develop
efficient and effective information system components.
Some examples of marketing decision support system are Statistical Package for
the Social Science (SPSS) and Statistical Analysis System (SAS).
5.2 IMPLEMENTATION OF MARKETING

RESEARCH
Other than the need to understand and implement all the measures in the
marketing research process, marketers and marketing managers also need to
understand several matters related to marketing research, such as the responsible
group that should perform the research process and the criteria of the best
marketing research.

5.2.1 Implementation of Marketing Research Process

The sources of research are generally divided into three main methods:
Implemented by marketers;
By appointing outsiders; or
A combination of both.
(a) Implemented by Marketers

Marketers may implement by themselves all the steps in the marketing
research process. They may use all the internal resources of the organisation
to obtain, arrange, analyse and report the information. This indirectly
means the marketers have to cover all the costs and risks of the research
usability. Normally, only big companies with specific specialisation will be
able to implement all the steps of the marketing research by themselves.
(b) Appointing Outsiders

Marketers hire outsiders to carry out marketing research. Normally,
marketers only determine a certain problem and all the steps in the process
will be implemented by the outsider. This approach is cheaper compared to
the first approach. However, the marketer may find himself facing the risk
of the outsider not implementing a systematic and accurate marketing
research process. This method is more popular among small and medium
business organisations.
In general, there are four groups that can be hired by organisations to

implement all or part of the marketing research process, and they are:
(i) Higher Learning Institutions

Higher learning institutions in Malaysia, particularly public higher
learning institutions, are ready to provide staff for certain
organisations, especially small and medium organisations, to
implement part or all the marketing research process while charging a
relatively low fee. Other than that, the organisation also may hire staff
or students to help them implement the marketing research process.
(ii) Research Institutions

Marketers hire a business organisation which specialises in the
marketing research field. In Malaysia, such an organisation can be
classified into two categories, namely, private and government
research agencies.

TOPIC 5 OBTAINING INFORMATION AND MEASURING MARKET DEMANDS  65
Government research agencies are research agencies founded by the

government such as the Department of Statistics Malaysia, PORIM
(palm oil research industry), MARDI (general agriculture), TPM
(biotechnology) and others. There are a few private companies that act
as marketing research agencies. Among the well-known agencies is
Nielsen Media Research (previously known as Survey Research
Malaysia ă SRM).
(iii) Custom Marketing Research Firms

Custom marketing research firms implement marketing research
based on customersÊ scope or demand. For example, the agency only
needs to focus on distributing information on the number of Berita
Harian newspaper readers in the city area.
(iv) Specialised Research Agencies

Specialised research agencies refer to research organisations that focus
on certain marketing research fields only, such as advertising research
agencies, cross-cultural research agencies and others.
(c) A Combination of Both

Other than self-implementation of hiring outsiders to implement the measure
of marketing research process, the marketer may use a combination of
methods to develop marketing research. However, this method is the least
popular compared to the other two methods as there may be some problems
in the ability of both sides to give a high commitment in their co-operation. In
Malaysia, this method is more popular in the agricultural sector where the
organisation works with the outsider (government research agencies) to
implement the marketing research process together.
5.2.2 Criteria of Good Research

Other than the need to pay attention to the responsible group to implement the
marketing research process, marketers should also pay attention to the criteria of
good marketing research needed by the organisations. The criteria of good
research are as follows:
(a) Using the Scientific Method

Researchers have to comply with the important principles of research such
as a thorough observation, designing hypothesis, inference and others.

(b) Research Creativity

Researchers are required to be creative in developing questions
(measurement) and selecting communication methods to obtain information.
For example, the researchers use a structured interview method since it is
difficult to get co-operation from respondents through mail.
(c) Variety of Techniques

Researchers may face a problem in obtaining information through certain
communication methods. Therefore, they need to use a few methods to
approach respondents such as through the mail, followed by a phone call,
sending SMS (short messages system) using mobile phones or arranging a
face-to-face meeting.
(d) Dependency of Research Model and Data

Researchers must ensure that the data obtained fulfils the research model
requirement (research methodology), particularly in terms of the
connection of the variables and the invariables.
(e) Information Cost and Value

Researchers should only focus on the information suitable for the research
scope and aims. The information accuracy and the cost of obtaining
information should also be considered. This is to prevent the marketer from
having to cover a huge cost and obtaining less useful or useless information.
(f) Overall Conclusion

The conclusion should be overall in character and free from narrow-minded
perception resulting from a narrow research scope that was determined at
the beginning.
(g) Complying with Etiquette

Researchers and their assistants should obtain the correct information from
all the respondents of the identified sample at the early stages of the
research. Etiquette violation mostly occurs when the researchers or their
assistants ignored certain steps of the research or act as respondents
themselves.

TOPIC 5 OBTAINING INFORMATION AND MEASURING MARKET DEMANDS  67
EXERCISE 5.1
1. The component _______________________ in the marketing

information systems provide information that is up to date and daily.
2. The information from which component in the marketing information

system is able to assist the marketer to obtain information of the
company sales from five years ago?
3. How far can you differentiate information in the market intelligence

system and the information in the internal records?
4. List three criteria of good research.
5.3 RESEARCH PROCESS
SELF-CHECK 5.1
What is it meant by quantitative and qualitative research?
The most important section in the discussion of marketing research is the

process. As stated before, the marketing research process involves several steps.
Refer to Figure 5.2 to see what the steps are.
Figure 5.2: Marketing research process
Every step must be implemented by marketers and marketing managers

thoroughly and systematically. The next part will explain the steps involved in
the marketing research process.

5.3.1 Identifying Issues and Setting Research

Objectives
The first step in the research process requires marketers to identify exactly what
are the problems or issues to be solved. Marketers need to avoid defining the
issues too generally or specifically. For example, the marketer cannot set or study
every factor that influences consumer taste, such as the influence of black colour
on women clothes purchasing in Malaysia. This action must be avoided so that
marketers will avoid obtaining useless information or ignoring other important
or required information.
Marketing research methods can be classified into two categories, quantitative

and qualitative.
Quantitative research is a research approach that uses many mathematical

methods and statistics. For instance, the use of numbers ‰1, 2, 3, 4 and 5‰ to
represent consumer satisfaction level, where number 5 represents the level of
‰highly satisfied‰.
Qualitative research is more general than quantitative approach which is more

objective. Both research approaches can be categorised into three categories of
research, which are:
(a) Exploration Research

Marketing research meant to gain initial opinion to solve a problem or
suggest a hypothesis.
(b) Descriptive Research

Marketing research that characterises an issue, situation or other matters in
detail and more comprehensively.
(c) Causal Research

A type of research to study cause-and-effect relationships.

5.3.2 Designing Research Plan

There are two important decisions to be made by marketers in designing the
market research plan, which are expenditure allocation and implementation of
research plan. The decision on research expenditure is made based on the
consideration whether the implementation of a marketing research is profitable.
If marketers find that the implementation of the marketing research gives
positive results, then the next step is to measure how much allocation should be
provided to implement all the steps in the research plan.
The general approach frequently used is the prediction of research influence on

the comparison of the total sales revenue that will be generated. It means
marketers need to predict the total income that will be generated with and
without the marketing research. The difference between total sales income
without the marketing research and total sales income after the research should
be the highest allocation sum for the research process implementation. For
instance, if the marketer finds that by implementing research, sales income
increases from RM60,000 to RM110,000, then, the highest allocation sum for the
research is RM50,000.
After the research expenditure has been allocated, marketers need to decide the
implementation plan of the research. There are five decisions to be made by
marketers in this step, which are:
(a) Data Source

Data source can be divided into two: primary and secondary. Primary data
are obtained by marketers, while secondary data are obtained from
secondary sources such as newspapers, books, Statistics Department
reports and others.
(b) Research Approach

Primary data can be obtained in five ways: observation, survey, experiment,
focus group and behavioural data.
(i) Observation
Refers to the action of observing customer behaviour and variables of
certain environment.
(ii) Survey
The most popular approach and requires the use of survey forms. It is
used to study the level of customer Ês knowledge, trust, inclination
and satisfaction.

(iii) Experiment
Refers to the action of measuring cause-and-effect. Marketers need to
form two groups, which are the study group and the control group
(group in the normal situation).
(iv) Focus Group

Marketers can select several specialised individuals to represent the
groups to develop brainstorming to come to a particular finding.
(v) Behavioural Data

The approach measures individual reaction to a situation, specifically
related to customer Ês acceptation and rejection.
(c) Research Instrument

Marketing research instruments are divided into two categories, which are
the survey and the mechanical method.
(i) Survey
The survey includes a few sets of questions or measurement items.
The method is the most popular instrument as it is easy to use and
quite flexible. The survey can be divided into three stages, which are
designing the questions, conducting pilot study and finding inter-
relation (significance).
The pilot study is conducted to ensure the questions are suitable and
do not confuse the respondents. The results of the pilot test will
suggest modifications to improve the approach and questions.
The questions used in the survey can be categorised into two forms,
open and closed. Through open questions (Table 5.1), the researcher
invites respondents to give their own answers, while through closed
questions (Table 5.2), the researcher provides a few alternative answers
for respondents.

Table 5.1: Open Questions
Type Detail
Non- Ask the respondent to answer based on their opinion on certain

structured subjects.
Example:
Was your purchasing decision influenced by the quality of the
product?
Word match Expose the respondent to a few words and ask to state the first word.
Example:
What is the word on your mind when you hear:
(i) Quality ___________
(ii) Brand ____________
Completing a An incomplete sentence is prepared and the respondent is required to

sentence finish it.
Example:
I buy AVON products because _________ is cheap and _________ is
high.
Completing a An incomplete story is prepared and the respondent is required to

story finish the story.
Example:
Badrul went to an interview for a sales position. During the interview,
the interviewer gave him two types of detergent brand: one is in
powder form and the other in liquid form. Without mentioning a
particular brand, the interviewer then asked him to identify which
product has more quality.

Completing a A picture of people having a conversation is shown and the respondent

picture is asked to fill the conversation bubble (callout).
Example:
Please fill in the blank dialogue.
Themed The respondent is given a picture and asked to come up with the story
storytelling based on the picture.
test
Example:
Write a short story based on the photograph that you see.

Table 5.2: Closed Questions
Type Detail
Dichotomous Questions that have only two choices of answer such as yes or no only.
Example:
Does quality affect your purchasing decision?
Yes
No
Multiple The question has several options (more than two).

Choice
Example:
Quality is
(a) product, price and brand
(b) evaluation result and the comparison between current result and
past result
(c) both (a) and (b)
Likert Scale The question statement about the agreement is provided answer choice
according to certain level.
Example:
Every Nestlé product has the same level of quality.
1 Highly Disagree
2 Disagree
3 Not Sure
4 Agree
5 Highly Agree
Semantic A scale that incorporates two words that are the opposite to be matched
difference with the questions.
Example:
Give you opinion about the K Powder. Mark X in the appropriate
space.
Foamy : : : : : Not Foamy

Clean : : : : : Not Clean
Smells good : : : : : Smells Bad

Interest scale Almost similar to Likert scale but refers to question that provides
answer according to interest level.
Example:
1 _______ Very Important
2 _______ Important
3 _______ Least Important
4 _______ Not Important
Improvement The approach is similar to Likert scale and interest scale but is more
Scale general in character. It refers to quality, performance, satisfaction and
others.
Example:
The quality of the K powder is:
1 Excellent
2 Good
3 Average
4 Not Satisfactory
Behaviour Question to measure inclination level for certain behaviours such as

inclination purchasing inclination.
Scale
Example:
You are given a free pack of 500g detergent powder if you purchase
two packs of 1.5kg detergent powder. You will:
1 _______ Definitely buy
2 _______ Maybe buy
3 _______ Not buy
(ii) Mechanical Instrument

The method uses a mechanical tool such as the Galvanometer (tool to
measure interest or feeling), eyes camera (tool to detect point in the
eyes that focuses to certain objects), audiometer and many more to
study consumer behaviour.
(d) Sampling Plan

Sampling plan refers to the method to approach research group or
population to obtain information about a subject. However, in most
marketing research cases, it is impossible for researchers to approach
all members in the population to be studied. Therefore, the sampling
approach must be taken.

Sampling is a statistical method to assist researchers in finding part of a

population that can represent the population. Based on the results, which
are anything gained from the study on the sample, researchers can make an
overall conclusion about the whole population. Sampling plan is
categorised into three groups, which are sampling unit, size and procedure.
(i) Sampling Unit

Refers to the target group in the population to be the sample like
based on gender, age, etc.
(ii) Sample Size

Size is selected based on normal distribution, which are the minimum
number or size sample of 28 respondents. Selection of the sample is
decided by the sampling procedure.
(iii) Sampling Procedure

There are two procedures, namely, probability and non-probability
samplings. Probability sampling is divided into three: simple random,
stratified random and clustered sample. Non-probability sampling
includes the easy sample method, consideration sample and quota
sample. Please refer to Table 5.3 to identify the types of sampling.
Table 5.3: Sampling Types
Probability Sample
Simple Random Every population member has the same chance of being selected.
Sample
Clustered Population is divided into a few completely different groups

Random Sample (according to gender, age) that are easy to use for sampling.
Stratified Random Population is divided into several completely different groups

Sample (according to location or block) and sample is taken from each
group.
Non-probability Sample
Convenience Researcher selects individuals who are the easiest to be
Sample approached.
Consideration Researcher chooses a respondent according to certain

Sample considerations, such as those who easily give cooperation or are
trustworthy.
Quota Sample Researcher only approaches certain respondents in the pre-

determined group.

(e) Communication Method

The method to approach the respondents must be determined. Researchers
need to determine the ideal method to approach respondents to ensure that
all or most of them cooperate. There are five methods of communication
(Table 5.4) that can be selected by researchers, which are mail, telephone,
face-to-face (structured interview), online or a combination of any of the
above.
Table 5.4: Communication Method
Method Particulars
Mail The cheapest method but has the lowest level of respondent
cooperation and the highest respondent error rate compared to
other methods.
Telephone or the The method that is gaining popularity among researchers.
Internet However, this approach also has a high rate of respondent error.
Short Message The use of short message services (SMS) through mobile phones
Service (SMS) can be used by researchers. However, this method is believed to
have a high respondent error compared to the online method as
respondents have to cover a high cost to reply to the message.
Face-to-face The most expensive method and consumes a relatively longer
Approach time compared to other methods. However, this method is the
(Structured most popular since it has the lowest respondent error compared
Interview) to the other methods.
Combination The combination approach at present is practised more often as
it is able to produce research that has a low respondent error
compared to the structured interview method that is still the
preferred method in the method combination.
5.3.3 Information Gathering

This step requires researchers to perform field work, which is to approach
respondents and gather the required information from each respondent. This is
the most difficult method. Also it is time consuming and requires a considerably
high cost.
Among the costs that researchers have to bear are the wages of research
assistants, transportation claim, preparing survey forms and other miscellaneous
items. Besides that, researchers or research assistants have to face a range of
respondentsÊ characters that may sometimes be boring and test their patience.

5.3.4 Information Analysis

Researchers need to report all the data they gathered. However, to report ‰raw
data‰ as initially obtained in the implementation of information gathering will
only bring to misinterpretation or they will not be understood by the readers.
Therefore, researchers need to process the data so that it can be understood.
The course of processing data is known as information analysis. Information

analysis allows researchers to interpret and formulate raw data into a form that
will be easily understood by readers. Currently, there are many computer
applications that can be used by researchers to analyse research data. Some of the
popular software includes the Statistical Package for Social Sciences (SPSS) and
Statistical Analysis System (SAS). SPSS software is more popular among
marketing researchers.
5.3.5 Reporting Research Results

After completing information analysis, researchers are required to report it to the
higher level (usually the board of directors) or for internal records purposes.
Hence, researchers need to use certain formats so that the report prepared is
easily read and systematic. The marketing plan format as previously suggested in
Topic 4 can be the base for the marketing research report preparation.
To make it easier for you to understand the mechanism of execution for the
marketing research process, refer to Figure 5.2.
EXERCISE 5.2
1. Ranking scale of agreement level for the respondents is prepared for

questions that use the _____________________ scale.
2. Explain the steps involved in the marketing research process.
3. Why canÊt marketers set the research goal or scope to be too specific
or general?

5.4 MARKET FORECASTING

Market forecasting is the major result from information system, particularly if it
is generated from marketing intelligence and marketing research. Marketers need
to understand and detect the environment or potential environment in order to
create competitive marketing strategies and tactics while also maximising
customer satisfaction.
The need to predict the market is crucial, particularly when marketers implement
the segmentation strategy. If you refer to the discussion on market segmentation
strategy in Topic 10, marketers need to evaluate the attraction of each segment.
The evaluation on the segment is made in the market targeting phase. It requires
marketers to evaluate a few subjects such as the measurement of the current
market size and its potential, growth rate and profitability potential.
Based on the statement, we may conclude that market forecast is not a simple
effort. It involves several steps and specific skills, particularly in terms of
mathematic and statistics skills. The implementation of market forecasting
involves five steps, which are:
(a) Identifying demand measurement;

(b) Defining the market;
(c) Demand forecasting;
(d) Current demand estimation; and
(e) Potential demand estimation.
5.4.1 Market Demand Measurement

Market demand can be measured based on three dimensions, which are product,
space and time (Kotler, 2003).
(a) Product Stage

This dimension can be classified into six perspectives based on sales
activities, which are overall stages, industry, company, product line,
product form and product item.
(b) Space Stage

The dimension is divided into five perspectives: world, country, state, zone
and consumer.

(c) Time Stage

The dimension is seen based on three perspectives: short term, medium
term and long term.
If you look at the dimension and perspective of all the three demand
measurement dimensions, marketers may use 90 types of market demand
measurements.
The numbers formulated are timed with every perspective as explained in the six
parts mentioned, which is six (product dimension) X five (space dimension) X
three (time dimension). For example, marketers may use the demand
measurement in five years period in the future (time stage), against passenger
transportation (product form) in ASEAN countries (international).
5.4.2 Defining the Market

According to Kotler (2003), the market includes all real and potential buyer
groups. This means, the market depends on the number of existing and potential
consumers. Consumer or customer potential refers to the consumer or the
consumer group that has an inclination or clear interest in marketersÊ offer
(marketing mix strategy). However, the consumer interest cannot be the sole
basis to define the market. Marketers have to also consider the consumerÊs ability
to pay (interest supported by buying power).
For certain products, there are certain limitations presented by the market. For
example, Mitsubishi sedan cars such as Lancer (Evolution VII) are not allowed to
enter the Malaysian market. Therefore, Mitsubishi should eliminate Malaysia
from its list of available markets.
After recognising the achievable market size, marketers have to measure the
qualified available market size. The qualified available market refers to markets
that have no limitation to obtain the products. For example, individuals below 18
years old are non-qualified available market for tobacco products (cigarettes).
After identifying the qualified available market, marketers have to decide on the
strategy of market targeting, which are the market segment to be approached.
There are four choices of market targeting they can choose from. Marketers may
approach:
(a) All the segments in the market;

(b) One segment;

(c) A combination of segments; or

(d) Look at all individuals as one market segment.
The action whether to look at all or part of the segments is made based on the
segment attraction, the ability of marketers to approach the segment and based
on strategic consideration. For example, Matsushita approaches every segment in
the market while Zaiton Industries only approaches the Muslim consumer
market segment. This stage, which is the market target determination, is known
as the served market in the stage of defining the market.
Not all the consumers in a segment will be the customer of the marketers because
the consumer can choose whether to buy the marketerÊs product or his
competitorÊs product. Therefore, only part of the consumer in the market will be
the buyer of the marketer. The market size that includes every consumer that
buys the marketerÊs product is known as the penetrated market.
Figure 5.3: Market definition
In short, the explanation of the entire concept related to market definition may be
explained through Figure 5.3.
After identifying the target market, the next thing the marketer should do is
understand the three concepts that relate to the definition of the market. All the
three concepts are:
(a) Market Demand

Market demand is the total sales made by a specific consumer group, in
specific geographical area, in a specific time based on a specific marketing
environment, which requires specific marketing mix strategy. For example,
the demand for passenger cars with horse power less than 1,000 cc in
Peninsular Malaysia in 2002. Based on the statement, the specific marketing

environment is the year 2002. Since year 2002, marketing environment is

definitely different from the previous year, marketers need to produce a
marketing strategy that is suitable to the environment polar in the year
2002.
(b) Market Forecast

It is a concept of market demand that refers to a stage of industrial expenses
only.
(c) Market Potential

Market prediction is only able to give an indication to the market demand
estimation. The concept fails to paint the real picture about the maximum
market demand.
Marketers have to refer to the market potential concept, which depicts the
maximum possibility of the current market demand abreast with the movement
of the market expenses nearing the infinity point for a specific environment
(Kotler, 2003). It means the market potential during economic growth will differ
from the potential market during economic recession.
ACTIVITY 5.3
1. What is the relation between the market demand and the

segmentation strategy?
2. How is the value 90 (total) of the market demand measurement

achieved?
5.4.3 Demand Measurement and Estimation

There are three concepts that marketers need to understand in order to measure
and predict the market:
(a) Company demand;

(b) Company sales prediction; and
(c) Company potential sales.

The following are brief explanations on all three concepts:
(a) Company Demand

It refers to the estimation value of the market share domination by
marketers based on their ability and market opportunities. The value can be
calculated using the following formula:
Qi = SiQ
Where:
Qi = Company demand number-i
Si = Company market share number-i
Q = Market demand total
For example, say the market demand total is 1,000,000 units. The maximum
market share prediction that the company can dominate is 20 percent from
the total market. Therefore, the market demand is 200,000 units.
(b) Company Sales Prediction

It refers to the value of company sales targeted by marketers based on their
ability and opportunities. There are two supporting concepts of this
particular prediction effort, which are sales quota and sales expenditure.
Sales quota is the sales target determined by the organisation, while sales
expenditure is the limitation faced by the organisation unit to achieve its
targeted sales quota.
(c) Company Potential Sales

This refers to the sales limit targeted by marketers based on the real ability
of marketers and competitorsÊ influence. It means marketers will not be able
to dominate all the sales value predicted in part (b) unless they enjoy
perfect monopoly.

5.4.4 Current Demand Estimation

After the estimation of market demand, marketers need to obtain estimated value
of the current demand. There are two important aspects to be estimated by
marketers in these steps: total market potential and area market potential
estimation.
The following are detailed description on both the aspects:
(a) Total Market Potential

It refers to the total maximum sales achievable by all marketers in the
industry for a specific period based on industrial activity level and a
specific marketing environment. Total market potential can be calculated
using the following formula:
Q = npq
Where:
Q = Total market potential
n = The number of consumer for a specific product/market based on
certain assumption
q = Average purchase value of each consumer
p = Average price for every unit
For example, there are 1,000,000 new unit television buyers in Malaysia a
year. The average purchase for each consumer is two units and the average
price for a new television set is RM1,000. Therefore, the total market
potential for new television in Malaysia is RM2 billion a year (1,000,000 2
RM1,000).
(b) Market Area Potential

Marketers normally face problems in acquiring the exact and detailed value
in every segment using the general method. Therefore, they need to
estimate the potential of each block or segment in the market for each city,
district, state, zone and country. They need to make estimation on the
potential of each space or market segment.

There are three methods that can be used by marketers to make the
estimation. The three methods are:
(i) Market-buildup Method

Market-buildup method is the most popular formula among the
marketers to calculate the market area potential. Through this
method, marketers identify all the potential buyers in every market
segment and estimate the value of each buyer in each of the segments.
If there is a complete list of consumers who live in a particular

segment, marketers can generate an accurate calculation of potential
market area. However, the list is usually very difficult to acquire and
not up to date.
(ii) Multiple-factor Index Method

The mechanism of the method implementation is similar to the
market-buildup method. However, through this method, marketers
use various markers for the estimation. Just like the situation faced by
the marketers when estimating the market potential using the market-
buildup method, marketers will have a problem obtaining up-to-date
and accurate information for each of the factors employed in the
estimation.
(iii) Industry Sales and Market Share

Marketers use the industry sales data and the composition of market
share domination of each marketer in the market. Based on the data
acquired, marketers will estimate the potential market area.
The method is more of a comparison method. The effective mess of this method
is lower than that of the other two previous methods. However, this method is
easier to implement as there are more organisations (government and non-
governmental organisations such as manufacturers association) that produce
reports on industry sales and market share domination.
5.4.5 Potential Demand Estimation

Other than the need to estimate the potential of a current market, marketers are
also required to estimate the potential market demand for a specific period in the
future. Usually, marketers need to predict potential demand for five or ten years
in the future. If the prediction of the current market potential demand faces
problems, particularly to gain relevant current information, marketers may also
have the same problem and probably face more complications when
implementing the potential demand estimation.

The problem of estimating potential demand will be more complicated when

marketers need to make estimation for a new product and a product that does
not have any clear and fixed trend. Even though they are faced with a number of
difficulties, marketers do not have a choice but to make the estimation because
the results of the effort will help increase marketersÊ competitive ability and their
ability to maximise customer satisfaction.
There are four methods to be selected to calculate potential demand estimation.

Among the methods frequently used by marketers to estimate potential demand
are:
(a) Survey of buyer Ês intention to buy;

(b) Composite income of the sale group;
(c) Expert opinion; and
(d) Test market method.
The survey of buyersÊ intention to buy is a market research to measure buyersÊ

inclination or interest on certain product. Composite income sale group refers to
the average estimated value achieved by every salesperson. Expert opinion refers
to a method where marketers gather a few experts from several fields to provide
suggestions in brainstorming sessions. Meanwhile, the test market method is
made up of several approaches of market research that can be chosen by
marketers to predict and estimate the potential demand.
A detailed discussion of the test market methods can be found in the topic of new
product development. Marketers may implement by themselves the estimation of
the future market potential or appoint outsiders such as Nielsen Media Research
or Technology Park Malaysia.

EXERCISE 5.3
1. The approach is a result of brainstorming by several experts.
2. The demand is a demand that takes into consideration legal

limitation in market definition.
3. How is the total market potential calculated?
4. How is the market-buildup method different from the market area

potential method?
5. What are the methods that can be used by marketers to implement

the demand estimation process?
6. You are in charge of obtaining data on the companyÊs sales potential

for the last 18 months. You are also required to get the latest
information on the price and promotion strategy implemented by all
competitors in the market. Based on the statement, which
components in the marketing information system that you will use
in order to get information? Give your justification.
7. List and explain all the necessary steps a marketing manager needs
to carry out to perform a research on the acceptance of a new
product to be launched by a company.
8. You are conducting research on Malaysian customersÊ perception on

imported products. The methodology determined was that the
sample is to be taken from every city in the state. Since you are
located in Kuala Lumpur, you decide to use mail as the research
communication method. Based on the information, give your
opinion on the advantages and disadvantages of the mail method. If
you find the communication method is not effective, what is the
most efficient method you can use to approach all the respondents
who are located all over Malaysia? Give your justifications.
9. Explain how Perodua Sendirian Berhad, a well-known car

manufacturer in Malaysia, may get the value of its penetrated market.

Marketers need to develop an efficient and effective information management

system to assist in developing an efficient, systematic and competitive
marketing management process.
To assist marketers and marketing managers to make a good and effective

decision, the marketing information system has been developed to fulfil the
need.
The management information system includes human, tools and procedure in

order to obtain, screen, analyse and distribute the relevant information based
on the suitability of need and time for the managers and the organisations to
make effective and efficient marketing management decisions.
Marketers need to pay special attention in developing and using marketing

research, which is one of the four major components in the marketing
information system.
Other than assisting marketers in developing the marketing mix strategy, the
information from the marketing information system can also be used to help
marketers to understand the market and the market demand better.
This is because, in order to develop marketing strategy specifically the

segmentation strategy, marketers need to calculate market estimation and
market potential accurately.
Information system Market forecasting

Internal record Potential demand estimation
Marketing Information Systems (MIS) Research process
Market demand Research plan
Marketing intelligence Sampling plan
Marketing research Support system

Topic Market
6 Environment
Analysis
LEARNING OUTCOMES
1. Discuss differences between micro and macro environments; and
2. Evaluate the roles and influences of micro and macro marketing
environments to the company.
INTRODUCTION
When a company started its operation, it is not in a situation where the condition
is static and will not change. The company is in a greater environment. In this
environment, there are forces that will create opportunities as well as threats to
the companyÊs ability to continue its operation.
The environment refers to the factors that will have positive or negative effects
on the companyÊs ability to continue operating and growing while at the same
time, maintain its transaction with buyers and market consumers. Changes will
always occur in the environment, either gradually or abruptly. This can have a
great impact on the company especially the employees.
In marketing, the environment is divided into micro and macro environments.

Macro environment is the environment outside the control of the company but
still needed to be monitored as this environment may present an opportunity or a
threat to the company. Meanwhile, micro environment refers to the environment
closer to the company. Generally, all the elements in the micro environment can
be controlled by marketers to ensure that their marketing objectives are achieved.

TOPIC 6 MARKET ENVIRONMENT ANALYSIS 89
6.1 MACRO ENVIRONMENT
SELF-CHECK 6.1
What are the influences of the environment in our daily life? For
instance, does a change to the economy also affect your purchasing
power as a consumer? Does the change in technology also affect your
daily life?
The macro environment comprises all the elements outside the companyÊs micro
environment. All these elements create opportunities and threats to the company.
Although the elements are outside the control of the company, it still has to
monitor the development and changes that occur in the macro environment so
that it may help the company to plan appropriate responses. Figure 6.1 illustrates
the six elements of the macro environment.
Figure 6.1: Elements of macro environment
6.1.1 Demography
Demography is closely related to population data such as size, density, location,
age, gender, race, occupation, population migration and other statistics that
relate to population. Demographic study and research of the environment is
important as the population makes the market. Demographical-factored statistics
are quite easy to obtain as they are the data collection of government and may be
used directly.

90 TOPIC 6 MARKET ENVIRONMENT ANALYSIS
6.1.2 Economy
Economic environment is the factor that influences consumersÊ purchasing
power and expenses pattern. ConsumersÊ purchasing power depends on current
income, price, savings and credit. Marketers should monitor the main income
pattern and changes in consumer expenses pattern. Any positive or negative
changes in the economyÊs main variables such as the income pattern, living cost,
interest rate, saving and loan will affect the market.
ACTIVITY 6.1
Please visit the website of the Statistics Department of Malaysia at

http://www.statistics.gov.my/Bahasa/pageDP.htm to get information
on environment demography and expenses pattern of consumers in
Malaysia.
6.1.3 Natural
Natural environment involves natural resources needed by marketers. Generally,
natural resources nowadays are diminishing while the costs to acquire them are
increasing. This is because resources such as fossil fuel take time to be reproduced,
while the demand for the resources keeps increasing as the population grows.
6.1.4 Technology
The changes in the technology nowadays are happening rapidly. There are many
new technologies invented to replace the old technology. With these changes and
innovations, there are more opportunities and more new markets to be built.
However, new technologies could also contribute to the increase of financial cost
for research and development (R&D) activities. This caused more effort on
making minor modifications on the existing products rather than inventing new
products as the cost related to technology is extremely high for new products.
Marketers should monitor changes in the technology sector and study the use of
technology to help fulfil human needs so that more innovative products can be
developed and accepted by the market.

6.1.5 Legal
This environment refers to the implementation and regulation of the laws by the
government, the influence of government agencies, as well as pressure groups
that are able to influence and limit the roles of individuals or organisations in the
market. Marketers need to monitor the environment related to the laws and
regulations so that the actions taken will not bring any legal complications.
Legal implementation has increased, year by year, as a result of the authoritiesÊ

awareness, particularly the public and this creates a healthy competition in the
industry. It is important for marketers to monitor this environment in the aspect
of product planning as well as the companyÊs marketing programme.
6.1.6 Cultural
This environment consists of institutions and other influences that affect basic,
perception, priority as well as the behaviour of a community. Individuals raised
in a community develop their values and beliefs based on community norms.
The community has its own opinion on the issues of relationship between their
community and other community. Marketers have to be aware of the cultural
environment as it not only influences one individual but the community also.

EXERCISE 6.1
1. The number of career women nowadays is growing. This is

_________ information.
A. technology
B. natural
C. demography
D. economy
2. The size of a family is presently growing smaller. This is an

example of __________ environment change.
A. technology
B. natural
C. demography
D. economic
3. Furniture nowadays is mostly made of steel. Wood-based

furniture is categorised as luxury furniture. This is an example of
the _____________ environment changes.
A. technology
B. natural
C. demography
D. economy
4. Action groups are an example of the element from the

___________ environment.
A. cultural
B. legal
C. consumer
D. competitor
6.2 MICRO ENVIRONMENT

Micro environment is the internal or closer environment of a company. In the
effort to develop an attractive offer to the target market, the company will face
and respond to its micro environment. This environment can influence the
effectiveness of the companyÊs effort and success as a whole.

Figure 6.2 shows the five factors of a companyÊs micro environment. The micro
environment factors can be controlled by the company, directly or indirectly, to
achieve business and market objectives.
Figure 6.2: Elements of micro environment
6.2.1 Company’s Internal Environment

Generally, a company consists of several departments. Each department will not
be able to stand independently. To achieve the companyÊs objectives, each
department is inter-related to each other. Without internal cooperation, the
objectives and missions of the company may not be achieved. The internal
environment must be managed efficiently so that the company will be internally
strong to face any challenges from the outside environment.
6.2.2 Suppliers
Suppliers consist of firms and individuals who provide resources to allow the
company to continue its operation of product or service production to the
targeted market. The supplies from the suppliers are mostly raw materials, semi-
ready industrial goods or ready-made products. Marketers have to be informed
about any progress in the industry and the credibility of their suppliers. This is
because supplies that do not meet the established time will affect the marketer Ês
operation and affect the companyÊs offers and its image in the market.
MarketersÊ awareness of what is going on in the industry may help them take the
appropriate measures to determine that the supplies arrive on the established
time.

6.2.3 Distribution Channel

Distribution activities are done by distribution firms, whose main task is to sell
and distribute companyÊs products to mediator firms or final consumers. The
mediator firms are known as middle person. Mediator firms include wholesalers,
retailers, physical distributor firms, service agencies and financial channels.
Nowadays, there are various types of distribution firms that offer a range of
other services besides distributing marketersÊ products. For example, physical
distributor firms help a producing company to store stocks and later distribute
them to the final consumers.
6.2.4 Customers
Customers refer to end customers and organisational customers. Both groups
have different needs. The end customers buy products and services for
themselves or their families in a small quantity.
Organisational customers purchase in a big quantity and usually negotiate for

the price when making the purchases. Customers include trading companies,
resale companies, government, institution and international market.
Every type of customers has its own traits that need to be studied by marketers.
6.2.5 Competitors
Competitors refer to the competitors of a manufacturer when offering product in
the target market. There are close competitors and distant competitors. The
existence of competitors is good as it may challenge the company to give only the
best to the market. However, there are competitors who always try to
outmanoeuvre their rivals through unethical means. Marketers therefore have to
be aware of competitorsÊ action so that any modification to the marketing
strategy can be done if the need arises. This is crucial in order to provide the best
offer in the target market.
6.2.6 Public
The public is a group that has certain concern or real interest that may be able to
affect the organisationÊs ability to achieve its objectives. The public consists of the
financial sector, media, government, public prosecutor, local public, general
public as well as the internal staff of a company.

ACTIVITY 6.2
State two approaches that a marketer may use to observe the actions of
his companyÊs competitors.
EXERCISE 6.2
1. Explain the meaning of environment.
2. What is meant by a marketing macro environment of a company?

Describe the elements of the marketing macro environment.
3. List all the elements of the marketing micro environment of a

company.
After completing the topic, you will learn about the roles and influences of
the environment to the company.
There are direct and indirect effects that can create opportunities and threats,
to make or break a company, and these depend on the actions and
approaches taken by marketers.
Macro environment refers to elements such as demography, economy,

natural environment, technology, legal and cultural.
The company needs to monitor any changes that occur in the elements. This
is because the factors are out of the companyÊs control.
The company can do barely little to change or maintain the existing

condition.
However, it is important to always be aware of what is happening and what

is expected to happen as these will affect the company directly or indirectly
whether for the short or long term.

Micro environment refers to elements closer to the company such as the

internal situation of the company, suppliers, distribution channels,
customers, competitors and the public.
All these factors have a direct effect on a company and most of the elements
are controllable by the company.
The company can do something to improve the current condition or to rectify

the situation if any problem crops up and presents a threat to the company.
Competitors Market environment analysis

Demography Micro environment
Distribution channel Public
Macro environment Suppliers

Topic Understanding
7 Individual
ConsumersÊ
Behaviour
LEARNING OUTCOMES
1. Explain how the aspects of cultural, social, personality and
psychological influence consumer behaviour;
2. Assess how roles and buying behaviour influence the process of
purchasing decision making; and
3. Discuss how consumers make buying decisions.
INTRODUCTION
As individual consumers, we are always involved in the buying decision-making
process and the purchase of products or services. The interesting fact is that there
are differences, significant or insignificant, among consumers in terms of their
purchasing behaviour. Marketers are attracted to end consumersÊ behaviour in
buying decision making, buying and post-purchase behaviour. Researchers see
these behaviours as a process in order to better understand how the whole
process occurs.
In this topic, we will learn the influences that shape consumers and the process
that consumers go through in buying decision-making.

98 TOPIC 7 UNDERSTANDING INDIVIDUAL CONSUMERS’ BEHAVIOUR
7.1 INFLUENCING FACTORS
SELF-CHECK 7.1
What or who influenced the latest purchase of your clothes? Was it

your family, your friends or the current trend?
When we look at a person making a purchase, do we know the process that takes
place in the personÊs mind and what influences the buying decision? There are
many studies being conducted and it has been identified that for as long as he
lives, an individual will be influenced by several factors. The influencing factors
build the internal traits of the consumer.
ConsumersÊ purchase is very much influenced by cultural, social, personality and

psychological aspects, as illustrated in Figure 7.1. The impacts of these factors on
consumers are broad and profound.
Figure 7.1: Factors influencing individual consumer behaviour
7.1.1 Cultural
Cultural aspect consists of the institution or other influences that affect the basic
value, perception, priority and behaviour in a community. An individual raised
in a cluster of community will develop his values and beliefs based on the norms
of the community. The community has its own beliefs about the relationship
among the members of the community and the members of another community.

TOPIC 7 UNDERSTANDING INDIVIDUAL CONSUMERS’ BEHAVIOUR 99
The cultural aspect can be divided into sub-cultures which provide detailed
identification that processes the socialisation of their members. For example,
generally Malays have the same taste for food, but there exist various sub-
cultures where for example, northern Malays prefer to eat curries while southern
Malays prefer the asam pedas style of cooking.
Another criterion that exists in the cultural aspect is social class or stratification of
community members based on community priority. Among the frequently used
basis to build social class are:
(a) Occupation;
(b) Education level;
(c) Location of stay; and
(d) Wealth.
Social class affects individuals and often the individuals will behave the same
way as the other members of their social class. For example, members from the
upper social class prefer to shop at places that reflect their social class status and
position. An individual from the lower class will shop in areas or stores
frequented by the same social class.
7.1.2 Social
Other than the cultural factor, consumers are also influenced by social factors
which consist of reference group, family, their roles and status.
A reference group is a group that influences the behaviour or attitude of

consumers directly or indirectly. Direct influence comes from the primary group
such as the family, friends, neighbours, while the secondary group consists of
groups such as professional or religious groups. Consumers interact at the
highest level and informally in the primary group. The interaction level in the
secondary group is average and in a more formal way.
The primary and secondary groups are also known as membership group. The
influences of the group can be seen in three ways, which are behaviour or
lifestyle, attitude, self-concept and the selection of products and brands. There
are also indirect influences from the groups outside the membership group.
Indirect positive influences are called aspiration group, while negative influences
that should be avoided from the outside group is called the dissociative group. In
the concept of membership group, the consumer can be part of the group, while
in the non-membership group, the consumer may not be part of the group.

7.1.3 Personal
The personality influencing factors can be detailed into several aspects which are:
Age and the stage of life cycle of a family;

Occupation;
Economical status;
Lifestyle;
Personality; and
Self-concept.
Let us look at these aspects in detail:
(a) Age and Stage of Life Cycle of a Family

This plays an important role to the consumers and their family as the
product types and services they buy will change according to age and the
level of the family in the life cycle. For instance, for single or unmarried
consumers, the purchasing pattern will be influenced by their age group
and their single status. This is different with consumers who have a family
and a small child, where the purchasing pattern will be more focused to the
needs of the small family they are building.
(b) Occupation
Occupation influences consumersÊ purchases. Generally, the needs of a
white-collared worker is different from those of a blue-collared worker. A
white-collared worker will buy shirts and neck ties because these are an
occupational requirement while a blue-collared worker will buy clothes and
shoes that are durable and suitable for his occupation. This is not only
limited to clothes. A lot of products are related to work, such as recreation
sports and types of transportation.
(c) Economical Status

A consumerÊs rising economic status will enhance his purchasing power.
Consumers who have a stable economic status are able to buy the best
products in the product categories that they purchase from. For example, a
consumer may buy a BMW car to match his purchasing power.

(d) Lifestyle
Consumers from the same cultural group do not necessarily have the same
lifestyle. Lifestyle is defined as the life pattern of an individual reflected
through activities, interests and opinions. Activities include occupation,
hobbies, shopping, sports and social ceremonies. Interests refer to food,
fashion, family and recreation. Opinions refer to personal issues, social
issues, businesses and products.
Understanding consumersÊ lifestyle can help marketers to understand the

changes that happen to consumers and their behaviour.
(e) Personality
Personality is useful in studying consumer behaviour towards a product or
brand. Personality refers to defined psychological traits that give constant
and continuous response. It is usually connected to self-confidence and
traits such as socialisation, aggressiveness, dominance, autonomy and
defensiveness. For example, Ali sees himself as adventurous, active and
loving challenges. Therefore, he prefers a four-wheel-drive vehicle as it
portrays similar traits.
(f) Self-concept
Self-concept is closely related to personality. Self-concept or self-image is
how a person sees himself and makes a statement about his image or
identity to the public. To understand consumer behaviour, marketers need
to understand the relationship between consumersÊ self-concept and their
possessions.
7.1.4 Psychology
This is the closest and most basic in an individual. The selection of a product or
service by a consumer is influenced by these psychological elements:
Motivation;
Perception;
Learning;
Belief; and
Attitude.

(a) Motivation
Motivation is a biological or psychogenic need, which is the condition that
exists from a strained psychological state, such as the need to be
acknowledged or loved. As a result, a motive is born from the stimulation
that drives a person to act.
According to the Maslow theory (a popular motivation theory), needs can

be placed into two categories, which are physiological needs (such as food
and drinks) and security needs (clothes and shelter). The higher stages of
needs include the need to be loved, ego and self-actualisation. If a lower
stage needs has been achieved, the needs to achieve a higher level will
arise.
(b) Perception
A motivated consumer is ready to act. However, this action depends on the
consumerÊs perception of a situation. Perception is a process of selection,
arrangement and information input elaboration to create meaning about the
world. In the process, the individual will perform three other sub-
processes: focused selection, distorted selection and selection preservation.
Each sub-process causes perceptions to be formed in an individual which
are different from those in another individual. For example, consumers buy
local products because they believe these are also high in quality or avoid
buying local products because they believe the quality is very low.
(c) Learning
Learning involves changes in the behaviour of an individual from
experience as when a person acts, he will learn. Learning is a combination
of pressure, stimulation, indication, reaction and enforcement.
Pressure is a major stimulation that will cause actions, while indication is a

minor stimulation that causes when, where and how a person acts.
Learning can cause a person to similarise or isolate a product with other
products. Similarisation happens when obligation and indications from
various products is similar and causes similar enforcement. Meanwhile,
isolation happens when the products obligation and indications are
different, causing the consumers to differentiate a product with another.
(d) Belief
Belief refers to a personÊs descriptive thought about something that may be
formed based on education, opinion or principles. The belief may be
formed based on emotional trait or otherwise. Beliefs that are formed in the
mind result in an image of a product in the consumersÊ mind.

(e) Attitude
Attitude refers to evaluation, emotion and reaction continuously towards
an object or idea in a good way or the opposite. The consumers behave
towards many matters in their life such as religion, politic and food.
Attitude causes the consumers to have a mind that is formed based on their
preferences or non-preferences on a matter. An attitude is difficult to
change and requires modification to the attitude. It is better for the
marketers to modify their product to match the attitude rather than change
the consumersÊ attitude.
7.2 BUYING ROLES

Generally, it is easy to identify who play the roles in a purchase. For example, if a
product is for women, usually the buying role will be played by the women and
so is the opposite, if the product is meant for men.
EXERCISE 7.1
1. Explain the meaning of influencing factors to the consumer.
2. List and explain the influencing factors that you have learned.
However, if you study deeply, the role may be played by other parties. For
example when buying a car, we may say the men play the buying role but the
real situation maybe the opposite. Therefore, it is important for us to learn the
role played by every individual in the buying decision-making process.
Through research, there are five roles to be played in a buying process. An

individual may play more than one role or a role may be played by more than an
individual. This depends on the membership of the decision to be made.
Five roles that have been identified are:
(a) Nominator
The nominator is the person who comes up with the idea to buy a product
or a service.

(b) Influencer
Influencer meanwhile refers to individuals who have influence on the
decision to be made. The influence may have been in the form of
channelling or blocking information from reaching the members in the
buying centre.
(c) Decision Maker

Decision maker refers to individuals who make the decision in the factors
of ÂwhatÊ, ÂwhenÊ and Âhow muchÊ will be bought and the related questions.
(d) Buyer
Buyer refers to the person who will conduct the buying of the real product.
(e) Consumer
Consumer refers to the person who actually uses the product.
7.3 BUYING BEHAVIOUR

A consumer buying decision usually depends on the type of the purchase made.
The decision to buy a product that is frequently bought is different from the
decision that involves expensive and rarely bought products. In relation to that,
the consumers will exhibit different buying behaviour. The buying behaviours
include:
Complex buying behaviour;

Dissonant buying behaviour;
Regular buying behaviour; and
Variety buying behaviour.
Figure 7.2 illustrates the consumer involvement based on their behaviours.
(a) Complex Buying Behaviour

Refers to the situation where the consumers have many options. Every
option furthermore has its own advantages and disadvantages. The
differences among the choices are obvious. Among the criteria that exist in
the complex buying behaviour are the higher cost of investment and the
searching of more information to assist decision making process. An
example is the purchase of a house.

Figure 7.2: Buying behaviour

Source: Adapted from Kotler & Armstrong (2005)
(b) Dissonant Buying Behaviour

This refers to buys that involve products without any obvious advantages
or disadvantages. This consumer behaviour also involves a higher cost of
investment, rarely bought products or high-risk purchases. The consumer
may find ways to lessen his uncertainty by gathering more information
before making the buy and choosing the product that offers the most
guarantee. For example, the buying of precious stones.
(c) Regular Buying Behaviour

Refers to the situations where the consumer does not search more
information before buying as the consumer feels that the existing
information from the experience of using the product is sufficient. The
difference between one product and the other may be very small and may
not be as important to the consumer. For example, buying daily usage
products such as the toothpaste and soap.
(d) Variety Buying Behaviour

Refers to the situation where there are obvious differences between the
brands and products but does not require a lot of involvement from the
consumers. The consumers may change the brand more often, not because
of dissatisfaction but more to seek for varieties in the products, such as
buying of different flavours of cakes.
EXERCISE 7.2
1. List and elaborate the buying roles that you have learned.
2. List and elaborate buying behaviour that you have learned.

7.4 STAGES IN BUYING DECISION MAKING

How does a final consumer makes a decision? You can understand by looking at
it as a process. In the process of decision making, there are five stages, as shown
in Figure 7.3. You need to remember that these processes occur in the mind of the
consumer.
Figure 7.3: Decision making process of buying
7.4.1 Identifying the Problem

Basically, a consumer will identify the problem faced when a difference between
the expected situation and the real situation exists. The consumer will eliminate
or reduce the differences by buying the suitable products or services. The need
may arise as it was caused by two types of stimulation, which are the internal
stimulation and the external stimulation. An advertisement that succeeded to
persuade a consumer to buy a product is an example of external stimulation,
whereas internal stimulation comes from the individualsÊ own self. For example,
a consumer Ês favourite dress has been damaged, causing the individual to seek
other garments to replace it.
Identifying the need does not necessarily result in a purchase. This is because
there are other factors that will contribute to the purchase, such as financial
situation and the time available to make the purchase.

7.4.2 Searching for Information

After the consumer identifies the problem faced, it can be solved through buying
a product or service. Here, information gathering stage will commence. Usually,
searching the information will be easy if the consumer has experience of using
the product, the product does not involve a huge amount of money or the
product is frequently bought such as daily use products.
Intensive information searching will only happen if more information is

required. This usually occurs when buying for the first time, the purchase
involves a lot of money or when there are many alternative products in the
market. Medium information gathering will happen when the product is rarely
bought. The consumer has some information on the product or service and the
purchase requires a medium allocation of money.
Information can be gathered internally or externally. Internal information refers

to the collective information gathered through reading or the consumerÊs
experience of using the product. This includes the consumerÊs own aspiration,
which is by checking and trying the product himself. Meanwhile, external
information refers to information from a close source to the consumer such as
family and friends. Family and friendsÊ experiences and knowledge are great
influences on the consumer. These are followed by the official sources such as the
manufacturerÊs information source through its marketing mix that includes the
product design, product price, place of distribution and the promotional
methods. Official sources also include articles in the newspapers and
advertisement in the print and electronic media.
7.4.3 Evaluating Alternatives

Evaluation of alternatives refers to the formation of selection in the consumersÊ
mind to assist them in evaluating the existing alternative brands of the same
product category. For example, the consumer may feel that his communication
problems will be solved by buying a mobile phone. The consumer chooses a
product or service among the choices available in the market based on the
information gathered from the process of information searching. Through this
information gathering, indirectly the consumer has also outlined the criteria that
he requires in buying a mobile phone. The criteria will assist him to evaluate and
later choose the suitable mobile phone brand and model of his choice.

7.4.4 Buying Decision

At this stage, the consumer will make a buying decision that includes the time
and place the purchase will be carried out. This includes the payment method
that will be made. All the purchasing factors deemed appropriate by the
consumer will decide the purchase. For example, the consumer feels that to make
his purchase at a branch that sells Avon brand is sufficient rather than to go to
the headquarters. The buyer may also be interested to pay by instalment rather
than by cash as offered by the seller.
7.4.5 Post-Purchase Behaviour

After a buy, the consumer will either experience a feeling of satisfaction or
dissatisfaction. This stage is important as it will influence the process of
repurchasing the product. If the consumer is satisfied with the purchase and feels
that the purchase is right and fulfils his needs and wants, eventually the
consumer will influence other people to buy the product and continue buying it.
However, if the consumer is dissatisfied with the purchase made, the consumer
may not repeat the purchase of the same product.
Problems will crop up to marketers if the consumer has a feeling of

dissatisfaction. This feeling causes the consumer to feel that a mistake had been
made in the process of buying decision making. This condition will affect the
process of repurchasing of the product. Indirectly, the consumer will relate his
feeling of dissatisfaction to other people who wish to buy the product in the
future.
The marketer should take appropriate action to reduce dissatisfied consumers.

The marketer should convince the consumer that he has made the right choice.
The marketer may support the consumer by providing more information on the
advantages of buying the product, support services, warranty and trial period.
This is important as dissatisfied consumers who relate their bad experience to
potential customers are bigger in number than satisfied consumers who relate
satisfactory experiences to others.

EXERCISE 7.3
1. Chart the process the individual consumers conduct in buying

decision making. List what happens in every stage of the process.
2. There are three types of individual consumers purchase.

A. False
B. True
3. The nominator is the individual who filters information to the

other purchasing members.
A. False
B. True
4. After identifying the problems on a product requirement, the

information gathering stage will commence.
A. False
B. True
5. All individuals are the same as the main influencing factor is not
important.
A. False
B. True
6. Age, life-cycle stage and family are among the elements in the
main influencing factors of personality.
A. False
B. True
This topic discusses four main influencing factors in persuading the purchase
of a consumer; which are the factors of cultural, social, personality and
psychological.
Two individuals who are raised in the same area may have different
consumer behaviour because of the factors that influenced them.

In buying deals, the buying roles played by the consumers must be known to
marketers.
Five identified roles of buying are nominator, persuader, decision maker,

buyer and consumer.
In a family unit, these roles are played by a different member. There may be
one family member who plays more than one role or more than one family
member who plays the same role.
After identifying the consumersÊ role in purchasing, marketers also need to

know the consumersÊ behaviours. This is very crucial as the consumersÊ
buying decision depends on his behaviour.
The four types of identified behaviours are complex, dissonant, regular and
variety.
The obvious difference among all the four behaviours are the level of extra
information required, close alternative product, investment cost as well as the
risk involved.
While conducting a purchase, the consumer will go through the process of

buying decision making.
The process involves the stages of identifying the problem, searching for
information, evaluating alternatives, buying decision and post-purchase
behaviour.
Marketers need to understand the consumersÊ behaviour in every stage and

the factors that influence each of them so that the appropriate marketing mix
methods can be implemented.
Consumer behaviour Psychology

Personal Purchasing roles
Post-purchase behaviour Social

Topic Understanding
8 Organisational
ConsumersÊ
Behaviour
LEARNING OUTCOMES

1. Differentiate between organisational, reseller and government
market;
2. Discuss products and services classification for the organisational
consumers;
3. Identify the differences between the criteria of organisational market
purchases and the individual consumer purchases; and
4. Describe the types of buying situation that exist in an organisational
market.
INTRODUCTION
Organisational market is different from the end consumer market as the purpose
of buying the product types as well as the purchase volume are vastly different.
The purpose of buying products by an organisation is to further process the
product to make it as a ready-made, half-ready product or to resell. The products
were not bought for their own use. The products purchase includes raw material
or half-ready products that require further processing. Ready-made products are
also purchased for the purpose of reselling and are usually bought in huge
quantities.

112 TOPIC 8 UNDERSTANDING ORGANISATIONAL CONSUMERS’ BEHAVIOUR
8.1 ORGANISATIONAL MARKET PRODUCT

AND SERVICES CATEGORIES
SELF-CHECK 8.1
Why do companies buy in huge quantity? What is the purpose of the

purchase?
Since the organisational market uses products that are raw materials up to ready-
made products, then the product classification is needed in order to facilitate the
process of understanding how it affects marketers. The classification may aid
marketers in their effort to approach their customers.
8.1.1 Organisational Market Products

The product classifications for the use of organisational market are:
Raw and processed materials;

Components and spare parts;
Maintenance, repairing and operational support;
Capital goods; and
Equipments and accessories.
(a) Raw and Processed Materials

Raw and processed materials refer to natural resources or materials that go
through minor modification. For example, latex milk for natural raw
material or latex sheet for minor modification process.
(b) Components and Spare Parts

These refer to the parts that are used to assemble or make other products.
For example, tyres for car assembling.
(c) Maintenance, Repairing and Operational Support

These refer to goods that support the process of manufacturing. For
example, coolant liquid for steel drilling process.

TOPIC 8 UNDERSTANDING ORGANISATIONAL CONSUMERS’ BEHAVIOUR 113
(d) Capital Goods

Capital goods refer to the important material to manufacturing process. For
example, baking oven to make cookies. Capital goods also include building
and factories.
(e) Equipment and Accessories

These refer to light equipment that are cheaper than the main materials and
usually are purchased in a huge quantity. For example, chairs or cabinet file
in the office.
8.1.2 Organisational Market Services

The services used by organisational market are various. For example, the
cleaning/washing services, maintenance up to the professional services such as
legal or accounting services.
The system can also be categorised as a service used by the organisational

market. Systems that are related with products are the training of product or
machine usage, and training about handling the computer. Meanwhile, the
services systems are scheduled business audit and data processing.
8.2 CHARACTERISTICS OF ORGANISATIONAL

MARKET
When making a comparison between the character of an organisational market and
an end consumer market, the organisational market has its own characteristics.
These characteristics are shown in the Figure 8.1.
Figure 8.1: The characteristics of organisational market

8.2.1 Type of Demand

The type of demand in an organisational market can be divided into three, which
are:
Derived demand;
Inelastic demand; and
Fluctuating demand.
Explanations are given as follows:
(a) Derived Demand

Derived demand means a demand for an organisational market is derived
from the demands of ready-made products from the end consumers
market. For example, the company that produces roofing sheet for houses.
The roofing sheet demand is actually derived from the demand for houses
in the end consumers market. In short, the demand is derived from the
demand of a ready-made end product in the end consumers market.
(b) Inelastic Demand

Any price change, whether an increase or a decrease of an organisational
product does not produce a short-term effect for the demand of the
product. The effect is more long termed. For example, the increase of price
in a material will not cause the manufacturer to buy the product in huge
volume. However in the long term, the increase of the price for the raw
material will also cause the product to experiences an increase in its price in
the market.
(c) Fluctuating Demand

The demand for organisational product is more prone to experience
fluctuating demand or irregularity compared to the demand for the product
in the end consumers market. This is because the manufacturer is more
inclined to increase the inventory while the economic situation is booming,
and reduce the inventory when the economy experiences recession. For
example, built-in products and fittings such as office furniture.

8.2.2 Informed Buyers

Generally, organisational purchase involves high cost and high volume purchase.
Therefore, the risk is high and it is important for the organisational buyers to
avoid from making any mistake in the purchase. In relation to that, the buyers
will determine the product specification. The organisational buyers are very
knowledgeable and experienced about the products that they wish to buy. In
other words, they are professional buyers who know what they want. If they
require more information, they will search the information before making any
purchase.
8.2.3 Market Size

The organisational market size is smaller when compared to the end consumer
market size. This is because the size is measured in terms of the existing
consumers. Meanwhile for the organisational market, the size is measured based
on the number of organisational customers. Even though the organisational
customer might have a thousand employees as their customers, the organisation
still represents a unit of organisational customer.
However, the total money involved is much higher than the end consumer
market. This is because the organisational buyers often buy products in bulk.
8.2.4 Promotion Techniques

The most effective promotion technique for the organisational market is through
personal sales followed by advertisements in a business magazine or a journal.
These types of promotion are more professional and more suitable with the
organisational business consisting of buyers who know what they are looking
for.
Personal sales allow the salesperson to explain in detail about the product, while
the question and answer session will help potential buyers to make their buying
decision. Besides, the relationship that needs to be established between buyers
and sellers are easier done through the approach of personal sales. The
advertisement in business magazines and journals are also brought into
application as professional buyers will refer to these magazines or journals for
the latest development in their field or expertise. This makes the business
magazines or journals suitable as the advertisement of products and services.

8.2.5 Buying Centre

A buying centre refers to the committee that is made for the purpose of product
purchase. The membership is represented by a representative from the related
department of the product that will be bought. If the product incurs high cost for
first time purchase, usually the number of members in the committee will be
higher. This is because the risk involved is higher. For purchases that incur
medium or low cost, or frequent purchases, the number of members involved
will be lower.
Every member in the buying centre plays their roles as nominator, consumer,
influencer, buyer, decision maker and information controller.
8.3 MAIN INFLUENCERS OF

ORGANISATIONAL CONSUMERS’
BEHAVIOUR
The main influencers of the organisational consumersÊ behaviour are the
environment, organisation, interpersonal and individuals (refer to Figure 8.2).
The organisational buying activity is an official activity. It is not conducted the
way an individual conducts it. Every organisational purchase has its
justifications as it relates closely to the organisationÊs operation.
Figure 8.2: Main influencers of the business purchase

8.3.1 Environment
Organisational purchase is very much influenced by environmental factors such
as:
(a) Product demand level;

(b) Current economy situation;
(c) Loan rates;
(d) Technology development level;
(e) The countryÊs political development and the governmentÊs regulation;
(f) Competition; and
(g) Social responsibility issue.
The awareness against the environmental factors is important because any

changes, whether positive or negative will have a direct impact to the business.
The monitoring is also important because the organisation does not have direct
authority against the changes in the environmental factors, but stills need to act
proactively towards any changes.
8.3.2 Organisation
Every organisation has objectives, policies, procedures, organisational structures
and systems. These factors are known as the organisational factors and they
influence an organisation buying behaviour through a centralised buying policy
or its opposite, contract offering, purchase through the Internet, buying
technology, the roles played by other departments in the buying function, the
increasingly important and more strategic buying function as well as specialised
production.
All these factors influence the buying process ambience that includes decision
making process and the purchase itself. Organisational purchases take a
considerably longer time as discussions after discussions are conducted to reach
a buying decision. The organisationÊs guideline will always be taken into
consideration in each step of the process.

8.3.3 Interpersonal
A buying centre usually consists of several committee members who exhibit
interest, authority level, empathy and persuasion at different levels.
It is hard for marketers to identify the inter-personal factors and a dynamic

group involved in a buying process. Every committee member has his own
influence in deciding the products to be purchased in the buying centre. Inter-
personal influence may be a dominant factor in deciding the list of products to be
bought at the buying centre.
8.3.4 Individual
The individual factor refers to the organisation officers who have different
motivation level, perception and priority that differ because of the influences of
age, income level, position, personality, attitude towards risk and their culture.
For example, a company with officers from several different countries and the
companies that deal with foreign market have to be aware of the countryÊs
culture if it happens to affect the organisational purchase.
EXERCISE 8.1
1. List and explain the organisational market characteristics that you

have learnt about.
2. List the influencing factors of the organisational consumersÊ

behaviour. Describe how the influencing factors influence the
individuals.
8.4 BUYING SITUATIONS

The most common buying situations that occur can be categorised into three:
(a) New task buying;

(b) Modified rebuy; and
(c) Straight rebuy.

The categorisation is based on whether the purchase has been done before or
otherwise. It involves the information searching if the product has never been
purchased before and modification must be done to the product specifications.
8.4.1 New Task Buying

A new task buying situation involves first time purchase for an organisation. If it
involves a high cost or risk, more detailed decision have to be made by the
buying centre.
Generally, organisational purchase does not have sufficient information to make

this kind of decision. The decision made will include type of product, product
brand, technical and general specification, quantity, supplier, purchase or
assembly routine and the purchase evaluation.
In order to obtain sufficient information, a better effort will have to be made.

Every member at the purchasing centre will be involved in every step until the
decision is made.
8.4.2 Modified Rebuy

Modified rebuy refers to a situation where a same product category requires
minor modification to be made to the product specification. Specification
modification is made based on the organisationÊs experience in using the
product. This is done at the end of the usage period when the organisation feels
that they require products with slightly different specification.
An example is office furniture. From the organisationÊs experience of using the

product, they feel that a few criteria such as the product durability, a different
colour, and a combination of steel and wood are better. These criteria are then
outlined in the rebuying of the office furniture and they are known as the
product specification. The different criteria searched of the specification
modification lead to the situation of modified rebuy.
The situation requires medium information collection. The information has to be

collected focusing on the product specification which needed to be modified.
Perhaps the existing supplier is not able to supply the new required product
causing the information for new suppliers to also be required.

8.4.3 Straight Rebuy

This situation is the most frequent to occur, especially in ready-to-use product
buying. If a product stock reaches a minimum level, a straight rebuy will be
conducted. It is called straight rebuy as there is no need for any modification to
the product. Perhaps the organisation is satisfied with the previous purchase
causing no specification modification to be done.
In this situation, the extra information required is very minimal and sometimes
not required at all. Generally, the purchasing officer will immediately order the
product when he needs new stocks.
ACTIVITY 8.1
List all the major differences between a modified rebuy and a straight
rebuy.
8.5 THE BUYING PROCESS OF

ORGANISATIONAL MARKET
Organisational market buying process can be divided into five stages, which are:
(a) First stage: identifying problem;

(b) Second stage: identifying product specification;
(c) Third stage: listing suppliers and making offer to suppliers;
(d) Fourth stage: selecting supplier and routine order specifications; and
(e) Fifth stage: post-purchase consumer behaviour.
Figure 8.3 illustrates all the stages involved in the organisational market buying
process.

Figure 8.3: Organisational market buying process
8.5.1 First Stage: Identifying Problem

A problem can be caused by internal or external stimulation. An example of an
internal stimulation is a situation when the machine needed to be used broke
down and hindered the organisationÊs operation. The machineÊs malfunction
caused the organisation a problem. While examples of an external stimulation are
technology development and salesperson persuasion that caused the
organisation to feel that it needs to replace the existing machine even though it is
not experiencing any malfunction.
8.5.2 Second Stage: Identifying Product Specification

After the problem and issue have been identified, the next step is to list all the
specifications of the product needed. If the product is frequently used, maybe
some feedback from the product user may help the organisation to identify the
specification of the product to be bought. However, in a situation where the

product has never been used, the information will be collected intensively to help
identify the specification of the product to be purchased.
8.5.3 Third Stage: Listing Suppliers and Making Offer

to Suppliers
Organisational product market does not have many suppliers as the final
consumer product market as most of the products are sold according to the
customerÊs order. Therefore, indirectly the number of the suppliers for the
organisational product is limited but they are the supplier who can prepare
products according to the organisational buyerÊs specification. After the product
specification has been identified, this stage will identify the suppliers who can
supply the product according to the expected specification.
Organisational consumer usually gives much emphasis on factors like technical

expertise, reputation, after-sales services, location of the supplier, guaranteed
return and price offered by supplier.
8.5.4 Fourth Stage: Selecting Supplier and Routine

Order Specifications
In this stage, the supplier selection will be done based on the suppliersÊ
suggestions. Organisational consumer can engage only one or a few suppliers for
its order. In this stage, organisational consumer will negotiate with supplier
regarding the final order, technical specification, required quality, expected
delivery date, return policy, warranty and so on. After a consensus has been
reached, the organisational consumer will generate the routine order
specifications.
8.5.5 Fifth Stage: Post-Purchase Consumer Behaviour

At this final stage, organisational buyer will experience post-purchase behaviour
such as those experienced by the final consumers. At this stage, the buyers can
make their evaluation of the product through the experience of using it.
Generally, the buyers can evaluate whether they have made the best purchase or
not.

Output from this stage will influence the next purchase process. For example, if
the buyer is satisfied, the buyer will normally purchase the same product in the
following purchase process. If the buyer is not satisfied, the specification
modification, product class or brand will be changed in order to ensure that the
purchase can give them a satisfactory output.
8.6 MEMBERSHIP IN ORGANISATIONAL

PURCHASING PROCESS
The decision to make organisational purchase is made formally by a group of
staff that have been appointed to be a member in the buying centre. Depending
on the buying situation, the membership of the buying centre may consist of two
staff up to the maximum of 12 staff. However, on the average, it consists of four
to five staff. Every member in the buying centre plays his own role as nominator,
consumer, influencer, decision maker, approver or information keeper.
The nominator is the party who voices out the opinion to buy the product, who
may be other consumer or other parties in the organisation. The consumer is the
party that will use the product. He may or may not be on the same side as the
nominator. The consumers may be the lower ranked staff, while the nominators
are their head of departments. The consumers help in defining or describing the
needs of the product to be purchased.
The influencers are the people who have influence on the buying decision. They
too help define the product specification and provide relevant information to
consider product alternatives. The technical and engineering staff are usually the
influencers.
The decision maker is the officer who makes the real decision on the need or the
supplier selection. The approver on the other hand, is the person who gives
authority to take action on the suggestion made by the decision maker or the
buyer. The information keeper is the officer that has the power to prohibit or
allow information to reach the buying centre.

EXERCISE 8.2
1. List the stages in the organisational market buying process.
2. Name the organisation buying situations.
3. Since the demand for rubber sheets are caused by the demand for
transport tyres, then it can be said that the demand for rubber is
derived.
A. True
B. False
4. General Hospital, RTM and MARDI are examples of

organisational consumers.
A. True
B. False
5. Sellers who sell to the organisational consumer do not emphasise

on direct selling compared to the sellers who sell to individual
consumers.
A. True
B. False
6. Straight rebuy usually does not require much involvement from

the organisation.
A. True
B. False
7. The purchase done by the organisational consumer usually is

smaller in quantity compared to the purchase done by the
individual consumers.
A. True
B. False

In this topic, we have learnt the product and services categories for the
organisational market.
Since the products and services are used in the organisations include raw
materials up to ready-made products, the product and services classification
may help the comprehension of the product roles to the organisational
consumers.
Organisational market is similar to consumerÊs market in several ways. Both

involve buying decision making process to fulfil needs.
The organisational market and the consumer market, however, do have

differences.
Organisational market has its own traits, which are derived demand, inelastic
demand, fluctuating demand, informed buyers, a smaller market size but a
large purchase volume, personal sales promotion technique for a more
effective approach and the presence of buying centre.
A buying centre allows purchases to be done in a group in order to reduce

risks that have to be borne if it is decided by only one officer.
There are three buying situations that occur in the organisational market,
which are the new task buying, modified rebuy and straight rebuy.
New task buying involves first time purchase, modified rebuy refers to
purchases that require additional information and straight rebuy refers to
purchases without any changes.
Organisational market buying process which goes through certain stages has
also been discussed.
The identified stages are identifying problems, identifying product

specification, listing the suppliers and making offer to suppliers, selecting
potential suppliers and post-purchase behaviour.
Finally, the membership in the organisational buying centre consists of the

nominator, consumer, influencer, decision maker, approver and information
keeper who also influence the buying process.

Demand Inelastic demand

Derived demand Organisational market
Fluctuating demand Straight rebuy
Informed buyers

Topic Managing
9 Competition
LEARNING OUTCOMES

1. Explain how real competitors of the company are identified;
2. Examine the importance of competitorsÊ strategies, objectives,
strengths and weaknesses as well as their reaction pattern;
3. Discuss how competition intelligence system is built;
4. Describe leader, challengers, followers and nichers and their
strategies; and
5. List the balance of consumer and competitor orientation.
INTRODUCTION
In the new millennium, competitions faced by most organisations are getting
tougher. The situation is aggravated by the increasing number of competitors in
the market. Competitions are not only made up of local competitors but also
foreign competitors. The market has become broader and the boundary is now
indistinct.
In the old days, the consumers mostly focus on the local market but technology
development has contributed to expand the market for the consumer. Various
approaches to attract the consumers have been done by marketers because the
knowledge of the consumersÊ needs and wants alone is not enough for marketers.
Now, marketers have to always investigate the development and the movement
of their competitors in order to survive in the market.

128 TOPIC 9 MANAGING COMPETITION
9.1 IDENTIFYING THE COMPETITORS

Generally, the company feels that it is easy to identify its competitors but in real
life, especially in the new millennium, with various approach practiced by the
companies, the real and potential competitors are far greater in number.
Competition now does not only consist of existing competitors but also new
competitors or new technologies from the existing competitors.
Identifying competitors can be done through two approaches, which are:
(a) Analysing competition from the market concept; or

(b) Analysing competition from the industrial concept.
9.1.1 Analysing Competition from Market Concept

Competition from the aspect of market concept identifies the competitors as the
companies that also satisfy the needs of the same set of target consumers. It may
be something as narrow as products; for example cars, or something broader
such as product class, for instance private vehicles which consist of many form of
transportation that are used for personal use such as cars, motorcycles, bicycles
and others.
9.1.2 Analysing Competition from Industrial Concept

Analysing competition from the industrial concept is more concentrated on how
an industry can be classified. Industry refers to a group of firms that offer
products or product class with close alternatives to each other. Industry can be
classified into:
The number of sellers and the degree of product difference;

The existence or non-existence of obstacles for entry and mobility as well as
withdrawal from the industry;
Cost structure;
Vertical integration level; and
Globalisation level.

TOPIC 9 MANAGING COMPETITION 129
Explanations are given as follows:
(a) Number of Sellers and Degree of Product Difference

The characteristic of the number of seller and the degree product difference
classification refers to four market structures, which are:
(i) True Monopoly

True monopoly refers to the only company that markets a product or
service in a country or an area. It consists of controlled monopoly by
the authority or others.
(ii) Oligopoly
Oligopoly refers to a small number of sellers, usually in large size,
which market various products from the standard ones to the
common ones.
(iii) Monopolistic Competition

Monopolistic on the other hand refers to a number of competitors
selling products that can be differentiated.
(iv) Perfect Competition

Perfect competition refers to many competitors and products that are
quite difficult to be differentiated.
(b) Existence or Non-existence of Obstacles for Entry and Mobility as well as

Withdrawal from the Industry
Every industry is different from one another in the aspect of
encouragement or obstacles for the purpose of new competitorsÊ entry in to
the industry, the company mobility to enter other industrial segment as
well as the withdrawal from the industry. For example, for high technology
industries, the degree of entrance obstacles for new competitors is very high
compared to the industry that does not really emphasise on high
technology, for instance the food industry.
Other than high technology, the need for licenses and patents, resources
and limited locations as well as reputation are the obstacles of entry to the
industry. Similarly for withdrawal from an industry, sometimes the
regulations by the government or the industrial interest of the country or
the difficulty to sell obsolete machines of the company to other companies
can cause the company to continue operating just to survive in the industry.

(c) Cost Structure

The cost structure for every industry is also different. For heavy industries
such as steel fabrication, the production and raw material costs are very
high. There are also other industries which their focal cost is on distribution
cost instead of production cost.
(d) Vertical Integration Level

There are a few industries which conduct vertical integration, either
forward or backward integration. If the integration level is high, then the
companies will have a high control in terms of costs and production
operation and the distribution of their products.
(e) Globalisation Level

The globalisation rate refers to companies that conduct their operations at
the international level. In relation to that, they will have to compete in a
global level with the support of new technology to achieve the economy of
scale for their operations.
9.2 ANALYSING COMPETITORS

When a company manages to identify its main competitors, the company then
needs to obtain important information on its competitors. The important
information includes strategies, objectives, strengths and weaknesses as well as
the competitorsÊ reaction pattern (refer to Figure 9.1). The information is required
in order to conduct the competitors analysis. The information may also be in the
form of written documents.
Figure 9.1: Elements needed when analysing the competitors

9.2.1 Strategy
Analysis on strategy refers to the strategy that becomes the companyÊs main
attention and identifying other companies that practice the same strategy.
Generally, strategy is mostly related with the quality level offered to consumers.
If the company sets a high level of quality for its products, then the competitors
are the companies which have the strategy of offering the same high-quality
products to the consumers.
9.2.2 Objectives
After learning the closest competitorÊs strategy, the following analysis is on the
objectives of the competitorÊs company. What are the aims of the competitor for
the market from its strategy? In general, objectives consist of current profit,
market section growth, cash flow, leadership in technology or services. The
objectives of a company are influenced by many factors including size,
background, current management, financial situation and other factors. Other
than objectives, the company must also monitor the competitorsÊ development
plan.
9.2.3 Strengths and Weaknesses

The effort to learn the competitorÊs strategy and goals depends on the companyÊs
resources and ability. In relation to that, it is all about the strengths and
weaknesses of a company. The information on the strengths and weaknesses of
the competitors should be obtained by the company in order to assist the analysis
process.
9.2.4 Reaction Pattern

Next, we move on to the competitorsÊ reaction pattern. In general, the reaction
patterns are: slow reaction against the competition; selective reaction, which only
reacted back to the competition of decreasing prices but not on promotion; fast
and stronger reaction against the competition action; as well as multiple reaction
that depends on the situation or the companyÊs ability to react.

9.3 DESIGNING COMPETITION INTELLIGENCE

SYSTEM
There are four steps to be followed in designing a competition intelligence system:
(a) Starting the system;

(b) Collecting data;
(c) Evaluate and analyse the data; and
(d) Distributing and reacting against the information.
Output from the information system may help the marketing managers to
arrange the strategy in choosing the competitors which should be attacked and
avoided.
Starting the system involves identification of the types of competitorsÊ

information to be gathered and the individuals responsible to execute the action.
Depending on the companyÊs financial ability, the individuals involved may
carry the responsibility, full-time or part-time. Part-timers can constantly monitor
the competitorsÊ companyÊs movement and eventually the individual or the
officer will be an expert on any reference that the management needed.
The next step is to gather the identified type of data. Generally, the information
needed to be collected is scattered. The information may be in the form of written
documents or the result of an interview or indirect discussion with the middle-
person, customer, public parties and the Internet.
The collected information is then evaluated for its authenticity and value before it
is elaborated and organised. The analysed information will then be distributed to
the decision maker regularly or when there is any need to assist decision making.
EXERCISE 9.1
1. Who are the companyÊs competitors?
2. How can competitors be identified?
3. How do you design a competition intelligence system?

9.4 DESIGNING COMPETITION STRATEGY

In a product or service market, the companies that offer the products or services
actually have a market share of the market. The companies that strive to offer
products and services are classified into one of these groups, the market leader,
market challenger, market follower and market nicher. The groups to which they
belong depends on the market percentage that they control.
Generally, the market leader controls about 40% from the overall market.
Meanwhile market challenger controls 30%, market followers at 20% and the
market nicher at 10% of the market share.
9.4.1 Market Leader Strategy

As a market leader, a company controls about 40% of the market share. Most of
the time too, the market leaders lead the price changes, new products
introduction, distribution coverage and promotion intensity. To maintain the
status, the company needs to expand the market demand in total, protecting the
current market through defensive and offensive actions and work to increase
market section.
To expand the market demand in total can be done by acquiring new customers,
improve usage of current product and increasing the usage rate. New usage such
as baby shampoo is encouraged to the families because of its softness. An example
of new usage is bicarbonate soda which is used for baking cakes, can also be kept
in refrigerators to absorb unpleasant odours in the fridge. Meanwhile, an example
of increasing usage of product would be shampoo. Here, the users are encouraged
to wash their hair twice in order to get the best result of clean hair.
Other than the effort to expand demand, market leaders also need to protect the
current market either by enforcing their current status, side attacks defense, pre-
emptive defense, counter-attack defense, moving defense and withdrawal.
Enforcing their current status can be done by continuous improvement of
product quality or decreasing production cost. Side attacks defense is to keep
monitoring competitors who offer close alternative products. While, pre-emptive
defense refers to the action taken before the competitors make any attack.
Counter-attack defense refers to rapid counter-attack when being attacked by the

competitors. The company will not sit still without making any counter-attack.
Moving defense on the other hand, refers to market opportunities action and
market variation to protect the market from competitorsÊ attack. Meanwhile,
withdrawal may only be executed if the company feels that it is not able to

protect the market anymore. However, this withdrawal is a withdrawal that has
been considered for the pros and contras of the execution by the company.
Withdrawing from market that has a slow growth rate is better than maintaining
its position in the market.
9.4.2 Market Challenger Strategy

Based on the objective strategy evaluation, market challenger should be making
decision of which competitors to attack. Market challenger has a choice either to
attack the market leaders or competitorsÊ company of the same size but are less
advantageous in terms of financial resources for small competing companies.
Among the attack approaches that can be used are frontal assault, side assault,
surround assault, by-pass assault or guerrilla assault.
(a) Frontal Assault

The market challenger Ês will launch direct assault with its competitor Ês
products. The challenger will challenge its competitor on the front without
protection. This usually occurs if the position and strength of both
challenger and the competitor are quite close. Frontal assault is executed
with the hope that the challenger may replace its close competitor.
(b) Side Assault

Side assault is an attack to a product criteria or the position of the
competitor Ês market. The assault is launched on the product criteria that
were not given as much thought by the competitors. If the challenger
guards only its main product and pays less attention to other products, then
the company may launch assault to the side products.
(c) Surround Assault

Surround assault refers to attack on all types of products manufactured by
the competitors.
(d) By-pass Assault

By launching an attack by-passing any of the competitorsÊ intended action.
ACTIVITY 9.1
Identify the strategy implemented by a market challenger in any

television advertisements that you have watched recently.

(e) Guerrilla Assault

Irregular attacks launched by the challenger towards the competitors.
Examples are price-reducing attack at one point, while at another time, the
company will produce a product with additional criteria at the same price.
9.4.3 Market Follower Strategy

Market followers implement their strategies according to the market leaders or
the market challengers. For example, the market leader will introduce a new
product after investing a huge amount of money in market research to produce
the new product. Soon after that however, a product almost similar to it will
come out in the market but with a different brand and at a much cheaper price.
This is known as the market followersÊ strategy.
The general strategy commonly used by the market followers are cloning,
forging, imitating and modification. Cloning involves copying all the original
product traits with minor changes and are sold at a lower price. Forging copies
the original product without any changes to its traits and is illegally sold in the
market. Imitation on the other hand is original products copying and selling after
minor modification. Modification changes the original products with the
characteristics that is deemed suitable for the consumer and marketed as a new
version product to the market.
9.4.4 Market Nicher Strategy

This strategy focuses on smaller or specific needs markets. It is a strategy suitable
for small companies that do not wish to compete directly with the market
leaders, challengers or the followers. Generally, niche markets are less considered
by the giant competitors because of the market small size and specific needs. For
example, the restaurants. Most of the restaurants provide food that caters to
many peopleÊs demand. However, a niche restaurant is one that caters for
vegetarians and does not share meat dishes.
The niche market to be ventured should have sufficient demand in order to be

sustainable. If the focused market has a possibility to shrink, it may present a
threat to the company that wishes to venture in the focused market.
The most important key of focused market is specialisation. The following are the
roles that can be played by the niche marketers, which are as individual
consumer experts, market by geography experts, product traits experts, highly
priced products experts, service experts and distribution channels experts.

9.5 BALANCING COMPETITION AND

CONSUMER ORIENTATION
The company actually has an option whether to use the competition or the
customer orientation in its strategy. It is not wrong for a company to use only one
strategy but it is better if the company can balance both orientations in the
formation or modification of its strategy. This is because the market consists of
both competitors and customers. You would require monitoring in order to gain
competitive advantages for the company.
EXERCISE 9.2
1. The real competitors of a company consist of companies in the

same country only.
A. True
B. False
2. Analysing competitors refers to collecting information about

strategies, objectives, strengths and weaknesses and the reaction
patterns of the competitorsÊ company.
A. True
B. False
3. Information on the competitors is usually collective information

and easy to obtain.
A. True
B. False
4. Information from the Internet is also an information source for

the purpose of collecting information about the competitors.
A. True
B. False
5. Market challenger always challenges the position of market

leaders and other market followers.
A. True
B. False

In this topic, we learn the meaning of competitors by identifying them using

two approaches, which are the approach from the market or industry
concept.
Industry concept analyses the competitors according to how an industry can

be classified.
After identifying the companyÊs competitors, marketers may obtain

important information regarding the competitors; such as their strategies,
objectives, strengths and weaknesses as well as the competitorsÊ reaction
patterns in order to allow the company to learn more about their competitors.
In relation to that, we are brought to the competition intelligence system,

where information type and quantity needed are identified.
The system may be implemented full time, through departments or units, or

part-time as when the information is required.
A market actually consists of the market leaders, market challengers, market

followers and niche marketers. Each type has its own strategy suitable to the
companiesÊ market positions.
Generally, market leaders are leaders in terms of market sectors and strategy
in the market.
Meanwhile, the challengers are companies with almost similar abilities with
the market leader and frequently challenge the position of the market leader.
Market followers are the companies which prefer to take advantage of the
market situation created by the market leaders and market challengers.
Niche marketers on the other hand focus their effort according to their
position or limited resources.
Even though competition strategies are the main focus of this topic, a balance
between the approaches of either consumer or competition orientation must
be achieved in order to gain competitive advantages in the market. This is
because a market consists of both the consumers and the competitors.
The actions and changes in the consumers and the competitors should be
monitored.

Competition Market challenger strategy

Competition strategy Market concept
Competitors Market follower strategy
Consumer orientation Market leader strategy
Industrial concept Market nicher strategy

Topic Identifying
10 and Selecting
Market
Segment
LEARNING OUTCOMES

1. Explain the level of market segmentation;
2. Describe the market segmentation concept and target market;
3. Identify the bases or the variables that can be used for market
segmentation;
4. Assess the characteristics of an effective market segment; and
5. Review the patterns of the target market selection.
INTRODUCTION
A market is made up of individual consumers and organisational consumers
who want and are able to purchase a product. We also know that every
consumer has his own different needs and wants. The way the consumer
performs the purchase, products he buys, the place he shops and the conditions
that influenced his purchasing decision is different from one person to another.
Therefore, it is more effective if market behaviour is segregated into smaller
groups. Usually, these small groups are easier to be studied. This in turn assists
the company to generate and manage the marketing strategies that match the
needs and wants of the different groups.

140 TOPIC 10 IDENTIFYING AND SELECTING MARKET SEGMENT
Nowadays, it is a normal practice for a company to target its market where the
company will select certain groups to be their customers. Every marketing
activity and the companyÊs efforts will be formulated and focused based on the
needs and wants of a particular group.
A company needs to know the process of segmentation and the segmentation

bases prior to conducting market targeting. The company also needs to know the
characteristics of an effective segment so that all its marketing efforts are
effective. In this topic, we will discuss the issues of segmentation as well as target
market.
10.1 LEVEL OF SEGMENTATION

Before we discuss segmentation and market target, we need to first learn about
the segmentation level that we may implement in a market. Market segmentation
is a process of segregating a big market into smaller groups. The groups will
have the same characteristics such as age, gender, culture, occupation and etc.
These small groups are called market segment. Since the customers in a segment
have the same characteristics, we can assume that they also have the same needs,
wants and also purchasing behaviour.
Market segmentation can be implemented at different levels, for example:
(a) Mass marketing;

(b) Segment marketing;
(c) Niche marketing; and
(d) Individual marketing.
10.1.1 Mass Marketing

In this type of marketing, the company assumes all the consumers in the market
as its consumers, and all of them have the same taste, the same purchasing
behaviour, and the same needs and wants. Based on this assumption, the
company takes the market as one big market that does not need to be segregated
into smaller groups. In this case, there is no market segmentation implemented.
The company also assumes that by producing only one product is sufficient to
the market.

TOPIC 10 IDENTIFYING AND SELECTING MARKET SEGMENT 141
In this case, normally the company will use a distribution system known as mass
distribution, as well as mass promotion, and will perform mass production to
market the one product.
This level of segmentation was practiced by Ford Motor Corporation 50 years

ago, where the company only produced a single car model known as T-Ford
Model. The Ford Company only offered one product to every consumer where
the design was the same and each was black in colour. Figure 10.1 shows the
photograph of the model.
Figure 10.1: T-Ford model car

Source: http://www.earodrome.org
The Coca-Cola Company once also had practiced this level of segmentation
where at the beginning of its business the company only offered Coca-cola drink
that tastes the same in a 6.5oz bottle only. Nowadays, it is quite hard for a
company to practice this level of segmentation as there are too many competitors
and that means the consumers also have more choices to be made.
10.1.2 Segment Marketing

In this type of marketing, the company assumes that the consumers can be
segregated into several market segments. As discussed previously, these
segments can be segregated according to a few basics such as income,
geographical area and race. Since the market consists of several segments then
the company assumes that the needs and wants of the market are also different.

Every segment requires different marketing mix as well as having different

consumer behaviour. Segment marketing is better than the „mass marketing‰ in
the sense that every marketing activity and programme can be tailored to the
needs and wants of each segment. Therefore, all the marketing activities
implemented are more accurate as compared to using the mass marketing.
10.1.3 Niche Marketing

Niche marketing is where the company only focuses all the marketing mix
strategy on one market segment. For example, Mercedes only produces
automobile for the luxury automobiles market, Anakku Corporation only
produces products for baby needs and The Avon Company used to produce only
cosmetics products specialised for the women. Since the company only focuses
its attention to one segment, usually the company has exceptional expertise in
fulfilling the needs and wants of the particular segment. The company also
usually is well-informed of its consumersÊ behaviour, as well as being the expert
in producing the products for the segment.
Since only one segment is selected, then the segment should be the segment that
has a high purchasing power (willing to pay more), big enough for its size and
has a good growth rate.
ACTIVITY 10.1
In your opinion, what are two advantages of Mercedes automobiles

compared to other automobiles?
10.1.4 Individual Marketing

Under this concept, the company implements its marketing activities based on
the personal needs and wants of an individual. The products are manufactured
based on the individualÊs taste. Individual marketing is also known as one-to-one
marketing or tailor-made marketing.
In the industry or organisation market, there is such practice as the industrial

consumers are small in numbers but purchase in large quantity. There are also
different purchasing specifications from one another. For example, in the
individual market such as clothing boutique, Jimmy Choo shoes boutique (which
is well-known for its tailor-made shoes with demands from celebrities like the

late Princess Diana) and other boutiques provide specialised and specific services
to each of its customers.
10.2 INDIVIDUAL CONSUMERS’ MARKET

SEGMENTATION BASES
Normally, the segmentation bases frequently exercised to segment an individual
market is based on the geographical area, demographic psychographic and also
based on the consumersÊ behaviour variables. Under this concept, the company
will implement its marketing activities based on each individualÊs needs and
wants. The products produced are also based on the individuals. The individual
marketing is also known as one-to-one marketing or tailor-made marketing.
In the industry or organisational market, there is such practice since the

industrial consumers are small in numbers but purchased in large quantity. They
also have different purchasing specifications from one another.
10.2.1 Segmentation Based on Geographical Factor

Through this approach, a huge market may be segregated into smaller segments
such as a country, state, district, zone, city and even a housing estate. For
example in Malaysia, there are locations such as the Klang Valley area, East Coast
area, North area and so on and so forth. Usually this approach is used by
retailing companies such as Makro, Carrefour, Giant Supermarket and so on.
They segregated their market, based on geographical areas as previously
described.
10.2.2 Segmentation Based on Demographic Factor

Demography is a statistic data (which is a measurable data) of a population. The
data will usually explain and illustrate a population. Among the demographical
data is the age, gender, occupation, race, religion, education, social class, family
size and also a life cycle of a family. Usually, these demographics bases are the
most popular data used for segmentation of a market. Perhaps, it is because they
are easy to obtain and to measure, and more practical compared to other
fundamentals.
Demographic data has a close relation to the purchasing behaviour of a

consumer. Children toy companies usually segment their products based on the
childrenÊs age, such as 1 3 years old, 10 15 years old and so on. On the other
hand, the clothes, magazines and cosmetics manufacturing companies usually

use gender (male or female) as the basis to produce their products. Automobiles
companies, furniture companies, clothes manufacturing companies and service
companies like hotels and airlines usually produce and offer their products or
services based on the income of their customers, as well as their social class.
Some writers choose social class as a segmentation based on psychographic.

However, Philip Kotler puts social class as segmentation basis based on
demographic data. To make it easier and diminish doubts, it is better to put
social class under the demographic basis.
10.2.3 Segmentation Based on Psychographic Factor

Based on this segment, the consumer is segregated into several groups based on
lifestyle, personality and life value of a consumer.
Lifestyle is the way a consumer lives his life and how he spends his money daily
(Figure 10.2). Each consumer must have their own lifestyle. Examples of lifestyle
are „adventurous‰ lifestyle (lifestyle that likes adventures or trying something
new), „me too generation‰ lifestyle (lifestyle that likes to copy others), „poverty
of time‰ lifestyle (a very busy lifestyle with very little time for rest), beauty
conscious lifestyle, comfort and health conscious lifestyle and various other
lifestyles.
Figure 10.2: Types of lifestyle

Source: Adapted from http:www.google.com

For adventurous lifestyle, a company can come up with products such as extreme
sports equipment, four-wheel drive vehicle, mountain climbing bicycles, scuba
diving equipment and many more. Usually, the users who want to live this kind
of lifestyle are those users who have a high income, young, and possess a good
level of education. They like to try new things and are not afraid to take risk. If
the company produces a new product, this group will be the best initial market
target.
Personality on the other hand, explains characters of the consumers such as being
shy, aggressive, active, independent, conservative, confident and many more.
The companies that usually use this segmentation are manufactures of perfume,
clothes and also cosmetics. Clothes that are bright and colourful are usually
meant for consumers who are active and aggressive.
10.2.4 Segmentation Based on Consumer Behaviour
SELF-CHECK 10.1
What are the factors considered by a consumer when choosing a

product?
Behavioural segmentation is also the most frequently used bases other than the
segment based on demography. Usually, consumer goods company will use this
basis, mostly because it produces a lot and different types of product. Among the
segmentation basis are as follows:
(a) Use Occasion

Consumers can be segregated into their own groups based on when they
use and require a certain product. For example, in the airline industry,
consumers can be segregated into organisational consumers (use the airline
for business trips), and also the consumers who use the airline for vacation
or visiting.
Organisational users require a different service from the vacationing users.

They require accurate flight schedule, frequent, communication equipment
in the aeroplane such as the fax machine, telephone internet and many
more. They are also willing to pay higher price for the service they enjoy.
Vacationing consumers are more attracted to cheap price and does not
require business class services.

(b) Benefit Sought

This is the most favoured and most used behavioural segmentation basis by
consumer goods company. This basis is based on the assumption that the
consumers buy and use a product because of the benefit they gain from it.
For example, toothpaste users can be segregated into consumers who buy
to whiten their teeth, consumers who buy to eliminate bad breath, to
protect teeth from decaying and also to prevent gum swelling. Based on
these, Colgate Palmolive produces many types and flavours of toothpaste.
Meanwhile, automobile companies produce cars for customers who wish
for driving comfort, speed and performance, fuel saving and those who
emphasise on safety.
(c) User Status

Consumers can be segregated into their own status:
(i) Non-user;
(ii) Potential user;
(iii) First-time user; and
(iv) Loyal user or regular customer.
(d) User Rate

Based on this, the users may be segregated into several groups such as the
users who use the product a lot or heavy users, or consumers who use some
products or light users. Light users prefer products in small package, while
the heavy users prefer products with a large packaging. Usually, the heavy
users are from large families and the light users are the bachelors.
(e) Loyalty
Users are also segregated based on their loyalty level against certain brand
of product, which are as follows:
(i) Hard-core loyals. Users in this class usually only maintain one brand
and does not switch products;
(ii) The Split loyals are the users who use two or three brands. If the
favourite brand is not available, they will opt for brand number two
or three;
(iii) Shifting loyals are the group of consumers who like to change from
one brand to the other after using it for a few times; and

(iv) Switchers are consumers who are not loyal to any brand. Usually,
they will change to another brand according to their preferences.
For users who are disloyal, the company needs to make an attractive
promotion to get their attention and maintain the brand. Without an
effective promotion programme, the consumers will most definitely switch
to another product. Advertisements programme is very important to create
and build user loyalty. Without a good advertisement programme, the
consumer will not have any permanent memory or feeling for a certain
brand.
(f) Buyer Readiness Stage

Based on this basis, the consumers can be segregated into several levels of
buyer readiness to buy a product. These consumer groups are:
(i) Unconscious consumers who are not aware of the existence of a

product in the market;
(ii) Conscious consumers, are the consumers who know that the product
already existed in the market. At this level, the users may be used to
hearing about the brand but are yet to buy or use the product;
(iii) Informed consumers group, who are the consumers who know some
information on the product. At this level, the consumers already has a
lot of information about the product but has no desire yet to purchase
it;
(iv) Interested user group, who are the consumers that already have the
information of the product and are also interested to purchase the
product compared to other product; and
(v) Consumers who really want to buy. Given some motivation to

purchase such as handing gifts as well as giving special offer, price
discount and other programmes of Sales Promotion, this consumer
group will make the purchase and use the product.
With the description of these segmentation bases, hopefully you now understand
that a market can be segregated into many groups and there are several bases
that can be used for that purpose. Basically, the smaller groups and with defined
segregation, is easier to be understood. Understanding the consumers is the basis
of a good and effective marketing activities implementation (product production,
promotion programme and product distribution) as well as the basis to make a
business successful.

10.3 SEGMENTATION BASES FOR INDUSTRIAL/

ORGANISATIONAL CONSUMERS
The industrial consumer market can also be segmented into smaller groups.
Among the bases that can be used for the market segmentation are:
(a) Based on Geographical Areas

The industrial consumer market can be segregated into smaller groups
based on the geographical, as practiced in the individual consumer market.
Here, the market can be divided into:
(i) Country;
(ii) States;
(iii) Districts;
(iv) Zone;
(v) North area; and
(vi) South area.
(b) Based on Business Type

Here, the industrial consumers can be grouped or segregated into their own
group based on their business type. For example furniture companies,
universities, food outlets, pharmacies, construction companies, shipping
companies and many more. Business type is the segmentation basis that is
the common and easiest to use, probably because it is easier and more
practical to use.
(c) Based on Company Size

Company size is usually categorised into small, medium and large based on
two factors, which are the number of sales/purchase and the number of
company staff. If the number of sales/purchase is high, then we can say
that the company is large in size. Companies that have a large number of
staff are also categorised as large-sized companies. Normally, in companies
where their sales/purchases are high/large size will also have a large
number of staff.
Industrial consumers can also be categorised by their size. If the size is

large, then they are known as the major account customers. If it is small,
then they are the minor account customers.

EXERCISE 10.1
1. Elaborate on all four segmentation levels.
2. How does a company identify attractive market segmentations?
10.4 CHARACTERISTICS OF A GOOD OR

EFFECTIVE MARKET SEGMENT
In the business world, a company usually has limited abilities. The company is
not able to fulfil all the needs and wants of a big market. The company needs to
select certain segments to focus and give more attention to. There are several
guidelines that can be used by a company to select a good and effective market
segment. These guidelines are based on the characteristics of a good market
segment. These characteristics are:
(a) Measurable
The segment can be measured in terms of its size, purchasing power and
other traits of the segment.
(b) Accessibility
Every marketing programme and activities that will be performed can be
accessed by the selected market segment. Some of the segments available
are quite difficult to be accessed. For example, are the nurses in a particular
hospital working night shifts? This market segment is quite difficult to
provide information through promotion programme.
Another example is the group of population who lives in poverty. If you

want to build a mini market that sells cheap products to this segment, you
may not be able to find a suitable location. This is because they live in
remote areas, do not own any means of transportation, do not read the
newspapers due to lack of money and they are also scattered because they
do not live in a particular area. The market segment is deemed inaccessible.

(c) Sustainability
The market segment chosen should be big enough to generate profitability
to the company or at least cover the production cost of the company
operation. The market size can be measured in terms of these factors:
(i) Number of Customer

If the market segment has a large number of customers, then it may be
said that the segment is large.
(ii) Purchasing Power

If the market segment has high income consumers with a high
purchasing power, then we may assume that the segment is large.
(d) Actionability
All the marketing activities can be performed and fulfil the wants and
needs of the market segment.
10.5 MARKET TARGETING

Normally after the segmentation, the marketing of a company will select the
market segment that has been segmented previously. The market selection is
called market targeting. The segment selection has to fulfil the criteria or the
characteristics of an effective segment as discussed in the previous section.
Market targeting is important as usually a company will have limited abilities,
technology, financial resources, knowledge and so on. It is easier for the
company to pay attention to the target market and with that understand better
the needs and wants of its customers.
After segmenting and evaluating every segment, a marketing company can

consider five patterns of target market selection, which are:
(a) Single Segment Concentration

The company only focuses on one market segment. For example in
Malaysia, there is the Perodua Company which only focuses on the market
of compact cars. This segment is also sometimes termed as niche market.
Since the company only focuses on one market, the company is able to be
the expert in the product manufacturing, distribution and promotion. The
company also can enjoy economies of scale from production, distribution as
well as promotion as a result of the focused or specialisation to only one
market segment.

However, the company will have a very high risk as it only relies on one
segment. If consumers in this segment change their interest and no longer
buy cars from the company, then the company will have no other products
that can be sold to the consumers.
(b) Selective Specialisation

The company only focuses on several segments (selective specialisation).
Every segment is different from the other and the needs and wants are also
different. For example in Malaysia, PROTON company manufactures cars
based on compact cars market segments, sedan (family) cars market
segment and also medium luxury cars market segment. For the compact
cars market, the company produces Iswara Aeroback, while the company
produces Proton Wira. Persona and Waja for the family cars segment. For
medium luxury cars market, PROTON produces Proton Perdana. Each
product is suitable only for a particular market segment.
(c) Product Specialisation

Here, the company only focuses on the production and distribution of one
product. Even though it is only one product, it is meant for several market
segments. For example, is the microscope manufacturing company that
produces only microscopes. Even though only one microscope is
manufactured; they are sold to universities, schools, research laboratories,
medical laboratories and many more. For each of the above consumers, the
company may produce a different specification of microscopes suitable to
their needs and wants. Here, the company only produces microscopes
instead of other laboratory equipment.
Since the company only produces one product, then it has a good expertise
and the products produced usually have very good quality. The only
problem is when there are alternative products or when a new technology
replaces the needs for that product. For example, Kodak corporation
company has to seek other opportunities as the camera film has been
replaced with a new product the digital camera.
(d) Market Specialisation

Here, the company only focuses on one type of market. For example,
companies that produce a variety of products specialised only for women.
The companies produce clothes, jewelleries, health care and cosmetics as
well as other products for women.

(e) Full Market Coverage

Here, the company will attempt to provide the services and focus on all the
consumer groups or segments in a market. For example, the IBM
Corporation company that produces all types of computers for the use of
industrial consumers and also individual consumers. For IBM, all the
computer users are their market. The General Motors Corporation (GM) in
USA is also one example of this pattern. GM Company is the biggest
automobile manufacturer in the world and the company produces all types
of automobile for the market. It produces passenger cars, sport cars, luxury
cars, multi-purpose vehicles, vans, four-wheel drive vehicles, lorries, buses
and also pick-up trucks.
The Coca-Cola company that is part of the beverage industry is also an

example. The company produces a variety of soft drinks with numerous
taste using different brands such as Coke, Dr. Pepper, Cherry Coke, Diet
Coke, Seasons (soft drink with various flavours in Malaysia such as buah
kundur, guava, chrysanthemum tea and many more), and other brands in
the world. The company also produces drinks for athletes, fruit juices and
mineral water.
Usually the companies that use this type of market specialisation are global
companies that have businesses in many countries around the world. The
companies have good financial resources and are able to produce many
products for all segments in the market.
EXERCISE 10.2
1. List the four segmentation bases that can be used for the
individual consumer market.
2. What are the characteristics of a good market segment?
3. Explain the processes involved when a company wants to change

its marketing concept from mass marketing to segment
marketing.

In this topic, we have discussed extensively about the characteristics of a

market.
A large market can be segregated into smaller groups that are easier to
understand.
There are many bases that can be used to segregate a market, for example the
basis of geography, demography, sought benefits and many more.
We also learned about the market targeting and the patterns of market focus.
Market targeting is a basic concept needed to be understood in the marketing

field and also understood by the business owners.
By focusing on a segment, indirectly we are able to better understand our

customers.
Understanding consumers is fundamental to customer satisfaction, where it

in turn allows the company to profit and also ensure the company is able to
sustain in a business.
Consumerism behaviour Mass marketing

Demographic factor Niche marketing
Geographical factor Psychographic factor
Individual marketing Segment marketing
Industrial/organisational consumers Segmentation
Market segment

154 ANSWERS
Answers
TOPIC 1: MARKETING IN THE NEW ERA
Exercise 1.1
1. Marketing mix is a term that is used to refer to the main strategies that need
to be managed by an organisation. It is also known as the 4Ps (for general
product). All the four elements in the marketing mix strategy are product,
place, price and promotion. Based on the statement, it clearly proves that
marketing mix for a general product (goods) is different from marketing
mix for services. This is influenced by the unique traits of services.
2. Needs and wants are two important concepts in marketing. The term
„needs‰ refer to the most basic necessity that an individual will try to fulfil.
Meanwhile the term wants means a higher level of needs. For example, an
individual may get a pack of nasi lemak from a roadside hawker at the
price of 50 cent. Other individual may buy a plate of nasi lemak and a cup
of tea at a hotel at the price of RM25.
3. Marketing mix includes four main elements: product, place, price and
promotion. On the other hand, promotion mix refers to elements or
strategies that a marketer may choose; such as advertising, sales promotion,
individual sales, public relation and publicity.
4. A marketer should not have a belief that one element in the marketing mix
is more important than the other. If this happens, the marketing is said to
have been infected with ‰marketing myopia‰. Marketing myopia refers to
wrong market orientations and may lead to failure for the marketer.

ANSWERS 155
Exercise 1.2
1. consumers
2. relationship marketing
3. The reason that business concepts which are not based on marketing fail is
because the failure of the concept to realise that the main deciding factor of
business in the market, is the customer. The customer is the main factor in
the market. If a company fails to identify and understand the customer,
then when any incident happens in the market, such as the recession and
world war, the business will fail unless it is a business that emphasise on
the customerÊs preference.
4. Marketing myopia is a term used to describe the actions of a business

owner who emphasise or discriminate one from the strategy elements
involved in marketing mix. Usually, business owner who suffers marketing
myopia will fail and will not have the chance to sustain in the market. This
is because a good business strategy in the present time is a comprehensive
business strategy, the one that can manage all the elements of marketing
mix. The reason is, each element of the strategy in the marketing mix is
closely dependent and complements all the other elements.
5. To answer this question, the student needs to understand the idea

illustrated in Figure 1.3. Based on the Figure, the market needs to plan and
perform the marketing mix strategy, which are product, price, place and
promotion emphasising on the strengths and weaknesses of the marketer as
well as any assistance or obstacle that are present in the external
environment. The marketer Ês success to develop an efficient and effective
marketing process not only benefits the marketer in terms of profit but also
benefits the consumer and community.
6. An efficient and effective marketing process is able to maximise customer

satisfaction and reward the community. The accomplishment of fulfilling
the needs and demands of the customer normally brings a very high level
of customer satisfaction. On the other hand, the achievement of the
marketer in providing the best product can improve social welfare and
bring prosperity to the country. This indirectly gives benefits to the
community even though they have never purchased the marketer Ês
product.

156 ANSWERS
TOPIC 2: MARKETING ADAPTATION IN THE NEW

ECONOMY
Exercise 2.1
1. New economy may be distinguished as an economy that has different
business practices from the business tradition practiced a long time ago. In
short, the differences of old economy and new economy can be summarised
by the table below:
Old Economy New Economy

Marketing management based on product Marketing management based on
unit. customer segment.
Business that focuses on profitable Business that focuses on transaction that
transaction. will give the highest value for customer
lifetime value.
Business that focuses on the interest of the Business that focuses also on the interest of
shareholders. the stakeholders, not only the
shareholders.
Business that focuses only on financially Business that focuses on balanced
balanced score card. marketing score card, other that focusing
on the financially balanced score card.
Only the marketing department perform All the workers and departments will
marketing activities. perform marketing activities.
Business that builds brand recognition by Business that builds brand recognition by
advertising. excellent company performance.
Business that emphasises customer Business that emphasises customer
acquisition. retention.
Business that lacks yardstick to measure Business that have a detailed method to
customer satisfaction. measure customer satisfaction.
2. In summary, old economy companies need to change their management

practice from the old to the new practice, which is the marketing
management based on customer segment, focuses on business trade that
will give a higher value for the customer lifetime, business that needs to
focus balanced marketing scorecard and financially balanced scorecard,
focuses also on the interest of the stakeholders, not only the shareholders,
where all the workers and departments will perform marketing activities,
builds brand recognition by excellent company performance and not
advertising, emphasises customer retention, have a detailed method to

ANSWERS 157
measure customer satisfaction, and makes less promises and gives more in
their business deal.
3. Among the advantages of Customer Relationship Marketing (CRM) are as

follows:
(a) Customer relationship marketing enables the company to provide

excellent real time services by fostering close relationship with every
regular customer using the method of effective individual account
information.
(b) The company can shape each of its offers according to the order and
taste of a particular customer and thus increase sales.
(c) The company will reduce customer lost.
(d) Allows the company to extend the period of close relationship with
the customer.
(e) Allows the company to improve their growth potential of each of the
customers by shared income, cross selling and upselling.
(f) Provide an opportunity for the company to turn a less profitable

customer to a more profitable customer or cease transaction with
them.
(g) Allows the company to pay more attention to customers with higher
values.
The disadvantages of customer relationship marketing are:
(a) The database requires a huge investment to construct and operate in

terms of equipments and computer software, communication network
and skilled workers. Therefore, the method is neither suitable nor
cost- effective for certain situations such as (i) product is only bought
once in a lifetime such as a piano, (ii) customer are showing least
loyalty to the marketer, (iii) sales unit is small such as candies, (iv) the
cost of gathering information is too high.

158 ANSWERS
(b) It is difficult for all the workers to be customer oriented and use all the
information available in the customer database. On the contrary,
workers are more incline to perform the traditional transaction
compared to customer relationship marketing (CRM). If this is the
case, CRM will not be able to be fully used and truly benefit the
company.
(c) Not all the customers want close relationship with the company. They
will feel uncomfortable knowing the company is gathering their
private personal information. Therefore, privacy issues may be a
problem or pose a threat to the companies that use CRM.
TOPIC 3: ATTAINING SATISFACTION, VALUE AND

CUSTOMER RETENTION
Exercise 3.1
1. The action or effort to obtain certification from bodies or award of quality
such as the ISO9000 is to enhance customer Ês trust and positive perception
on the quality of the product and the ability of the product to fulfil their
needs and demands. This is as the customers are able to trust a product will
perform the way they want it to, if it has been awarded by the official
bodies or is well-known for its quality. Other than that, the need for
customer focus in the requirement of ISO9000 certification also plays a
positive role in the company operation, as the company will always strive
to maximise customer satisfaction and not only operates to gain profit.
Therefore, the companyÊs action of obtaining the ISO9000 certification is
correct.
2. Customer retention is crucial to ensure that a marketer stays in the market

and have positive effects on the companyÊs revenue acquisition and profit.
It is because other than successfully maintaining their customers (stable
demands), the accomplishment of the marketer to keep its existing
customer also means its success to reduce its cost and in turn increase the
companyÊs profit. Studies show that marketers only bear a relatively low
cost if they manage to retain their customer as compared if they have to
seek new customers as a result of losing their existing customers.

ANSWERS 159
TOPIC 4: MARKET-ORIENTED STRATEGIC PLANNING
Exercise 4.1
1. Business definition is the first step from the six important steps in strategic
planning. Defining the business is important because it will be the deciding
factor to the planning scope for the next steps in the strategic planning.
Therefore, business definition done by a company will definitely affect
other steps in its corporate strategic planning. It also means that the
environment analysis done later will focus mostly on the environment
defined by the company.
2. Internal environment may be differentiated from the external environment

from the fact whether they can be controlled or not. If a factor or an element
in the environment can be managed by the organisation or the marketing
manager, then that factor can be classified as an internal environment factor
or otherwise.
3. The SWOT analysis is derived from the acronym for Strengths, Weaknesses,
Opportunities and Threats. It means that the analysis is made based on the
marketing environment divisions, which are internal and external. Internal
environment is usually analysed based on its strengths and weaknesses,
while the external environment is analysed based on the opportunities and
threats it presented.
4. Environmental factors can be classified as strength or an opportunity based

on the perspective of positive impacts to the organisation. It means that
strength refers to variable factors that may present positive impacts to the
organisation. Opportunities on the other hand, are the environmental
factors that give positive effect to the uncontrollable factors to the company.
5. The question requires you to understand the concept introduced by either

the BCG or GE matrix. It means, you have to use the result and suggestion
from one of the two matrixes. However, both of the strategic business unit
analysis methods suggest that marketers or the organisation to improve
their ability particularly through selective investment to ensure their
business unit may operate more effectively. Note: the Petronas business
unit is in the question mark quadrant (BCG) or quadrant 5, 6 and 7 (GE).

160 ANSWERS
6. For market breakthrough strategy, the company needs to increase the

product usage by the existing consumers by suggesting the suitability of
eating snack food when conducting various activities or suggesting the use
of fast food as a cooking or baking mixing ingredients. Meanwhile, in terms
of marketing development that can be implemented by the company is the
effort to explore the new market, either from the geographical of
demographical aspects.
Exercise 4.2
1. Marketing plan reports have to use or be based on the steps in marketing
strategic planning process. It means, the marketing plan report should
begin with the introduction to the business (business definition),
environment analysis, the setting of the aims and objectives, the attempt to
design strategy and tactics and also the marketing control. However, in
order to prepare the best and most systematic report, you have to adhere to
the report preparation structure, which says the report must have pre-
content, introduction, the contents, closing and the reference list
(attachments). The pre-content section does not only consist of the content
index and the appreciation page but also have to begin with the executive
summary, which is the part that summarises the content of the report from
the first until the last page contained in the report.
2. Summary executive is a synopsis of the report content, starting from the

first page until the summary or the conclusion page. It means, even though
it is placed at the beginning of the report, the summary executive is the final
stage of the report, done when the whole action of preparing the marketing
plan report is finished.
3. Controversial arguments in the report can be supported by the usage of

attachments from secondary data or/and the use of references or
bibliography.
4. The marketing plan report format can be divided into three main sections,
which are the pre-content, content and the references list and attachments.
Pre-content includes the appreciation page (if applicable), summary
executive and the content index. If there is any figure or table in the report,
then the figure and report index should be provided. The content will
proceed to report all the measures that have been taken in the marketing
strategic planning. Usually, the content is divided into three sections: the
introduction, content and the closing. The references list and attachment are
prepared to support the information reported in the content section.

ANSWERS 161
TOPIC 5: OBTAINING INFORMATION AND

MEASURING MARKET DEMANDS
Exercise 5.1
1. marketing intelligence system
2. The information may be obtained from the internal record system.
3. The information in the marketing intelligence system differs from the

information obtained from the internal record system component in terms
of the present value or up-to-date. The market intelligence system provides
current or daily (today) information, while the internal record system
provides past information such as the ones from yesterday, last week, last
month or last year.
4. You can choose three from these research methods to come up with the best
research:
(i) Using scientific method

(ii) Research creativity
(iii) Variety of techniques
(iv) The dependency of the research model and the data
(v) Information cost and value
(vi) An overall conclusion
(vii) Complying with etiquette
Exercise 5.2
1. Likert
2. You are required to list and explain briefly all the steps as listed and
explained in the text on the marketing research process. It means, you need
to list and discuss all the steps (chronologically) such as to determine the
definition and the aim of the research, designing the research plan,
gathering the data, analysing data and distribution of the findings
(preparing report).

162 ANSWERS
3. The best research has to have an appropriate aim or scope. Appropriate in

this context means that it is neither too general nor too specific. If the
objective or the scope of the research is too general, the researchers
(marketers) may have to conduct research that may require a huge amount
of money and time. The result of the research may not be worth the money
and time spent. On the other hand, if the scope is too specific, it may cause
marketers to ignore certain probably more important information. Besides,
the aim and objective that is too specific might result in a narrow research
finding. This indirectly will affect the usability of the research that has been
carried out.
Exercise 5.3
1. focus group
2. able to qualify
3. The total market potential can be the maximum sales total achievable by all
marketers in an industry for a specific time period and based on the
industrial activities height and a specific marketing environment. The total
market potential can be calculated using the following formula.
Q = npq
Where:
Q = Total market potential
n = The number of consumer for a specific product/market based on
certain assumption
q = Average purchase value of each consumer
p = Average price for every unit
4. Other than the market-buildup method, there are two other methods that
can be used by marketers to measure market area potential, which are the
variable factors index method and the industry sales (market share). The
market build-up method differs from the other two methods from the
aspect of obtaining the value of the market area potential.
Through the market build-up method, marketers need to identify all the
potential buyers in every segment. Next, marketers have to estimate the
purchase value of each segment. Different from the market-buildup
method, through the variable factor index method, marketers are able to

ANSWERS 163
obtain estimated value from various markers that are available in the
market. Meanwhile, through the industry sales or the market share method,
the marketer can acquire past information from sources such as
government agencies reports or manufacturers association about the
industry sales to make a prediction on the market area potential.
5. There are four most popular methods used by business owners to

implement market demand estimations, which are through surveys of
buyer Ês intention to buy, sales group composite income, expert opinion
and conducting market testing.
6. The components in the information system that will be used are the internal
record system and the market intelligence. This is because, in order to
obtain data regarding past sales performance (the last 18 months) you will
need to get it from the internal record system. Meanwhile, the information
on the price and promotion strategy that are currently practiced by the
competitors are daily or current information. This shows that you need to
refer to marketing intelligence as only this component provides such
information.
7. Marketing research for a new product requires the marketer to implement

all the steps in the new product development process. It means that
marketers need to implement the first step, which is to define the market
research problem until the fifth step which is the preparation of the
research findings report.
8. The advantages of mail communication method are in the aspect of cost

and affordability to cover a huge sample, while the disadvantages are in
terms of low respondent co-operation. Therefore, marketers should
combine it with face-to-face (structured interview) method, survey using
the telephone or online or/and focus group. However, the combination
needs to take into account the ability of the staff and the marketersÊ
financial situation.
9. The Perodua company needs to identify consumers category from the total
market (Malaysian consumers), available market (geographic), qualified
available market and the market target before obtaining the penetrated
market value.

164 ANSWERS
TOPIC 6: MARKET ENVIRONMENT ANALYSIS
Exercise 6.1
1. C
2. C
3. B
4. B
Exercise 6.2
1. Environment refers to the factors that may positively or negatively affect
the companyÊs ability to continue its operation and growth while
maintaining the transactions with the buyers and the targeted consumers.
2. Marketing macro environment refers to the elements outside the companyÊs

micro environment. Marketing macro environment consists of demographic,
economic, natural, political and cultural environment.
3. The companyÊs internal environment, suppliers, competitors, the public,

and the consumers are the elements of marketing micro environment of a
company.
TOPIC 7: UNDERSTANDING INDIVIDUAL CONSUMERS’

BEHAVIOUR
Exercise 7.1
1. Influencing factors refer to the major factors that influence a person in his
life and shape the characteristics in the individual consumer self.
2. The influencing factors include:
(a) Culture
Consists of institution and other influence that effect as a whole value,
perception, priority and behaviour of the community. Culture will
generally affect how a consumer will behave through his buying
process.

ANSWERS 165
(b) Social
Refers to influence from the consumer Ês direct and indirect
interaction with the family and the community in their life. It will
affect the process of buying decision making. Social factor consists of
reference group, family, roles and status.
(c) Personality
Refers to the personal trait of the consumer that may influence the rest
of the purchasing process such as the age and life-cycle stage,
occupation type, economic status, lifestyle, personality and self-
concept.
(d) Psychology
Refers to the basic on an individual himself such as motivation,
perception, learning, belief and attitude. The psychological basic
causes a consumer to be different from the other consumer.
Exercise 7.2
1. Nominator suggests the buy
Influencer influences whether the buy should be made or not
Decision maker the real authority to make the buying decision
Buyer will conduct the buying
User will use the product bought
2. Complex, dissonance, regular and various buying behaviour

166 ANSWERS
Exercise 7.3
1.
2. B
3. B
4. A
5. B
6. A
TOPIC 8: UNDERSTANDING ORGANISATIONAL

CONSUMERS’ BEHAVIOUR
Exercise 8.1
1. Demand type, informed buyers, market size, promotion techniques and
purchase centre.
2. Influencing factors:
Environment
Organisation
Inter-personal
Individuals

ANSWERS 167
How does it affect individuals?

Individuals are workers who will interact with other workers in an
organisation (inter-personal). The inter-personal influence affects the
individuals. Every worker in an organisation works with a procedure as
well as the organisationÊs regulations. There is organisations influence on
the inter-personal and individuals. The organisation on the other hand
exists in a broader concept, which is the environment. The environment
will affect the organisation directly or indirectly. The environment influence
will affect the organisation and in turn, will affect the inter-personal
relationship and the individuals.
Exercise 8.2
1. First stage identifying product problem
Second stage identifying product specification
Third stage listing the suppliers
Fourth stage inviting offer from potential suppliers
Fifth stage post-purchase consumer evaluation
2. New task buying, modified rebuy and straight rebuy.
3. A
4. A
5. B
6. A
7. B

168 ANSWERS
TOPIC 9: MANAGING COMPETITION
Exercise 9.1
1. The companyÊs competitors refer to the competitors that have the same
target market as the company. Nowadays, the competition consists of the
existing and potential competitors regardless whether locally or
internationally.
2. The companyÊs competitors can be identified using two approaches:

Analysing competition form the market concept.
Analysing the competition from the industry concept.
3. The steps to implement competition marketing intelligence are:

Starting the system
Collecting data
Evaluate and analyse data
React to the information
Exercise 9.2
1. B
2. A
3. B
4. A
5. A

ANSWERS 169
TOPIC 10: IDENTIFYING AND SELECTING MARKET

SEGMENT
Exercise 10.1
1. The four levels of segmentation are:
Mass marketing;
Segment marketing;
Niche marketing; and
Individual marketing.
(a) Mass Marketing

At this level, the company assumes that the available market has the
same needs and wants. The market is a large market and does not
need to be segregated into smaller groups. Based on this view, the
company will produce products which are similar and use the same
marketing activities and promotion program.
(b) Segment Marketing

At this level, the company assumes that the large market consists of
different consumers with different needs and wants. Based on this
view, the company deemed that it is better for the large market to be
segregated into smaller groups known as segments. Every segment
requires different products and different marketing activities.
(c) Niche Marketing

At this level, the company assumes that it is better to focus to only one
market segment. The company will select any segment in the market.
Usually, the segment selected will be sufficiently large, have a high
purchasing power and have a good growth rate.
(d) Individual Marketing

At this level, the company assumes that the customers are different
individuals and they do not have the same needs and wants. Every
product produced is based on every individualÊs taste. This market
emphasises on personal attention and because of that, it is known as
„one to one marketing‰ or „tailor made marketing‰.

170 ANSWERS
2. An attractive segment is a segment that has these characteristics:

Measurable.
The size is large enough and profitable.
Accessibility; the marketing activities can be performed and accessed by
the consumers in the segment.
Actionability; the marketing activity planned can be effectively
performed.
Exercise 10.2
1. Individual consumer can be segmented into groups based on several
fundamentals such as:
(i) Based on geographical areas

(ii) Based on consumer demography
(iii) Based on psychographic
(iv) Based on consumer behaviour
2. A good market segment has these characteristics:
(a) Measurable
Can be measured in terms of its size, number of population, or its
quantity.
(b) Accessibility
The consumers that we want to provide services or sell goods to can
be met and they can access all the marketing activities that were
performed including advertising activities.
(c) Sustainability
The market segment that has a large number of users and they have a
high purchasing power.

ANSWERS 171
3. When the company wants to change its marketing concept from mass
marketing to segment marketing it has to perform several things, such as:
The company needs to segregate the large market into a smaller market
based on certain segments.
The segregation must be done based on segmentation fundamentals, as

have been previously discussed.
The company needs to select a segment or several segments that has

been identified as its customer group.
All the marketing activities that have been planned must be based on
the market segmentsÊ tastes that have been chosen by the company as
its consumer groups.

MODULE FEEDBACK
MAKLUM BALAS MODUL
If you have any comment or feedback, you are welcome to:
1. E-mail your comment or feedback to modulefeedback@oum.edu.my
OR
2. Fill in the Print Module online evaluation form available on myINSPIRE.
Thank you.
Centre for Instructional Design and Technology

(Pusat Reka Bentuk Pengajaran dan Teknologi )
Tel No.: 03-27732578
Fax No.: 03-26978702


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OUM Business School

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

Module Writers: Zahari Mohamad

Loo Sze Wei

Moderator: Dr Rosli Salleh

Developed by: Centre for Instructional Design and Technology

First Edition, August 2007

Copyright © Open University Malaysia (OUM)

Topic 1 Marketing in the New Era 1

Topic 2 Marketing Adaptation in the New Economy 13

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2.3 Changes in Marketing 19

Topic 3 Attaining Customer Satisfaction, Value and Retention 30

Topic 4 Market-Oriented Strategic Planning 40

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Topic 5 Obtaining Information and Measuring Market Demands 59

Topic 6 Market Environment Analysis 88

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Topic 7 Understanding Individual ConsumersÊ Behaviour 97

Topic 8 Understanding Organisational ConsumersÊ Behaviour 111

Copyright © Open University Malaysia (OUM)

8.5 The Buying Process of Organisational Market 120

Topic 9 Managing Competition 127

Topic 10 Identifying and Selecting Market Segment 139

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10.3 Segmentation Bases for Industrial/Organisational

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Copyright © Open University Malaysia (OUM)

COURSE GUIDE DESCRIPTION

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Table 1: Estimation of Time Accumulation of Study Hours

1. Interpret the marketing management process and relate to the challenges of

2. Appraise the environments that affect marketing management process,

3. Analyse marketing opportunities and ways to manage competition;

4. Distinguish between the behaviour of individual consumers and

5. Select effective marketing segments.

Copyright © Open University Malaysia (OUM)

Topic 1 provides a detailed scenario of marketing, an efficient and effective

Topic 2 focuses on marketing adaptation in the new economy. Some major

Topic 3 illustrates the need to create an efficient and effective marketing

Topic 5 discusses the concept and importance of a marketing information system

Copyright © Open University Malaysia (OUM)

Topic 7 explains factors which affect individual consumersÊ decision-making

Topic 8 focuses on organisational consumer behaviour. Other than discussing the

Topic 9 explains the concepts of competition and competition management.

Topic 10 discusses market segmentation, which is marketersÊ approach of

TEXT ARRANGEMENT GUIDE

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Self-Check: This component of the module is inserted at strategic locations

References: The References section is where a list of relevant and useful

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Harrel, G. D. (2003). Marketing: Connecting with customers (2nd ed.). New

Hoffman, D. K., & Bateson, J. E. G. (2001). Essentials of services marketing (2nd

an Asian Perspective (3rd ed.). Singapore: Prentice Hall.

Zeithaml, V. A., & Bitner, M. J. (2002). Services marketing: Integrating customer

Copyright © Open University Malaysia (OUM)

TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

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Copyright © Open University Malaysia (OUM)

By the end of this topic, you should be able to:

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1.1 BUSINESS DYNAMICS