(Diploma in Hotel Management) BPP Learning Media - CTH Marketing (2010, BPP Learning Media) PDF

CONFEDERATION OF TOURISM AND
HOSPITALITY
Marketing
Study Guide
T H I S S T U D Y G U I D E
BPP Learning Media is the official publisher for the CTH Diplomas in Hotel Management and Tourism
Management.
I N T H I S J U L Y 2 0 0 9 F I R S T E D I T I O N
The CTH 2009 syllabus, cross-referenced to the chapters
Comprehensive syllabus coverage, reviewed and approved by CTH
Plenty of activities, examples and discussion topics to demonstrate and practise technique
Full index
A full CTH past exam for exam practice
®
MARKETING
First edition July 2009 A note about copyright
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ii
CONTENTS
CONTENTS
page
INTRODUCTION
How to use this study guide iv
Syllabus viii
The exam paper xii
Other titles in this series xii
CHAPTER 1 Marketing and strategy 1
CHAPTER 2 Strategic analysis 17
CHAPTER 3 Customers, buyers, clients and consumers 35
CHAPTER 4 Marketing research 55
CHAPTER 5 Marketing research techniques 75
CHAPTER 6 Segmentation and positioning 93
CHAPTER 7 Product and price 113
CHAPTER 8 The extended marketing mix 135
CHAPTER 9 Promotion 151
CHAPTER 10 Direct selling 171
PRACTICE EXAMINATION
Questions 185
Answers 193
BIBLIOGRAPHY 203
INDEX 207
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MARKETING
How to use this Study Guide

This is the first edition of BPP Learning Media's ground-breaking Study Guide for the Marketing paper of
the CTH Diplomas in Hotel Management and Tourism Management. It has been specifically written to
cover the Syllabus, and has been fully reviewed by CTH.
To pass the examination you need a thorough understanding in all areas covered by the syllabus.
Recommended approach
(a) To pass you need to be able to answer questions on everything specified by the syllabus. Read
the Study Guide very carefully and do not skip any of it.
(b) Learning is an active process. Do all the activities as you work through the Study Guide so you
can be sure you really understand what you have read.
(c) After you have covered the material in the Study Guide, work through the questions in the
practice exam at the back.
(d) Before you take the real exam, check that you still remember the material using the following
quick revision plan.
(i) Read through the chapter learning objectives. Are there any gaps in your knowledge? If
so, study the section again.
(ii) Read and learn the key terms.
(iii) Read and try to memorise the summary at the end of each chapter.
(iv) Do the self-test questions again. If you know what you're doing, they shouldn't take long.
This approach is only a suggestion. You or your college may well adapt it to suit your needs.
Remember this is a practical course.
(a) Try to relate the material to your experience in the workplace or any other work experience you
may have had.
(b) Try to make as many links as you can to other CTH papers that you may be studying at the
moment.
Help yourself study for your CTH exams

Exams for professional bodies such as CTH are very different from those you may have taken at school
or college. You will be under greater time pressure before the exam – as you may be combining your
study with work. There are many different ways of learning and so the BPP Learning Media Study Guide
offers you a number of different tools to help you through. Here are some hints and tips: they are not
plucked out of the air, but based on research and experience. (You don't need to know that long-
term memory is in the same part of the brain as emotions and feelings - but it's a fact anyway.)
The right approach

1 The right attitude
Believe in yourself
Yes, there is a lot to learn. Yes, it is a challenge. But thousands have succeeded before and you
can too.
Remember why you're doing it

Studying might seem a grind at times, but you are doing it for a reason: to advance your career.
iv
INTRODUCTION
2 The right focus
Read through the Syllabus and the chapter objectives

These tell you what you are expected to know.
Study the Exam Paper section

It helps to be familiar with the structure of the exam that you are going to take.
3 The right method
The whole picture

You need to grasp the detail – but keeping in mind how everything fits into the whole picture will
help you understand better.
The objectives and topic list of each chapter put the material in context.
The syllabus content shows you what you need to grasp.
In your own words

To absorb the information (and to practise your written communication skills), it helps to put it
into your own words.
Take notes.
Answer the questions in each chapter. You will practise your written communication
skills, which become increasingly important as you progress through your CTH exams.
Draw mindmaps. The chapter summaries can be a good starting point for this.
Try 'teaching' a subject to a colleague or friend.
Give yourself cues to jog your memory

The BPP Study Guide uses bold to highlight key points.
Try colour coding with a highlighter pen.

Write key points on cards.
4 The right review
Review, review, review

It is a fact that regularly reviewing a topic in summary form can fix it in your memory.
Because review is so important, the BPP Study Guide helps you to do so in many ways.
Chapter summaries draw together the key points in each chapter. Use them to recap
each study session.
The self-test questions are another review technique you can use to ensure that you
have grasped the essentials.
Go through the examples and illustrations in each chapter a second or third time.
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MARKETING
Developing your personal Study Plan

BPP's Learning to Learn Accountancy book (which can be successfully used by students studying for
any professional qualification) emphasises the need to prepare (and use) a Study Plan. Planning and
sticking to the plan are key elements of learning success.
There are four steps you should work through.
STEP 1 How do you learn?

First you need to be aware of your style of learning. The BPP Learning Media Learning to
Learn Accountancy book commits a chapter to this self-discovery. What types of
intelligence do you display when learning? You might be advised to brush up on certain
study skills before launching into this Study Guide.
BPP Learning Media’s Learning to Learn Accountancy book helps you to identify what
intelligences you show more strongly and then details how you can tailor your study process
to your preferences. It also includes handy hints on how to develop intelligences you exhibit
less strongly, but which might be needed as you study for your professional qualification.
Are you a theorist or are you more practical? If you would rather get to grips with a
theory before trying to apply it in practice, you should follow the study sequence on page
(vii). If the reverse is true (you like to know why you are learning theory before you do
so), you might be advised to flick through Study Guide chapters and look at examples,
case studies and questions (Steps 8, 9 and 10 in the suggested study sequence) before
reading through the detailed theory.
STEP 2 How much time do you have?

Work out the time you have available per week, given the following.
The standard you have set yourself

The time you need to set aside later for revision work
The other exam(s) you are sitting
Very importantly, practical matters such as work, travel, exercise, sleep and social life
Hours
Note your time available each week in box A. A
STEP 3 Allocate your time

Take the time you have available per week for this Study
Text shown in box A, multiply it by the number of weeks
available and insert the result in box B. B
Divide the figure in box B by the number of chapters in this

text and insert the result in box C. C
Remember that this is only a rough guide. Some of the chapters in this book are longer and
more complicated than others, and you will find some subjects easier to understand than
others.
STEP 4 Implement
Set about studying each chapter in the time shown in box C, following the key study steps
in the order suggested by your particular learning style.
This is your personal Study Plan. You should try and combine it with the study sequence
outlined below. You may want to modify the sequence a little (as has been suggested
above) to adapt it to your personal style.
BPP Learning Media’s Learning to Learn Accountancy gives further guidance on

developing a study plan, and deciding where and when to study.
vi
INTRODUCTION
Suggested study sequence

It is likely that the best way to approach this Study Guide is to tackle the chapters in the order in which
you find them. Taking into account your individual learning style, you could follow this sequence.
Key study steps Activity
Step 1 Look at the topic list at the start of each chapter. Each topic represents a section
Topic list in the chapter.
Step 2 Proceed methodically through the chapter, reading each section thoroughly and
Explanations making sure you understand.
Step 3 Definitions can often earn you easy marks if you state them clearly and correctly
Definitions in an appropriate exam answer
Step 4 Take brief notes, if you wish. Avoid the temptation to copy out too much.
Note taking Remember that being able to put something into your own words is a sign of
being able to understand it. If you find you cannot explain something you have
read, read it again before you make the notes.
Step 5 Follow each through to its solution very carefully.

Examples
Step 6 Study each one, and try to add flesh to them from your own experience. They are
Discussion topics designed to show how the topics you are studying come alive (and often come
unstuck) in the real world.
Step 7 Make a very good attempt at each one.

Activities
Step 8 Check yours against ours, and make sure you understand any discrepancies.
Answers
Step 9 Work through it carefully, to make sure you have grasped the significance of all
Chapter summary the key areas.
Step 10 When you are happy that you have covered the chapter, use the self-test
Self test questions to check how much you have remembered of the topics covered and to
questions practise questions in a variety of formats.
Step 11 Either at this point, or later when you are thinking about revising, make a full
Question practice attempt at the practice exam.
Moving on...
However you study, when you are ready to start your revision, you should still refer back to this Study
Guide, both as a source of reference (you should find the index particularly helpful for this) and as a
way to review (the chapter summaries and self-test questions help you here).
And remember to keep careful hold of this Study Guide – you will find it invaluable in your work.
More advice on study skills can be found in BPP Learning Media's Learning to Learn
Accountancy book.
vii
MARKETING
Syllabus
DIPLOMA PROGRAMMES MODULE SYLLABUS

DHM 162: Marketing
DTM 182: Marketing
Description
To provide students with an understanding of marketing and its application in the international hotel and
tourism industries, and the ways in which marketing strategies and approaches can be used to optimise
product penetration.
Summary of Learning Outcomes
On completion of this module students will be able to;
Understand and explain the basic concepts of marketing

Analyse the marketing mix, market segmentation and product life cycle
Examine the tools available to identify customer needs
Evaluate direct and indirect marketing and sales methods
Demonstrate knowledge of the role of in-house selling techniques
Syllabus Chapter
Introduction to Definition of marketing. The role of marketing within the business. 1

marketing Links with other functions and its contribution to business success.
The vision, mission statement and corporate, strategic and

marketing objectives of a business. Setting SMART objectives.
The analysis of a business’s strengths, weaknesses, opportunities 2

and threats (SWOT)
The marketing environment and political economic social and

technological analysis (PEST)
Marketing planning and Market segmentation by purchase motivations and segmentation

strategy by reasons for travel, staying or eating out.
The marketing mix, including the P’s of people, product, place, 7, 8, 9

price, positioning and promotion
People strategies including types of customers and the use of 3

demographics to identify markets
The product life cycle stages and their duration and patterns for 7
both tangible and intangible products and fragmented markets
Place concepts including the importance of systems used to bring 6

customers and products together
viii
INTRODUCTION
Pricing concepts including contribution pricing, discounting, price 7

and image, seasonal and time factors
Positioning of a business and the value and importance of images 6, 7

and brand names
Identifying customer Understanding customer relationships, needs and expectations. 3, 7, 8

needs Customer oriented approach. Unique selling points. Customer
satisfaction.
The need for market research, primary and secondary research. 4
The stages of a market research study 4
Market research techniques and tools, their advantages and 5

disadvantages. Desk and field research, questionnaires,
observation and focus groups. Competitor analysis. Guest
comment data.
Marketing and sales Direct and indirect marketing and sales methods. 10
methods
Promotion with the use of brochures, leaflets, the internet and 9
other publications. The use of advertising strategies and
techniques. The role of merchandising.
Sales and marketing department roles and responsibilities. 10
The roles and function of public relations. 9
The development of long-term relationships and loyalty. 8
The factors that affect customer buying behaviour including 2

psychological, personal, social and cultural.
The influence of consumer trends such as ethical, social and legal 2

responsibilities, consumerism, environmental issues, pressure
groups and international issues
The concept and The contribution of in-house sales and promotional activities. 9, 10
practice of in-house
In-house selling methods, staff training and motivation. 10
selling
Campaigns and promotions. 9, 10
Assessment
This module will be assessed via a 2 ½ hour examination, set and marked by CTH. The examination will
cover the whole of the assessment criteria in this unit and will take the form of 10 x 2 mark questions
and 5 x 4 mark questions in section A (40 marks). Section B will comprise of 5 x 20 mark questions of
which candidates must select and answer three (60 marks). CTH is a UK based awarding body and the
syllabus content will in general reflect this. Any legislation and codes of practice will reflect the
international nature of the industry and will not be country specific. International centres may find it
advantageous to add local legislation or practice to their teaching but they should be aware that the CTH
examination will not assess this local knowledge.
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MARKETING
Further guidance
Recommended contact hours: 45 Credits: 10
Delivery strategies
This module covers the theory of marketing but wherever possible this should be related to practical
situations to reflect the nature of the commercial work environs.
Recommended Prior Learning
There is no required prior learning however students must have completed formal education to 18 years
old or equivalent and an interest in marketing in the hospitality and tourism industry is essential.
Resources
Learners need access to library and research facilities which should include some or all of the following.
Key text
Marketing, CTH Study Guide (2009), BPP Learning Media, ISBN 9780 7517 7797 0.
Supporting Texts
Bowie, D, & Buttle, F, (2004), Hospitality Marketing, Butterworth Heinneman, ISBN 0750652454
Horner, S & Swarbrooke, J, (1996), Marketing Tourism, Hospitality and Leisure in Europe
International, International Thomson Business Press, ISBN 0412621703
Kotler, P & Keller K,(2008) Marketing Management, Prentice-Hall, ISBN 0131357972
Kotler, P, Bowen, J, & Makens, J, (2005), Marketing for Hospitality and Tourism, Prentice Hall,
ISBN 0132017733
Lovelock, CH & Wright L, (2001), Principles of Service Marketing and Management, Prentice Hall,
ISBN 0130404675
Raza, I, (2004), Heads in Beds, Butterworth Heinneman, ISBN 0131101005
Magazines and Journals
The Caterer and Hotelkeeper (Reed Business Information)

Chef (Reed Business Information)
Croner’s Catering Magazine (Croner Publications)
Hospitality (Reed Business Information)
Voice of the BHA (British Hospitality Industry)
The Marketer
Websites
www.bha-online.org.uk British Hospitality Association
www.caterer.com Caterer and Hotelkeeper
www.cateringnet.co.uk The Catering Net
www.hcima.org.uk Hotel and Catering International Management Association
www.cim.co.uk Chartered Institute of Marketing
x
INTRODUCTION
Notes on recommended texts
This module should be based on the syllabus and the supporting BPP Learning Media CTH Study Guide.
The lecturer’s lesson plans should be based on the module syllabus and supported by the BPP Learning
Media CTH Study Guide for the subject. Lecturers may also use other relevant texts and supplementary
material familiar to the lecturer and based on the lecturer’s experience. It is not essential to use all the
recommended texts and lecturers should use their experience to decide which ones are most appropriate
for their students. Where available and appropriate, past module examinations are available to support
lecturers.
CTH will always answer any questions from the centre’s Head of Department either by email or by
phone.
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MARKETING
The Exam Paper

All the CTH examinations for the Diploma in Hotel Management and Diploma in Tourism Management
follow the same format.
Exam duration: 2½ hours
Section A: Marks
10 2 mark questions 20
5 4 mark questions 20
40
All questions in Section A are compulsory
Section B:
5 20 mark questions (candidates must choose 3) 60
100
Other titles in this series

BPP Learning Media publishes the following titles for the CTH Diploma in Hotel Management
Food and Beverage Operations
Food Hygiene, Health and Safety
Front Office Operations
Housekeeping and Accommodation Operations
Finance for Hospitality and Tourism*
Introduction to Business Operations*
Marketing*
The Tourism Industry*
The Global Hospitality Industry
*These titles are also papers within the CTH Diploma in Tourism Management qualification.
In July 2010 BPP Learning Media will publish the remaining titles for the Diploma in Tourism
Management:
Travel Geography
Travel Agency and Tour Guide Operations
Introduction to Tourism Economics
Special Interest Tourism
Destination Analysis
xii
CHAPTER 1
MARKETING AND STRATEGY
Chapter objectives
In this chapter you will learn
The basic concepts of strategy in organisations
The marketing concept
Marketing activities
The relationship between marketing and strategy
Topic list
Marketing and strategy
Levels of strategy in an organisation
Elements of strategic management
Marketing
1
MARKETING
1 Marketing and strategy

The first part of your syllabus requires a discussion of the basic nature of marketing and how it relates to
other aspects of running a business. In particular, it is necessary to set marketing in the context of the
wider field of business strategy. There is a close and rather complex relationship between strategy and
marketing and distinguishing between them will be one of the main themes of this chapter.
Strategy is as much an art as it is a science and the same is true of marketing. This is because both
are concerned with the behaviour of people, both individually and in large numbers. They are social
sciences, in fact.
1.1 Defining strategy

In their book Exploring Corporate Strategy, Johnson, Scholes and Whittington (JS&W) discern six general
areas for decision-making that will normally be regarded as strategic.
(a) The organisation's long-term direction: no specific timescale is envisaged, but you should think
in terms in excess of one year and more probably of several years.
(b) The scope of an organisation's activities: this will include both the overall roles and purposes
the organisation accepts for itself and the activities it undertakes in pursuit of them.
(c) For commercial organisations and for many not-for-profit organisations too, strategy will be about
gaining some kind of advantage in competition.
(d) Strategic management in some organisations will take the form of adapting their activities to
fit the business environment. In its simplest form, this will involve adapting products and
services to gradually changing customer requirements.
(e) A contrasting approach will be to exploit unique resources and the organisation's special
competences in particular. This approach sees the business environment as something that can
be changed by the organisations' own actions.
(f) Strategic decisions are affected by the values and expectations of the organisation's
stakeholders. Stakeholders are people who have a legitimate interest in what the organisation
does.
These six considerations lead JS&W to suggest the definition of strategy given below.
Strategy is the direction and scope of an organisation over the long-term, which achieves advantage in
a changing environment through its configuration of resources and competences with the aim of fulfilling
stakeholder expectations.
F O R D I S C U S S I O N
Does this idea apply to business organisations only, or should other types of organisation have strategies
made on the same basis?
1.2 Mission, goals and objectives

It is difficult to manage anything – or even to work effectively – without having a reasonably clear idea
of what is to be achieved. For an organisation, this need is satisfied by the development of mission,
goals and objectives. Mission is the overall purpose that the organisation exists to serve; goals and
objectives are designed so that departments and individuals can work effectively towards the
achievement of the mission.
The Ashridge College model of mission uses four separate elements to create a commonly-used,
expanded definition of mission.
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1: MARKETING AND STRATEGY
(a) Purpose. Why does the organisation exist? Who does it exist for?
(i) To create wealth for owners?
(ii) To satisfy the needs of all stakeholders?
(iii) To reach some higher goal such as the advancement of society?
(b) Values are the beliefs and moral principles that underlie the organisation's culture.
(c) Strategy provides the commercial logic for the company, and so addresses the following
question: 'What is our business? What should it be?'
(d) Policies and standards of behaviour provide guidance on how the organisation's business
should be conducted. For example, a service industry that wishes to be the best in its market
must aim for standards of service, in all its operations, which are at least as good as those found
in its competitors.
1.2.1 The importance of mission for corporate strategy

Mission and values are taken seriously by many businesses, though some managers think the idea is no
more than a consultant-driven fad. There are several reasons why a business should give serious
consideration to establishing a clear concept of its corporate mission.
(a) Values are acknowledged as integral elements of consumers' buying decisions; this is shown by
the attention paid to them in advertising, brand building and market research. Customers ask not
only 'What do you sell?' but 'What do you stand for?'
(b) Studies into organisational behaviour show that people are motivated by many things other
than money: employees are likely to be both more productive and more satisfied with their work
when they feel that what they are doing has significance beyond the mere pursuit of a living.
(c) Some writers believe there is an empirical relationship between strong corporate values and
profitability.
1.2.2 Mission statements

Mission statements are formal documents that state the organisation's mission. They are published
within organisations in order to promote desired behaviour: support for strategy and purpose, adherence
to core values and adoption of policies and standards of behaviour.
E X A M P L E
PepsiCo
At one point, Pepsi's mission statement was simply to "Beat Coke". Then it changed its mission to
"Marketing superior quality food and beverage products for households and consumers dining out". This
set the scene for the acquisition of businesses such as Pizza Hut and Taco Bell. However, it also led to
businesses such as Wilson Sporting Goods leaving the group.
Coca-Cola
You might also be interested in Coca-Cola's mission statement.
Our Mission
Our Roadmap starts with our mission, which is enduring. It declares our purpose as a company and
serves as the standard against which we weigh our actions and decisions.
To refresh the world...
To inspire moments of optimism and happiness...
To create value and make a difference.
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MARKETING
Our Vision
Our vision serves as the framework for our Roadmap and guides every aspect of our business by
describing what we need to accomplish in order to continue achieving sustainable, quality growth.
People: Be a great place to work where people are inspired to be the best they can be.
Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy
people's desires and needs.
Partners: Nurture a winning network of customers and suppliers, together we create mutual,
enduring value.
Planet: Be a responsible citizen that makes a difference by helping build and support sustainable
communities.
Profit: Maximize long-term return to shareowners while being mindful of our overall
responsibilities.
Productivity: Be a highly effective, lean and fast-moving organization.
Our Winning Culture

Our Winning Culture defines the attitudes and behaviors that will be required of us to make our 2020
Vision a reality.
Live Our Values

Our values serve as a compass for our actions and describe how we behave in the world.
Leadership: The courage to shape a better future
Collaboration: Leverage collective genius
Integrity: Be real
Accountability: If it is to be, it's up to me
Passion: Committed in heart and mind
Diversity: As inclusive as our brands
Quality: What we do, we do well
Focus on the Market

Focus on needs of our consumers, customers and franchise partners
Get out into the market and listen, observe and learn
Possess a world view
Focus on execution in the marketplace every day
Be insatiably curious
Work Smart
Act with urgency
Remain responsive to change
Have the courage to change course when needed
Remain constructively discontent
Work efficiently
Act Like Owners

Be accountable for our actions and inactions
Steward system assets and focus on building value
4
Reward our people for taking risks and finding better ways to solve problems
Learn from our outcomes – what worked and what didn’t
Be the Brand
Inspire creativity, passion, optimism and fun
How do you feel about this mission statement?
Some are suspicious of mission statements.
(a) They are often public relations exercises rather than an accurate portrayal of the firm's actual
values.
(b) They can often be full of generalisations which are impossible to tie down to specific strategic
implications.
(c) They may be ignored by the people responsible for formulating or implementing strategy.
A C T I V I T Y 1 2 0 m i n u t e s
Write a mission statement for yourself.
1.2.3 Mission and planning

The mission statement can play an important role in the strategic planning process.
(a) Inspires and informs planning. Plans should further the organisation's goals and be consistent
with its core values.
(b) Screening. Mission acts as a yardstick by which plans are judged.
(c) Mission also affects the implementation of a planned strategy in terms of the ways in which the
firm carries out its business and the culture of the organisation.
1.2.4 Goals, objectives and targets

An understanding of the organisation's mission is invaluable for setting-up and controlling its overall
functioning and progress. However, it is possible for an organisation to operate reasonably effectively
even if most of the people within it have only an intuitive or vague understanding of its purpose.
Most people's work is defined in terms of specific and immediate things to be achieved: if these things
are related in some way to the wider purpose, the organisation will function. Loosely speaking, these
'things to be achieved' are the goals, objectives and targets of the various departments and individuals
that make up the organisation. In more effective organisations all these disparate goals, objectives and
targets will be consistent with one another and will operate together to support progress with the
mission.
1.2.5 A hierarchy of objectives

A simple model of the relationship between the various goals, objectives and targets is a pyramid rather
like the traditional organisational hierarchy. At the top is the overall mission; this is supported by a
small number of wide ranging goals, which may correspond to overall departmental or functional
responsibilities. For a business, a primary, corporate objective will be the return offered to shareholders,
however this is measured. There may be other primary objectives and there will certainly be supporting
objectives for costs, innovation, markets, products and so on.
5
MARKETING
Each of the high level goals is supported in turn by more detailed, subordinate goals. These may
correspond, perhaps, to the responsibilities of the senior managers in the function concerned. A more
modern pattern is for the hierarchy (and indeed many other aspects of the organisation) to be based on
major value-creating processes rather than on functional departments. In any event, the pattern is
continued downwards until we reach the work targets of individual members of the organisation.
We owe the concept of a hierarchy or cascade of objectives to the great management thinker and writer
Peter Drucker, who outlined the system now known as management by objectives (MbO) in the
middle of the twentieth century. MbO is still in use as a management tool, though no longer promoted as
a universal solution. Its importance for this discussion of goals and objectives is that Drucker was the
first to suggest that objectives should be SMART. This acronym originally stood for the qualities listed
below.
Specific Measurable Achievable Realistic Time-related
Today, realistic is often replaced with results-focused, for two reasons.
(a) The current pursuit of innovation as a route to competitive advantage makes it very important
that managerial attention is directed towards achieving results rather than just administering
established processes.
(b) Realistic means much the same thing as achievable, anyway.
There are other variants: achievable may be replaced with attainable, which has an almost identical
meaning, and relevant (meaning appropriate to the group or individual concerned) has been proposed as
a third option for R.
Functions of objectives
(a) Planning: objectives define what the plan is about.
(b) Responsibility: objectives define the responsibilities of managers and departments.
(c) Integration: objectives should support one another and be consistent; this integrates the efforts
of different departments.
(d) Motivation: the first step in motivation is knowing what is to be done. Objectives must be
created for all areas of performance.
(e) Evaluation: performance is assessed against objectives and control exercised.
1.3 The vocabulary of strategy
Strategy has its own vocabulary, though usage varies. JS & W provide a very useful list.
Business strategy and marketing have their own vocabularies and suffer from the use of a great deal of
jargon. You should always try to use technical terminology as precisely as you possibly can and avoid the
common tendency to throw half-understood terms into a discussion. Unfortunately, there is no generally
accepted list of definitions and you may encounter a variety of usages. We shall try to be precise. The
box below is based on the definitions used by JS & W.
Mission is the organisation's principal and overriding purpose; it reflects the values or expectations of
stakeholders and answers the question 'what business are we in?'.
Vision or strategic intent is the future state desired by the organisation's strategists: they aim to
guide the organisation's collective aspiration toward it.
A goal is a statement of a general aim or purpose that supports the mission. It may be qualitative in
nature. An objective is a more specific aim or purpose and will probably be quantified.
6
2 Levels of strategy in an organisation

Any level of the organisation can have objectives and devise strategies to achieve them. The strategic
management process is multi-layered.
Hofer and Schendel refer to three levels of strategy: corporate, business and functional or
operational. The distinction between corporate and business strategy arises because of the
development of the divisionalised business organisation, which typically has a corporate centre and a
number of strategic business units (SBUs) dealing with particular markets.
How important is the distinction between corporate and business strategy for people working in catering
and tourism?
2.1 Corporate strategies

Corporate strategy is concerned with the overall purpose and scope of the organisation and how value
will be added to the different parts (business units) of the organisation.
Defining aspects of corporate strategy
Characteristic Comment
Scope of activities Strategy and strategic management impact upon the whole organisation: all
parts of the business operation should support and further the strategic plan.
Expectations of There may be a mission statement, but in any case, stakeholder expectations
stakeholders must be prioritised and managed.
Resources Strategy involves choices about allocating or obtaining corporate resources

now and in the future.
2.2 Business-level strategy
Business strategy is about how to compete successfully in particular markets. JS&W
Business-level strategy is about the particular and distinct combination of products and markets dealt
with by one business unit. A business unit might be a small, independent organisation or part of a much
larger one. In the first case, business and corporate strategy merge with one another; in the second,
SBU level strategies must be co-ordinated with corporate strategy and with each other.
It is important to remember that the difference between corporate and business strategy is not one of
scale.
E X A M P L E
A small hotel group that operates a dozen or so hotels might find it appropriate to allow the manager of
each hotel to develop a distinct strategy appropriate to its location, clientele and style. Thus, a country
house hotel might offer services rather different from those offered by a city centre boutique hotel and,
probably more important, might well choose to advertise them differently. This would be an example of
the difference between corporate and business strategies: the group management’s decision to buy or
sell a particular hotel would be part of their corporate strategy, while the way the hotel managers ran
their individual hotels would constitute business strategy.
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MARKETING
By contrast, the whole of a national chain of fast food outlets might constitute a single SBU for a much
larger organisation, as in the case of Burger King. This business was owned by Diageo until 2002, when
it was sold to a consortium of investment companies. The sale was an example of a corporate strategy
activity, while the whole of Burger King’s operations would be guided by a business strategy.
2.3 Operational strategies

Operational strategies are concerned with how the component parts of an organisation deliver
effectively the corporate- and business-level strategies in terms of resources, processes and people
JS & W
Operational
Much operational strategy is created by individual business functions and delivered by them. Here
are some examples taken from an example organisation that makes physical products. Note that here we
treat marketing as an individual business function.
Functional area Comment
Marketing Devising products and services to satisfy customer needs, pricing, promoting
and distributing them.
Production Factory location, manufacturing techniques, outsourcing and so on.
Finance Ensuring that the firm has enough financial resources to fund its other strategies
by identifying sources of finance and using them effectively.
Human resources Securing personnel of the right skills in the right quantity at the right time, and
management ensuring that they have the right skills and values to promote the firm's overall
goals.
Information systems Providing appropriate IT systems for administrative support and as a tool for
competitive strength.
R&D Developing new products and production techniques.
Ganymede Ltd is a company selling widgets. The finance director says: 'We plan to issue more shares to
raise money for new plant capacity – we don't want loan finance – which will enable us to compete
better in the vital and growing widget markets of Latin America. After all, we've promised the
shareholders 5% profit growth this year, and trading is tough.'
Identify the corporate, business and functional strategies in the above statement.
3 Elements of strategic management

We may analyse strategy at any of the three levels outlined above into three main elements.
The analysis of strategic position

Strategic choice
Strategic implementation
Strategic choice follows on naturally from the analysis of strategic position and is followed naturally by
strategic implementation. Analysis and interpretation are more or less continuing processes and may be
delegated in large part to supporting staff, but strategic choices will be made from time-to-time by senior
managers at the appropriate level.
8
If we take the example of marketing, It would be quite correct for a marketing director to go through
these stages in planning the strategy for the marketing function. However, it is important to remember
that all of this work would form part of the implementation stage of the higher, business strategy level of
management – and the marketing director would contribute to all three stages at that level.
3.1 Strategic position

There are three main groups of influences to consider in relation to strategic position: the
environment; strategic capability and the expectations of stakeholders.
3.1.1 The environment

At the corporate level, the strategic environment includes wider political, economic, social, technological,
environmentally conscious and legal forces as well as the more immediate pressures of business
competition. It is both complex and subject to constant change, to an extent that probably precludes
complete understanding. However, if the more salient aspects of the environment can be identified
and described, they may be diagnosed into opportunities and threats.
All of these elements are also relevant to the business unit level of strategy and will influence operational
and functional strategies.
3.1.2 Strategic capability

The organisation's resources and competences make up its strategic capability. This may be analysed
into strengths and weaknesses; these influence, enable or constrain possible future strategic choices.
Clearly, the resources and competence that must be considered will vary at the three levels of strategy.
3.1.3 Stakeholders’ expectations

Strategy is made in order to achieve the organisation's purpose. This may have a formal, even legal,
definition and corporate governance may be a relevant issue. Consideration must also be given to the
expectations of stakeholder groups that have a less formal relationship with the organisation.
Stakeholder power and interest influence the direction in which strategy evolves, as do ethical
issues.
At the corporate and business level where the business unit is independent, the main stakeholder groups
are providers of finance, such as shareholders and banks, and the organisation’s workforce. Government
and representatives of public opinion, such as newspapers, will also be important. At the SBU level, the
expectations of the corporate centre will probably be the most important stakeholder influence, though
managers will be expected to manage the influence of other stakeholders, such as staff. Similarly,
departmental and functional managers will be most concerned about the opinions of their organisational
superiors.
3.2 Strategic choices

At the corporate level, strategy is primarily about scope: this is concerned with the overall
product/business portfolio, the spread of markets and the relationship between business units and the
corporate centre. At the level of the business unit, strategic choices are about how to achieve
competitive advantage and are based on an understanding of customers and markets. Strategic
choices must also be made about the direction and method of development. Functional and
departmental managers must also make choices, though these are largely concerned with what might be
called operational policy rather than strategy, as such.
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MARKETING
3.3 Strategic implementation

Strategies must be made to work in practice. Major issues here include structuring, enabling and
change.
(a) Structuring includes processes, relationships, organisation structure and how these elements work
together.
(b) Enabling is the complex two-way process by which the organisation's resources are managed to
both support and to create strategies.
(c) Change is a very common feature of strategic development and the management of change is a
most important feature of strategic implementation. Both structuring and enabling are likely to be
subject to a degree of almost continuous change and development: this is what a great deal of
management activity is all about.
These three elements will be applicable to varying extents at all levels of strategy.
4 Marketing
So far we have spoken mostly about business strategy, but this book is actually about marketing. We
have taken this approach so that you will develop an understanding of the bigger strategic picture into
which marketing fits and the ways in which marketing and strategy interact. The relationship between
the two is very close. Let us, therefore, have a look at what the term ‘marketing’ means and then try to
explain how it relates to strategy.
4.1 The nature of marketing

We have already remarked that the terminology used in the world of corporate strategy is sometimes
rather imprecise. An important area of potential confusion arises in the relationship between 'strategic
management' and 'marketing'. A number of ideas and models are shared between the two activities (to
the extent that they are, in fact, separate activities), and many marketing authors write as though
'marketing' encompasses all of 'strategic management'. We reject this view: for our purposes, 'marketing'
is an important area of business activity that makes a particular contribution to strategic management,
but is ultimately subordinate to it.
What is marketing?
Marketing is the management process responsible for identifying, anticipating and satisfying customer
requirements profitably. (Chartered Institute of Marketing)
While useful in its way, the CIM definition is not the only one we might consider; in fact there are many.
Here is what Dibb, Simkin, Pride and Ferrel have to say:
Marketing consists of individual and organisational activities that facilitate and expedite satisfying
exchange relationships in a dynamic environment through the creation, distribution, promotion and
pricing of goods, services and ideas.
This is a more detailed definition and has the advantage of being very specific about the activities it
includes under the umbrella term 'marketing'.
There is one important problem with both of these approaches to marketing and that is their tendency
towards over-inclusiveness. We see this most clearly when we think about the activity we know as
production. Taking the CIM definition first, if we ask 'Does the production function have anything to do
with satisfying customer requirements profitably?' we must, if we are fair, answer 'Yes, it does.' If
production is to the wrong standard, or at too great a cost, or late, customer satisfaction will be reduced.
A very similar question could be asked about the phrase 'creation … of goods…' in the definition of Dibb
et al, and it would have to be answered in the same way. Now, it is clear that it would be going too far
10
to suggest that production is a core marketing activity and should be controlled by the marketing
director.
While it is not so obvious in the case of functions such as finance and human resource management, the
same argument applies to them, if to a lesser extent. We are driven to the conclusion that neither
definition we have looked at is much good at explaining the relationship between marketing as an
activity and the other activities to be found in any given organisation.
The related term 'marketing concept' is worth looking at if we wish to understand more deeply.
Philip Kotler, one of the best known of writers on marketing subjects says this:
'The marketing concept holds that the key to achieving organisational goals lies in determining
the needs and wants of target markets and delivering the desired satisfactions more efficiently
and effectively than the competition.
In Kotler's statement we see a clue to resolving the problem we have identified. It is necessary for us to
strike a clear distinction between marketing as an activity and marketing as a concept of how an
organisation should go about its business. The two definitions we examined earlier were related to the
concept; we need to know about the activity.
How does Kotler’s idea that customer needs and wants determine what companies offer fit with the
introduction of ground-breaking products such as the Workmate and the Walkman?
4.2 Models of marketing

The material below was developed by the Chartered Institute of Marketing as part of the introduction to
one of their qualifications. It remains an authoritative view of just what marketing is.
'The type, or model, of marketing practised in any organisation depends on a number of factors, not
least of which are the activities to be performed according to the nature of the business and the
organisation's dominant orientation. Marketing activities in organisations can be grouped broadly into
four roles.
(a) Sales support: the emphasis in this role is essentially reactive: marketing supports the direct
sales force. It may include activities such as telesales or telemarketing, responding to inquiries,
co-ordinating diaries, customer database management, organising exhibitions or other sales
promotions, and administering agents. These activities usually come under a sales and marketing
director or manager.
(b) Marketing communications: the emphasis in this role is more proactive: marketing promotes
the organisation and its product or service at a tactical level. It typically includes activities such as
providing brochures and catalogues to support the sales force.
(c) Operational marketing: the emphasis in this role is for marketing to support the organisation
with a co-ordinated range of marketing activities including marketing research; brand
management; product development and management; corporate and marketing communications;
and customer relationship management. Given this breadth of activities, planning is also a
function usually performed in this role but at an operational or functional level.
(d) Strategic marketing: the emphasis in this role is for marketing to contribute to the creation of
competitive strategy. As such, it is practiced in customer-focused and larger organisations. In a
large or diversified organisation, it may also be responsible for the co-ordination of marketing
departments or activities in separate business units.
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MARKETING
Operational marketing activities:
Research and analysis

Contributing to strategy and marketing planning
Managing brands
Implementing marketing programmes
Measuring effectiveness
Managing marketing teams
The operational marketing role, where it exists, will be performed by a marketing function in a business.'
4.3 Marketing and strategy revisited

So, what is the relationship between marketing and strategic management? The two are closely linked
since there can be no corporate plan that does not involve products/services and customers.
Corporate strategic plans aim to guide the overall development of an organisation. Marketing
planning is subordinate to corporate planning but makes a significant contribution to it and is concerned
with many of the same issues. The marketing department is probably the most important source of
information for the development of corporate strategy. The corporate audit of product/market
strengths and weaknesses, and much of its external environmental analysis is directly informed by the
marketing audit.
Specific marketing strategies will be determined within the overall corporate strategy. To be effective,
these plans will be interdependent with those for other functions of the organisation.
(a) The strategic component of marketing planning focuses on the direction which an organisation
will take in relation to a specific market, or set of markets, in order to achieve a specified set of
objectives.
(b) Marketing planning also requires an operational component that defines tasks and activities to
be undertaken in order to achieve the desired strategy. The marketing plan is concerned
uniquely with products and markets.
Marketing management aims to ensure the company is pursuing effective policies to promote its
products, markets and distribution channels. This involves exercising strategic control of marketing, and
the means to apply strategic control is known as the marketing audit. Not only is the marketing audit
an important aspect of marketing control, it can be used to provide much information and analysis for
the corporate planning process. A marketing audit is a detailed examination of every aspect of the
organisation’s marketing activities. Some of these aspects will be purely marketing matters, such as
success rates for direct mail activities. Others will inevitably overlap with higher levels of strategic
management. Such aspects will include marketing research, new product development and decisions
about which specific market segments to attack and with which products. You should note that it is not
only the marketing function that has this close relationship with higher strategy, however finance, for
example, makes particularly important inputs.
12
SUMMARY
13
MARKETING
SELF-TEST QUESTIONS
1 What is strategy?
2 What is mission, in business terms?
3 What are the four elements of the Ashridge model of mission?
4 What are the qualities of SMART objectives?
5 What are the levels of strategy described by Hofer and Schendel?
6 What are the main elements of strategic management?
7 Who are the main stakeholders at the corporate and business level?
8 How does Kotler describe the marketing concept?
9 What is a marketing audit?
14
SELF-TEST ANSWERS
1 The JS&W definition includes these essential elements: long-term direction and scope; advantage;
changing environment; resources and competences; and stakeholder expectations.
2 The organisation’s principal and overriding purpose
3 Purpose; values; strategy; and policies and standards of behaviour.
4 Specific, measurable, achievable, realistic (relevant, results-focused) time-related.
5 Corporate, business and functional or operational
6 Strategic analysis, strategic choice and strategic implementation
7 Providers of finance and the workforce
8 The marketing concept holds that the key to achieving organisational goals lies in determining the needs
and wants of target markets and delivering the desired satisfactions more efficiently and effectively than
the competition.
9 A detailed examination of every aspect of the organisation’s marketing activities
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MARKETING
ANSWERS TO ACTIVITIES
1 Each person's mission statement will be individual to him or her. Here are just some aspects that could
be considered.
Levels of educational attainment

Career or occupational aspirations
Treatment of colleagues and other people
Attitudes to material possessions and wealth accumulation
Type of lifestyle
Approach to health and recreational activities
Activities on environmental issues
Travel, leisure and entertainment
Attitude to progress and stability
Political outlook and participation
International and local identity
Approaches to modernity, progress and conservatism
Works of charity
Attitudes to law and order
Honesty and ethical behaviour
Family and friends
Involvement in the community
Fulfilment of emotional needs
Pursuit of happiness
Perhaps this exercise may well have benefits other than the personal. By enhancing your own self-
awareness, you might well strengthen your consciousness of consumer needs, wants and desires,
thereby helping you to be a more effective marketing professional.
2 The corporate objective is profit growth. The corporate strategy is the decision that this will be achieved
by entering new markets, rather than producing new products. The business strategy suggests that
those markets include Latin America. The operational or functional strategy involves the decision to
invest in new plant (the production function) which is to be financed by shares rather than loans (the
finance function).
16
CHAPTER 2
STRATEGIC ANALYSIS
Chapter objectives
Several important approaches to strategic and marketing analysis
How to collate the information obtained from analysis
Topic list
Tools of marketing and strategic analysis
PEST
The market environment
Internal appraisal
SWOT analysis
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MARKETING
1 Tools of marketing and strategic analysis

We have already noted that marketing and overall strategy are intimately linked. This is very easily
apparent in the analysis of strategic position. Your syllabus requires you to be familiar with two well-
established aspects of this analysis: PEST and SWOT. PEST is simply an acronym and aid to
remembering the main categories of wider environmental influence.
Political
Economic
Social (or socio-cultural)
Technological
It is often expanded to PESTEL, which adds two further segments.
Environmental protection
Legal
PEST includes legal aspects under politics and environmental protection under socio-cultural matters.
Note. The acronym PESTEL is sometimes replaced by SLEPT, in which the environmental protection
aspect is folded into the other five, or even by STEEPLE, where the extra E stand for ethics.
While PEST is a useful checklist for dividing up the general environment into manageable chunks, it is
important to remember that in the real world they are all interlinked. Any single environmental
development can have implications for all four PEST aspects. In particular, political, social and economic
affairs tend to be closely intertwined.
SWOT is also an acronym, the letters standing for strengths, weaknesses, opportunities and
threats; this is a handy approach to summarising the main factors influencing strategic choice.
We will now examine these ideas in more detail; during the discussion that follows, remember that they
may be used for analysis at the strategic level, or, with different emphasis, in relation to the role, aims
and activities of the marketing function. Indeed, SWOT is an approach that could be useful in decision-
making at any level of management; and even by individuals for purely personal purposes.
Write down one real-world factor from each of the PEST categories that you think might be of
importance to the preparation of marketing plans. The factors you choose need not all be relevant to the
same marketing plan. You may find it useful to refer back to the discussion of models of marketing in
Chapter 1.
As well as dealing with PEST, which deals with wider environmental influences, we will also briefly
discuss the immediate business and market environment of customers, competitors and suppliers.
2 PEST
PEST stands for the main features of the wider environment. These features will set the general
conditions for business of all kinds. Changes to these conditions will normally (but not always) be fairly
slow to take effect and will not generally be subject to very much control by individual businesses.
2.1 The political environment

Politics is the art of the possible: an organisation's freedom of action is constrained by what is politically
acceptable. Note that this is not the same thing as 'legal'. Changes in society are reflected in the
priorities of politicians and governments have many ways of bringing pressure to bear on business. They
18
2: STRATEGIC ANALYSIS
frequently use such levers as economic power, codes of conduct and statements of policy to set the
ground rules for organisational life.
The government controls much of the economy, being the nation's largest supplier, employer, customer
and investor. It also influences the money supply, controls the level of interest rates and sets
exchange rate policy.
Political factors work at a number of different levels.
(a) At national level, politics is significant as the political process includes legislation.
(b) EU directives affect all countries in the EU, and so organisations will have to take note of the
political trends in the wider EU environment.
(c) International relations also affect business. For example, many US firms are banned from
doing business with Cuba, owing to political differences. The US has tried to extend this ban to
non-US firms.
(d) The government and supra-national institutions influence much of the economy.
(i) The government is the nation's largest supplier, employer, customer and investor.
(ii) Nationalism: for a variety of reasons, nations want to have 'national champions' in
particular industries. The shipping and airline industries have been particularly affected by
this desire.
(iii) Legislation often gives government ministers wide discretion over how the law should be
interpreted and implemented, in the application of safety standards, for example.
Political change complicates the task of planning to meet future challenges. Some political changes
cannot easily be planned for.
Strategic planners ought to be aware of factors such as:
(a) Whether political change could have a significant impact on their organisation
(b) What form of influence the political change might have
(c) What the extent of the consequences of any such change might be
(d) What is the likelihood of the change taking place
(e) How the organisation can plan to cope with the change, should it occur
(f) How the organisation can influence political decision-making
The legal system lays down the framework for business with rules about business structure and
ownership, such as the Companies Act. It regulates business relationships with contract law and
guarantees individual rights with employment law. There is a wide range of regulations dealing with
general business activities such as health and safety regulations, rules about emissions into the
environment and planning regulations.
Changes in UK and EU law are often predictable. A government will publish a green paper discussing a
proposed change in the law, before issuing a white paper and passing a bill through Parliament.
Whenever a change in the law is a possibility, and if it is likely to have an impact on what an organisation
can do, plans should be formulated about what to do if the change takes place. For example, a law
banning the use of certain materials or chemicals would mean that companies using these materials
might have to consider developing alternative products.
E X A M P L E
Bans on smoking in public places have spread from the USA to the Republic of Ireland, to Scotland and
eventually to England. The smoking ban is one of the factors blamed for the decline of the English pub.
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MARKETING
2.2 The economic environment

The state of the economy affects all organisations, both commercial and non-commercial. The rate of
growth in the economy is a measure of the overall change in demand for goods and services. Growth is
an indication of increases in demand. For example, an increase in gross domestic product of the
population has wide effects.
(a) A greater demand for private cars (eg as in China) and less demand for public transport
(b) A greater demand for domestic consumer goods, such as home computers
(c) A greater demand for services (eg restaurant meals or holidays abroad)
The forecast state of the economy will influence the planning process for organisations which operate
within it.
(a) In times of boom and increased demand and consumption, the overall planning problem will be to
identify the demand.
(b) Conversely, in times of recession, the emphasis will be on cost-effectiveness, continuing

profitability, survival and competition.
2.2.1 Economic trends – regional, national and international

The local economic environment affects wage rates, availability of labour, disposable income of local
consumers, and the provision of business infrastructure and services.
National economic trends will affect prospects for growth, inflation, unemployment and taxation levels.
World trends have an important influence on the future of any company with plans to trade abroad,
whether in buying imports or selling as exporters.
Give examples of economic influences at an international level. Many of these are subject to the policies
of national governments.
2.2.2 Economic change

The economic environment changes continually. World trade and national economies go through cycles
of growth and recession. Interest rates and foreign exchange rates fluctuate. Some countries achieve
substantial growth over a long period of time whereas others have been in relative decline. Predicted
changes or developments in the economic environment can be vitally important for planning decisions.
2.3 The social (or socio-cultural) environment

A culture is the sum total of the beliefs, attitudes of mind, and customs to which people are exposed in
their social conditioning. For example, the use of the English language is one of the features of the
culture of the UK.
Culture has important implications for business.
(a) The way business is done. Over-emphasis on legal formalities in the early days of a
commercial relationship might upset a Japanese partner, but formal legal documentation would
be expected by a US firm.
(b) The way products are promoted. For example, nudity in advertising is frowned on in some
countries but acceptable in others.
(c) Social attitudes. For example, the roles of men and women in the household and in society, and
their respective economic power have changed.
20
(d) The types of products that can be sold to a particular subculture. For example, in some
cultures, alcohol is prohibited.
(e) The workplace. For example, level of education and skills affects productivity.
Culture changes over time, and also differs between groups of the population. There have been
important cultural shifts in recent years, such as increasing emphasis on sexual equality, and a concern
for the physical environment.
An example of the interaction of cultural and political factors is the role of pressure groups.
Many pressure groups in the UK have more members than any of the main political parties.
(a) Pressure groups are adept at attracting media attention. Adverse publicity can harm a
business's reputation and its sales revenue.
(b) Pressure groups affect the political process. They can set the agenda, and governments
have to 'respond' to them.
(c) Firms can develop strategies for dealing with pressure groups. At the very least, firms need to be
skilled in the use of public relations.
Cultural variables are particularly significant for overseas marketing. Language differences have clear
marketing implications. For example, brand names have to be translated, often leading to entirely
different (and sometimes embarrassing) meanings in the new language.
Social change involves changes in the nature, attitudes and habits of society. Social changes are
continually happening, and trends can be identified.
(a) Rising standards of living may result in wider ownership of consumer and luxury goods, which
have implications for those industries.
(b) Society's attitude to business. In the UK, increasing obligations and responsibilities are being
heaped on to companies, not least with respect to environmental protection and ethical conduct.
(c) The workforce itself. There has been a decline in 'blue collar jobs' and an increasing proportion
of employed people hold 'white collar' clerical, supervisory or management jobs. Many of the new
jobs are done by women.
(d) Increased social divisions between the rich and the poor have been noted.
(e) Changing family structures. There has been an increase in divorce and single parenthood.
Demographic factors relate to the population in aggregate.
(a) In developed countries the population is growing slowly or has practically ceased growing.
Populations are still growing fast in developing countries.
(b) The age structure. In most developed economies, the proportion of elderly people in the
population is increasing.
(c) Geographic distribution. Two contrasting factors are falling populations of inner cities in
developed countries and the flight from the countryside in developing countries.
(d) Sex: the proportion of men and women.
(e) Ethnicity: when it has a cultural impact.
(f) Class: the distribution of wealth and/or life chances between different groups.
(g) Family structure and household size. In the UK there has been an increase in divorce and
single-parent households.
Demographic change has important implications for organisations.
(a) Services and products. In the UK, for example, we might expect the consequences of an
ageing population to include greater demand for health care services.
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MARKETING
(b) Location of demand. Again, in the UK, there appears to be a gradual population shift out of the
inner cities towards suburbs and small towns.
(c) Recruitment. A decline in the number of young people entering the work force in the UK has
encouraged companies to reconsider their attitudes to employing married women, who leave
work to have children but who wish to return to employment later, and older personnel.
(d) The wealth of the workforce.
(i) Those in work will pay more in taxes to support the elderly.
(ii) As the elderly need more care, people will need time off work to look after dependent
relatives.
Both these factors will affect the disposable income of people in work.
2.3.1 Socio-economic groups

Marketing interest stems from the observable fact that members of particular groups have similar
lifestyles, beliefs and values which affect their purchasing behaviour. Socio-economic classification
involves taking factors such as occupation, education and income into account.
2.3.2 Family lifestyle and life cycle factors

Lifestyle influences on behaviour include the following.
(a) Age. Individuals consume different products and services, and respond to different marketing
messages, according to their age. This is particularly relevant to lifestyle products such as clothes,
furniture and recreational pursuits. It also impacts on the kinds of media which will be effective in
reaching the target audience.
(b) Stage in the family life cycle, through which families pass as they mature over time. The
traditional stages are shown in the table below.
Young married couples Strong financial position; focus on home
'Full nest' stages:
Young couple, child under 6 Peak financial burdens; reliance on credit; child
focus
Young couple, child over 6 Better financial position (wife returns to work);
child focus
Older couple, dependent child Better financial position (more wives work);
school focus
'Empty nest' stages:
Children left, head of family working Strong financial position; focus on travel,
leisure
Children left, head of family retired Cut in income; focus on health
Solitary survivor Reduced spending; focus on health, hobbies,

care, companionship
22
However, new markets are emerging with non-traditional households: single parents, childless
couples and so on.
(c) Occupation; influencing income, status, interests and attitudes. Marketers may target
occupational groups with particular interest in their products or services.
(d) Economic circumstances; level and stability of disposable income, savings and assets,
borrowing power – and attitudes towards spending and saving.
(e) Lifestyle. an individual's mode of living as identified on key AIO dimensions: Activities (work,
shopping, hobbies, sports, events attended), Interests (family, recreation, fashion, computers,
food and drink, travel) and Opinions (about products, issues, events, people). Marketers will seek
to identify how their products/services 'fit' different lifestyle groups or profiles (of which there are
many researched classifications).
2.3.3 Environmental protection

Public awareness of the connections between industrial production, mass consumption and
environmental damage is higher than it has ever been, with information flooding out through the
mass media and sometimes generating profound public reaction. Modern marketing practice, then, needs
to reflect awareness of these concerns, and is being changed by the issues that they raise.
The modern Green movement is animated by concerns over pollution, overpopulation and the effects of
massive growth on the finite resources of the earth. Green economists have tried to put together an
economics based on alternative ideas.
Monetary valuation of economic resources

Promoting the quality of life
Self-reliance
Mutual aid
Personal growth
Human rights
Environmental impacts on business

(a) Direct
Changes affecting costs or resource availability
Impact on demand
Effect on power balances between competitors in a market
(b) Indirect. Examples are pressure from concerned customers or staff and legislation affecting the
business environment.
Sustainability requires that the company only uses resources at a rate which allows them to be
replenished and confines emissions of waste to levels which do not exceed the capacity of the
environment to absorb them. Policies based on sustainability have three aims.
To pursue equity in the distribution of resources

To maintain the integrity of the world's ecosystems
To increase the capacity of human populations for self-reliance
2.3.4 Consumerism
Consumerism, in the sense of a drive to protect and enhance the rights and expectations of consumers,
is a feature of modern society. Scarcity leads customers to be satisfied with what they can get. The
economic abundance typical of advanced economies leads many customers to demand very high
standards of satisfaction. There are also ethical and legal dimensions in that product safety and
suitability must be exemplary and product enhancements such as finance arrangements must be
transparent and fair. We return to this topic later in this Study Guide when we discuss customer
satisfaction.
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MARKETING
2.4 The technological environment

How technological change has affected business.
(a) Types of products and services. Within consumer markets we have seen the emergence of
home computers and internet services; industrial markets have seen the emergence of robots,
new databases and teleworking.
(b) The way in which products are made. Modern automated systems of design and manufacture
have revolutionised manufacturing.
(c) The way in which services are provided. Call centres and internet trading have expanded
widely.
(d) The way in which markets are identified. Database systems make it easier to analyse the
market place. New types of marketing strategy, and new organisational structures, have been
developed.
The effects of technological change are wide-ranging.
Cuts in costs may afford the opportunity to reduce prices.

The development of better quality products and services provides greater satisfaction.
Products and services that did not exist before.
E X A M P L E
Ethanol in Brazil
The need to consider the general environment as an integrated whole and not as a group of separate
influences is illustrated by the history of the ethanol fuel industry in Brazil.
Ethanol as an alternative or supplement to petroleum products for motor vehicle fuel came back into
prominence in 2005 because of major demand-driven rises in the global price of oil. In January 2006,
The Financial Times reported that Brazilian ethanol industry had been established in response to the oil
crises of the 1970s. Subsidies for cane mills and price controls had helped to create a major industry.
Here we see a problem that combines politics and economics being solved with a combination of politics,
economics and technology.
During the 1980s, nearly all cars in Brazil were running on ethanol, so there was clearly a significant
social effect in terms of acceptance. Unfortunately, in 1989, world sugar prices spiked and ethanol
producers shifted their raw material (sugar cane) to the production of sugar. The price of ethanol was
still controlled, so the inevitable result was a major shortage of fuels, which prejudiced consumers
against it for a decade. Once again, politics, economics and social factors interact. A further prejudice
was created against ethanol fuelled cars, focusing on their inferior performance. This has only recently
been overcome by the introduction of higher technology 'flex fuel' cars that utilise a mix of ethanol and
petrol to boost performance.
3 The market environment

3.1 Five competitive forces
Porter analyses the immediate competitive environment into five competitive forces.
(a) The threat of new entrants to the industry
(b) The threat of substitute products or services
(c) The bargaining power of customers
(d) The bargaining power of suppliers
(e) The rivalry among current competitors in the industry
24
Unlike the wider forces in the general environment, these forces are of immediate importance to
business, possibly changing very rapidly and subject to a significant degree of influence by individual
businesses.
3.2 The threat of new entrants

A new entrant will bring extra capacity into an industry and poses a threat to established firms because
they may lose market share with a consequent potential loss of economies of scale. The strength of the
threat from new entrants depends on the strength of the barriers to entry and on the likely response of
existing competitors to the new entrant. If prospective new entrants think that competitive retaliation will
be strong then they might think twice before deciding to enter the market.
E X A M P L E
In the UK, British Telecom came under increased pressure from low-cost carriers.
3.3 The threat of substitute products or services

The products or services that are produced in one industry are likely to have substitutes that are
produced in another. For example pubs and cinemas may be competing for the same disposable income.
(a) Substitutes pose a threat because they limit the ability of a firm to charge high prices for its
products and the firm is likely to find the demand for its products is relatively sensitive to price.
(b) The strength of the threat from substitutes will depend on their price-performance characteristics.
Indeed, where the existing firms are unable to meet the challenge with similar offerings the
market may degenerate into a price war.
E X A M P L E
Eurostar rail passenger services from London to Paris compete with airlines, whereas Le Shuttle, which
carries cars, competes with ferries.
3.4 The bargaining power of customers

Customers require better quality products and services at lower prices. If they have the power to get
what they want they will force down the profitability of the firms in the industry.
The strength of the threat from the bargaining power of customers will depend on a number of factors.
(a) The level of differentiation amongst products in the industry (including 'intangible' aspects such as
customer service).
(b) The cost to the customer of switching from one supplier to another.
(c) Whether a customer's purchases from the industry represent a large or small proportion of the
customer's total purchases.
E X A M P L E
Large supermarket chains are able to dictate prices to their suppliers of food.
25
MARKETING
3.5 The bargaining power of suppliers

Suppliers can influence the profitability of a firm by exerting pressure for higher prices or by reducing the
quality of the goods and services which they supply.
The bargaining power of the supplier depends on a number of factors.
(a) The number of suppliers in the industry.

(b) The importance of the supplier's product to the firm.
(c) The cost to the firm of switching from one supplier to another.
E X A M P L E
A bank is a supplier of financial services and account facilities. You might have personal experience as to
how 'strong' the bank is in relation to you.
It is a hassle to switch bank accounts.
3.6 The rivalry amongst current competitors

The intensity of competitive rivalry within an industry will affect the profitability of the industry as a
whole. Although rivalry can be beneficial in helping the industry to expand, it might leave demand
unchanged. In this case the individual firms will be incurring costs on sales promotion campaigns,
advertising battles and new product development and they will be charging lower prices and so making
lower profits without gaining any benefits except maintaining market share.
The intensity of competition will depend on a number of factors including the rate of growth in the
industry and whether there is a large number of balanced competitors.
A C T I V I T Y 3 2 m i n u t e s
Complete the statement below using one of the phrases given in the list in brackets.
'Videoconferencing is regarded by the business travel sector as an example of ……………………. .'
(the threat of new entrants to the industry; the threat of substitute services; the bargaining power of
customers; the bargaining power of suppliers; the rivalry among current competitors)
3.7 Competitor analysis

The importance of competitive rivalry is so great that many firms take especial pains to understand their
competitors. Jobber says that competitor analysis seeks to answer five key questions.
Who are our competitors? We need details of their products and services and whether any new
competitors or substitutes are emerging.
What are their strengths and weaknesses? We need to have an idea of the key success factors in
our industry so that we can assess the value of their assets and capability in such areas as finance,
marketing, management, technology and human resources.
What are their strategic objectives? What are their wider plans? Where are they looking for growth?
What are their strategies? What can we expect them to do next and further into the future?
What are their response patterns? How do they respond to our moves and the moves of other
firms? Are they aggressive? Limited in what they do? Unpredictable?
26
4 Internal appraisal
Examination of the environment should reveal opportunities and threats. Examination of the
organisation’s own resources and capabilities should reveal its strengths and weaknesses. This is
often referred to as internal appraisal. The rather odd term ‘internal environment’ is sometimes used
to refer to the general field of the organisation’s capabilities and resources.
An internal appraisal assesses the company’s resources and ability to compete.
An internal appraisal assesses the company's resources and ability to compete.
Corporate resources are sometimes described as the five Ms.
Men: its human resources and organisation

Money: its financial health
Materials: supply sources and products
Machines: the production facilities, its fixed assets, capacity etc
Markets: its reputation, position and market prospects
In addition to this list it is also necessary to remember the less obvious intangibles like goodwill, brand
names, patents, trademarks and development work-in-progress.
For each of the five Ms identified above, give examples of the types of question which you would wish to
ask in order to obtain information for use in an internal analysis.
Typically, the analysis would use information from all areas of company activity. Here are some
examples.
(a) Marketing
Success rate of new product launches

Advertising: evaluating advertising strategies and individual campaigns
Market shares and sizes: is the organisation in a strong or weak position?
Portfolio of business units: new, growth, mature and declining markets
Sales force organisation and performance
Service quality
Customer care strategies: nature of markets targeted
(b) Products
Sales by market, area, product groups, outlets

Margins and contributions to profits from individual products
Product quality
Product portfolio: age and structure of markets
(c) Distribution
Delivery service standards – lead times for competitors and products

Warehouse delivery fleet capacity
Geographical availability of products
(d) Research and development (R & D)
R & D projects in relation to marketing plans

Expenditure on R & D relative to available assets
Evaluation of R & D in new products/variations on existing products
Appropriateness of R & D workload and schedules to competitor activity
27
MARKETING
(e) Finance
Availability of short-term and long-term funds, cash flow

Contribution of each product to cash flow and return on investment
Profitability of individual customers
Accounting ratios to identify areas of strength or weakness in performance
Availability of accurate cost data
(f) Premises, equipment and other facilities
Age, value, production capacity and suitability of plant and equipment

Valuation of all assets
Land and buildings: location, value, area, use, length of lease, book value
Achievement of economies of scale
Asset evaluation: age, condition, quality
(g) Management and staff
Age profile
Skills and attitudes
State of industrial relations, morale and labour turnover
Training and recruitment facilities
Manpower utilisation
Management team strengths and weaknesses
(h) Organisation
Organisation structure in relation to the organisation's needs

Appropriateness of management style and philosophy
Communication and information systems
(i) Consumable stores
The sources and security of supply

Number and description of items
Turnover periods
Storage capacity
Obsolescence and deterioration
Pilfering, wastage
5 SWOT analysis
The features of the current situation can usually be summarised into strengths, weaknesses,
opportunities and threats. This process is called SWOT analysis. SWOT analysis is used to sort
information; it does not provide ready made answers to strategic problems. Effective SWOT analysis
does not simply require a categorisation of information, but also requires some evaluation of the relative
importance of the various factors. Information about the business environment and the company must
be assessed.
Strengths and weaknesses are features of the organisation itself and its product/service range.
(a) Strengths are features from which the company may be able to derive competitive advantage.
They are also known as core competences.
(b) Weaknesses are disadvantages that it may have to be remedied. For example a company's
growth is being hampered because its people have weak customer handling skills; a training
programme could be introduced to help its people develop strong skills.
Opportunities and threats are features of the environment, particularly the immediate competitive or
task environment.
28
5.1 The importance of SWOT analysis

SWOT analysis is an important aspect of planning at all levels. A successful strategy is one that exploits
strengths and seizes opportunities, while remedying weaknesses and dealing effectively with threats.
Unfortunately, it is unusual for a company to possess all the strengths it needs to exploit its chosen
opportunities and overcome the immediate threats. It is very common, therefore, for companies to
undertake programmes of corporate development in which they attempt to overcome crucial weaknesses
and build new strengths. There may also be attempts to convert threats into opportunities by the same
process, for example, by buying out a rival group of companies.
Give examples of political, economic, social and technological factors which might offer opportunities or
be a source of threats to an organisation you are familiar with
SWOT analysis is sometimes presented using a 2 by 2 grid, popular with management gurus, as in the
diagram below.
Figure 2.1: SWOT analysis
29
MARKETING
SUMMARY
30
SELF-TEST QUESTIONS
1 What is a marketing audit?
2 Give some examples of marketing objectives.
3 What is the business environment?
4 State four economic influences on business.
5 Summarise the effect of technological change on business.
6 What main factors determine the intensity of competition?
7 What are the five competitive forces?
8 What are the 5 Ms?
9 State six areas of marketing activity that would be examined during an internal appraisal.
10 What is a SWOT analysis?
31
MARKETING
SELF-TEST ANSWERS
1 A detailed analysis of marketing capacity and practice, which enables plans to be made with the aim of
improving company performance.
2 Market share; sales levels.
3 All the factors that act on the company's markets, including its suppliers, competitors and customers.
4 Examples include:
Inflation rate Unemployment rate

Interest rates Exchange rates
Tax regime Availability of credit
You may think of others.
5 New products and services

New methods and processes
New means of delivering services
New ways to identify markets
6 A market with a large number of rivals is likely to be more competitive than one with a few.
A fast rate of industry growth reduces competition; stagnation increases it.
High fixed costs require high volumes and promote competition on price.
7 The threat of new entrants

The threat of substitutes
Bargaining power of customers
Bargaining power of suppliers
Rivalry amongst current competition
8 Men and women

Money
Materials
Machines
Markets
9 Six from:
Market specifics eg advertising and customer care

Products
Distribution
R&D
Finance
Plant and equipment
Management and staff
Organisation
Stocks
10 The analysis of the current situation into strengths, weaknesses, opportunities and threats.
32
1 Here are some obvious examples.
Politics and legal: rules on truth in advertising, tobacco and alcohol will constrain what can be said and
implied in promotional campaigns.
Economic: the level of interest rates will affect finance deals for customers and the cash available for
spending on marketing.
Social and demographic: the aging of the population will increase demand for retirement homes
Technological: file sharing applied to popular music has led to major disruption of the industry’s
attitudes and practices.
2 Comparative growth rates, inflation rates, interest rates and wage rates in other countries
The extent of protectionist measures against imports
The nature and extent of exchange controls
The development of international economic communities such as the European Union and the
prospects of international trade agreements between countries
The levels of corporate and personal taxation in different countries
3 The threat of substitute services
4 Gathering this information involves obtaining answers to the following sort of questions.
(a) Men and women

(i) Labour. What is the size of the labour force? What are their skills? How much are they
paid? What are total labour costs? What proportion of the organisation's added value or
sales revenue is accounted for by labour costs? How efficient is the workforce? What is the
rate of labour turnover? How good or bad are industrial relations?
(ii) Management. What is the size of the management team? What are its specialist skills?
What management development and career progression exists? How well has management
performed in achieving targets in the past? How hierarchical is the management structure?
(b) Money
(i) Finance. What are the company's financial resources? What are its debt and gearing ratios?
(ii) Working capital. How much working capital does the organisation use? What are the
average turnover periods for stocks and debtors? What is the credit policy of the
organisation? What credit is taken from suppliers? What is the level of bad debts? How is
spare cash utilised by the treasury department? How are foreign exchange transactions
dealt with? How profitable is our product portfolio?
(c) Materials
Where do they come from? Who supplies them? What percentage of the total cost of sales is
accounted for by materials? What are wastage levels? Are new materials being developed for the
market by suppliers?
33
MARKETING
(d) Machines
Fixed assets. What fixed assets does the organisation use? What is their current value (on a
going concern value and on a break-up value basis)? What is the amount of revenue and profit
per £1 invested in fixed assets? How old are the assets? Are they technologically advanced or
out-of-date? What are the organisation's repairs and replacement policies? What is the
percentage fill in the organisation's capacity? This is particularly important for service industries,
such as cinemas, football grounds and trains, where fixed costs are high and resources need to
be utilised as much as possible to earn good profits. R & D experience and level of technological
expertise should also be assessed.
(e) Markets
Market share, reputation, level of competition, deals with distributors and the level of goodwill. Is
the company customer-oriented and how is the customer contact/service perceived?
5 Opportunities and threats may arise in the following areas.
(a) Political: legislation involving, for example, pollution control or a ban on certain products would
be a threat to various industries, but also an opportunity for selling, eg lead-free petrol and
suitable cars. Taxation incentives, rent-free factory buildings, or investment grants might be
available for exploitation. Government policy may be to increase expenditure on housing,
defence, schools and hospitals or roads and transport and this gives opportunities to private
companies and the relevant government organisations alike. Political upheaval might damage
market and investment prospects, especially overseas.
(b) Economic: unemployment, the level of wages and salaries, the expected total market behaviour
for products, total customer demand, the growth and decline of industries and suppliers, general
investment levels etc. At an international level, world production and the volume of international
trade, demand, recessions, import controls, exchange rates.
(c) Social: Social attitudes will have a significant effect on customer demand and employee attitudes.
Social issues such as environmental pollution, women's roles, and the need to solve social
problems offer opportunities for new products and services. Demographic change and population
structure will provide continuing product opportunities. There are recognised opportunities for
growth in the personal pensions market. Unemployment will strongly affect the total spending
power of consumers. This has been a chronic and long-term threat in certain parts of the UK.
(d) Technology: new products appearing, or cheaper means of production or distribution will clearly
have profound implications in these types of analysis.
34
CHAPTER 3
CUSTOMERS, BUYERS, CLIENTS AND

CONSUMERS
Chapter objectives
The differences between customers, clients, buyers and consumers
The importance of the main consumer behaviour models
The main approaches to understanding customer behaviour
The main issues in organisational buying
Topic list
Customers, buyers, clients or consumers?
Consumer buying behaviour
Influences on buying behaviour
Social factors
Personal factors
Psychological factors
Organisational buying behaviour
35
MARKETING
1 Customers, buyers, clients or consumers?

Whoever we are, we are all consumers of products and services throughout our lives.
The roles we occupy when purchasing a product or service may vary. What we are called when doing
this is important. A crude distinction exists between the customer, who takes the decision to buy (and
usually pays) and the consumer, who consumes the goods. However, in practice 'buying' is a complex
process in which people take many different roles.
1. As a customer, we would engage in a purchase transaction with a supplier of goods. In a

domestic context, these would be for our own or our family's consumption.
2. As a client we would be availing ourselves of a range of professional services such as

accountants and solicitors.
3. As a professional, we would be exercising special skills in purchasing, often in large quantities

and/or expending millions of pounds, as a part of our job on behalf of an organisation. For
example, media buyers are professionals who purchase advertising space.
4. As a consumer, we are the end-user of the product. A consumer may not be a customer and
vice versa. We do not necessarily take direct part in the purchase but, because we use up the
product and gain some satisfaction or benefit from it, we may influence its purchase and/or its
re-purchase. We are the end-user of the products.
5. When we influence an organisation’s buying decision, we are part of a Decision-Making Unit

(DMU).
The above categories are not intended to be formal labels used as mutually exclusive descriptors but the
differences indicated can be quite important to the marketer.
What other words can you think of which describe a particular relationship in a product or service
transaction?
1.1 Needs and wants

It is important for us to distinguish between needs and wants.
Technically, a need is defined as a 'state of felt deprivation'. We recognise that there is an absence of
something. Wants are those things which we perceive as being able to satisfy a particular need in some
way that an alternative product may not.
For example, children may say that they need a drink. This may arise from them experiencing a
physiological state of thirst – a need. If their mother or father tells them to get a glass of water (which
would fulfil the physiological need), the child may refuse and say 'No! I don't want water, I want Pepsi’.
This demonstrates the essential difference which is critically important to marketers. The child cannot be
said to need Pepsi-Cola in the true physiological sense. But it is certain that the child could want it very
much.
The marketer's task is to recognise the basic need and, by crafting a marketing mix, shape that need
towards a want for the organisation's product or service. We shall discuss further, in some detail, what
constitutes a need later in the chapter.
36
3: CUSTOMERS, BUYERS, CLIENTS AND CONSUMERS
2 Consumer buying behaviour

Consumer buying behaviour can be defined as, 'the decision processes and acts of individuals
involved in buying and using products or services.' (Dibb: Marketing Concepts and Strategies, 2001).
As Dibb says, the study by an organisation of consumer buying behaviour is important to the
marketing manager for a number of reasons.
(a) The buyer's reaction to the organisation's marketing strategy has a major impact on the success
of the organisation.
(b) If organisations are truly to implement the marketing concept, they must examine the main
influences on what, where, when and how customers buy. Only in this way will they be able to
devise a marketing mix that satisfies the needs of the customers.
(c) By gaining a better understanding of the factors influencing their customers and how their
customers will respond, organisations will be better able to predict the effectiveness of their
marketing activities.
2.1 The process of consumer buying behaviour
Figure 3.1: Stages in the buying process

While recognising the fact that there are a number of alternative patterns of buying behaviour, it is
perhaps useful to consider the mental processes through which the consumer moves when deciding to
purchase a product.
The general stages in the buying process have been identified as follows.
Need recognition
Information search
Evaluation of alternatives
Purchase decision
Post-purchase evaluation
Each stage will be considered in turn and an example will be provided at the end of the section.
Need recognition
The process begins when the buyer recognises a need or problem. This can be triggered by internal
stimuli, such as hunger or thirst, or external stimuli, such as social esteem. If the need rises to a
threshold level it will become a drive and from previous experience the buyer will know how to satisfy
this drive through the purchase of a particular type of product. Kotler states that the task for the
marketer is to identify the circumstances and/or stimuli which trigger a particular need and to use this
knowledge to develop marketing strategies which stimulate consumer interest.
37
MARKETING
Information search
Once aroused the customer will search for more information about the products that will satisfy the
need. The information search stage can be divided into two levels. The first is 'heightened attention',
where the customer simply becomes more receptive to information about the particular product
category. The second stage is 'active information search'. The extent of active search will depend on
the strength of the drive, the amount of information initially available, the ease of obtaining additional
information and the satisfaction obtained from the search.
A consumer will generally receive the most information exposure from commercial sources, but the most
effective information exposure comes from personal sources. Each information source performs a
somewhat different function. For instance, you may ask friends or work colleagues which camera they
would recommend, or ask them to state their preference from a range of choice.
Through this information-gathering process the consumer will learn about competing products and
their relative pros and cons. This will enable the consumer to narrow down the range of alternatives to
what has been called the 'choice set'. The marketer's task is to get his or her product into the
customer's choice set.
Trying to describe the process of evaluation of alternatives is not easy as there is no generally accepted
single evaluation process. Most current models of evaluation take the view that the customer forms
judgements largely on a conscious and rational basis.
Kotler states that, as consumers are trying to satisfy some need with the buying process, they will be
looking for certain benefits and each product will be seen as a 'bundle of attributes' with varying
capabilities of delivering the benefits sought. The marketer should determine what importance the
customer attaches to each attribute.
Consumers are likely to build up a set of beliefs about each product with regard to each attribute. They
will probably choose the product that maximises benefits to them.
Advertising helps us keep abreast of what is good in the market place.
Purchase decision
Having evaluated the range of choices the consumer may have formed a purchase intention to buy the
most preferred product. However, some factors could intervene between the purchase intention and
the purchase decision. The first factor is the attitude of others. If, for example, a friend or relative of
the consumer expresses a strong negative opinion, this may influence the consumer to change his or her
mind. Purchase intention is also influenced by unanticipated situational factors that may intervene
between purchase intention and decision. Such factors could include a change in financial circumstances
such as redundancy, or circumstances in which some other purchase becomes more urgent.
Post-purchase evaluation
Having made the purchase, the customer will experience some level of satisfaction or dissatisfaction,
depending on the closeness between the consumer's product expectations and the product's
perceived performance. These feelings will influence whether the consumer buys the product again
and also whether the consumer talks favourably or unfavourably about the product to others.
38
Before reading on, think about a recent purchase of a fairly major item that you have made. Did you go
through the stages listed above? Explain what the need was, how you searched for information and so
on.
E X A M P L E
Imagine two different purchase scenarios, buying a car and buying a snack at a train station. The
behaviour or possible thoughts of the consumer at each stage is likely to vary considerably.
Buying process stage Buying a car Buying a snack at a train

station
Need recognition Existing car is unreliable and Feeling peckish but train due in
too small five minutes
Information search Visit local garages Look for a vending machine or

shop
View car section of local
newspapers
Buy and read Auto trader
Browse on Ebay
Evaluation of alternatives Circle all relevant cars – make a Consider – sweet or savoury,
short list to view and then go decide on sweet, view
and look at the cars for sale. alternative sweets in shop –
Test drive the cars. close to the till for speed.
Decide between new and used
Purchase decision Confirm criteria for selection, Make decision based on known
choose between shorted short list brands – chose Cadbury flake
Post-purchase evaluation Thoughts about the car Regret as difficult to eat on the
following the purchase, train due to the crumbly nature
reliability, satisfaction with the of the product – decide not to
drive, comments from friends. buy again for a train journey
It is highly probable that as you have been reading this you have thought of very different behaviours
you may have shown at each stage. This is due to the range of influences we are subjected to as
individuals and these will be covered in the next section.
It should also be apparent that these purchase scenarios are entirely different in their nature: one
requires an extended decision-making process because it is an important, expensive or risky purchase;
the other is routine and involves little expenditure. The type of purchase behaviour also differs
depending on whether the purchase is familiar or unfamiliar, routine, an impulse or critical.
39
MARKETING
3 Influences on buying behaviour

The 'core' process of consumer buying behaviour described above will be influenced by a number of
outside variables. These variables have been classified by Wilson as follows, with the focus progressively
narrowing.
Cultural
Social
Personal
Psychological
It is essential to remember that these factors are not mutually exclusive. Marketers must have a clear
understanding of how the various factors interact and how they influence buyer behaviour, both
separately and together.
3.1 Cultural factors

Culture is a much broader concept than the sense in which it is most often used by people to refer to
classical aesthetic or artistic pursuits. The term is used by sociologists and anthropologists to encompass
the sum total of the learned beliefs, values, customs, artefacts and rituals of a society or group.
As suggested by our definition above, culture embraces the following aspects of social life.
(a) Beliefs and values. Beliefs are perceived states of knowing. We feel that we know about
'things', on the basis of objective and subjective information. Values are key beliefs which are:
(i) Relatively enduring

(ii) Relatively general – not tied to specific objects
(iii) Fairly widely accepted as a guide to culturally appropriate behaviour
(b) Customs. Customs are modes of behaviour which represent culturally approved ways of
responding to given situations. There are various types of social behavioural norms.
(c) Rituals. A ritual is a type of activity which takes on symbolic meaning, consisting of a fixed
sequence of behaviour. Ritualised behaviour tends to be public, elaborate, formal and ceremonial
– like religious services, marriage ceremonies, court procedures, even sporting events. Ritualistic
behaviour, however, is any behaviour that follows a habitual pattern, such as eating a meal or
travelling to work. Rituals commonly require artefacts (representing, for the marketer,
products): think of the 'accessories' that attend a wedding, a football match, a Christmas dinner,
a business conference.
Kissing and hugging on greeting are becoming increasingly common in the UK.
3.2 Language and symbols

Another very important element of culture, which makes the learning and sharing of culture possible, is
language. Without a shared language and symbolism – verbal and non-verbal – there would be no
shared meaning. The different languages of different cultures are an obvious means of distinguishing
large groups of people. Language can present a problem to cross-cultural marketers as we shall see.
Symbols are an important aspect of language and culture. Each symbol may carry a number of different
meanings and associations for different people, and some of these meanings are learned as part of a
society's culture. The advertiser using slang words or pictorial images but must take care that they are
valid for the people he wants to reach and are up-to-date.
40
3.3 Artefacts and technology

Culture embraces all the physical 'tools' used by people for their physical and psychological well-being. In
our modern society, the technology we use has a very great impact on the way we live our lives, and
new technologies accelerate the rate of social change.
3.4 Characteristics of culture

Having examined the areas included in the definition of culture, we can draw together some of the
underlying characteristics of culture itself. Culture comprises all the following.
(a) Social. Culture exists to satisfy the needs of people in a society.
(b) Learned. Cultural norms and values are taught or 'transferred' to each new member of society,
formally or informally, by socialisation. This occurs in institutions (the family, school and church)
and through on-going social interaction and mass media exposure in adulthood.
(c) Shared. A belief or practice must be common to a significant proportion of a society or group
before it can be defined as a cultural characteristic.
(d) Cumulative. Culture is 'handed down' to each new generation, and while new situations teach
new responses, there is a strong traditional/historical element to many aspects of culture.
(e) Adaptive. Culture must be adaptive, or evolutionary, in order to fulfil its need-satisfying function.
Many factors may produce cultural change, whether slow or fast, in society: eg technological
breakthrough, population shifts, exposure to other cultures, gradual changes in values. (Think
about male-female roles in the West, or European influences on British lifestyles.)
Drugs and alcohol abuse are clear evidence of an increasing pleasure principle in youth culture.
3.5 Micro-culture
Culture is a rather broad concept, embracing whole societies. It is possible to subdivide (and for
marketers, further segment) a macro-culture into micro-cultures (or sub-cultures) which also share
certain norms of attitude and behaviour.
A micro-culture is a distinct and identifiable cultural group within society as a whole: it will have
certain beliefs, values, customs and rituals that set it apart while still sharing the dominant beliefs,
values, customs and rituals of the whole society or 'mainstream' culture.
The main micro-cultures relevant to the UK are defined in the following ways:
(a) Class.
(b) Nationality. Nationality refers to the birthplace of one's ancestors.
(c) Ethnicity. Ethnicity refers to broader divisions into for example Afro-Caribbean, white and Asian
groups. There are identifiable differences in lifestyles and consumer spending patterns among
these groups, but it is only relatively recently that attention has been given to reaching and
serving ethnic minority market segments, as distinct from mass marketing.
(d) Geography or region. Even in such a small country as England, there are distinct regional
differences.
(e) Religion. Adherents to religious groups tend to be strongly oriented to the norms, beliefs, values,
traditions and rituals of their faith. Food customs are strict in religions such as Judaism, Hinduism
and Islam.
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MARKETING
(f) Age. Micro-cultures vary according to the period in which individuals were socialised, because of
the great shifts in social values and customs in this century.
(g) Sex. We have already discussed sex-based roles in family buying behaviour, and their gradual
erosion – despite which, marketers make frequent appeals to sex-linked stereotypes. The Career
Woman and the New Man are perhaps the most important current micro-cultural markets
segmented on this basis.
Marketers need to be aware of micro-cultural variations. Not all may be significant enough to be a
basis for segmentation of the market for a particular product. Some may be particularly sensitive (eg
marketing 'prohibited' foods to a religious group).
What are the most important cultural values and/or infrastructure factors in your own country that
impact on marketing practices and trends?
Marketers also need to avoid exaggerating the exclusivity of micro-cultures. Promotional strategies need
not target a single micro-cultural membership, since each consumer is simultaneously a member of many
micro-cultural segments.
(a) Find at least one example of marketing targeted at a segment of each of the above micro-
cultures. You do not have to confine yourself to commercial enterprises or to TV advertising. The
Metropolitan Police, for example, ran a recruitment drive using a poster that featured a white man
chasing a black man – or so one concluded until one read the copy. Actually both men were
policemen chasing an unseen villain.
(b) Visit shops or look through magazines that are not targeted at the micro-cultures into which you
happen to fit. Make a note of the differences that you perceive.
4 Social factors
Within the context of culture, an individual is also influenced by a series of social factors, such as
reference groups, family, social role and status, which can all have a direct effect on buying behaviour.
Reference groups have been defined as groups 'with which an individual identifies so much that he or
she takes on many of the values, attitudes or behaviours of group members'. Four types have been
identified.
(a) Primary membership groups, which are generally informal and to which individuals belong
and within which they interact (family, friends, neighbours, work colleagues and so on).
(b) Secondary membership groups, which tend to be more formal than primary groups and
within which less interaction takes place (trade unions, religious groups and professional societies
are examples).
(c) Aspirational groups, to which an individual would like to belong.
(d) Dissociative groups, whose values and behaviour the individual rejects.
4.1 Opinion leaders

One of the marketer's tasks is to identify the groups with which individuals identify, and within these
groups identify the opinion leaders.
42
Opinion leaders are ‘those individuals who reinforce the marketing messages sent and to whom other
receivers look for information, advice and option.’
In addition, opinion leaders may communicate a marketing message to those members of the group who
may have missed the original message. The marketer's task in identifying opinion leaders is made more
difficult by the fact that opinion leadership is dynamic. At one time it was believed that opinion
leadership was confined to a few prominent members of society, but increased understanding of the
concept has shown that a person may be an opinion leader in certain circumstances but an opinion
follower in others.
4.2 The family

Another major social influence is the family, particularly with regard to the roles and relative influence
exerted by different family members. Research has indicated three patterns of decision-making within
the family and identified the sorts of product categories with which each is typically associated, as
follows.
(a) Husband dominated: life insurance, cars and television

(b) Wife dominated: washing machines, carpets, kitchenware and non living-room furniture
(c) Equal: living-room furniture, holidays, housing and entertainment.
5 Personal factors
Influencing factors that can be classified as personal include such things as age and life cycle,
occupation, economic circumstances and lifestyle.
Obviously, individuals will buy different types of product depending on age. This is particularly relevant to
such products as clothes, furniture and recreation.
However, consumption may also be shaped by the stage of the family life cycle within which an
individual falls. Two 25-year olds of equal income will have different spending patterns when one is
married and the other is single.
A person's occupation will influence consumption and the task for marketers is to identify the
occupational groups that have a strong interest in their products and services.
Buying patterns are also heavily influenced by an individual's economic circumstances. These are said to
consist of the following.
(a) Spendable income; its level, stability and time pattern

(b) Savings and assets, including the percentage that is liquid
(c) Borrowing power and creditworthiness
(d) Attitude toward spending versus saving
However, people coming from the same subculture, social class and occupation may lead completely
different lifestyles. A lifestyle is 'an individual's mode of living as identified by his or her activities,
interests and opinions'. Marketers will search for relationships between their products and lifestyle
groups. There are many different lifestyle classifications; an example is given in the table below.
(a) Read the table below carefully. Where do you fit in? What about the members of your family and
your friends and colleagues at work?
(b) See if you can think of one product or service that it would be easy to sell to a person in each of
the lifestyle categories described.
(c) For each product or service identified in (b), think about how you would make the person in
question aware of your company's brand.
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MARKETING
Category Comment
Upwardly mobile, ambitious Seeking a better and more affluent lifestyle, principally through
better paid and more interesting work, and a higher material
standard of living. A customer with such a lifestyle will be
prepared to try new products
Traditional and sociable Compliance and conformity to group norms bring social approval
and reassurance to the individual. Purchasing patterns will
therefore be 'conformist'.
Security and status seeking Stressing 'safety' and 'ego-defensive' needs. This lifestyle links status,
income and security. It encourages the purchase of strong and well
known products and brands, end emphasises those products and
services which confer status and make life as secure and predictable
as possible. These would include insurance, membership of the AA or
RAC etc. Products that are well established and familiar inspire more
confidence than new products, which will be resisted.
Hedonistic preferable Places emphasis on 'enjoying life now' and the immediate
satisfaction of wants and needs. Little thought is given to the
immediate future
6 Psychological factors
The process of buyer behaviour is also influenced by four major psychological factors: motivation,
perception, learning, and beliefs and attitudes.
6.1 Motivation
Motivation has been defined as, ‘an inner state that energises, activates, or moves, that directs or
channels behaviour towards goals’ (Assael).
Motivation arises from perceived needs. These needs can be of two main types – biogenic and
psychogenic. Biogenic needs arise from physiological states of tension such as hunger, thirst and
discomfort, whereas psychogenic needs arise from psychological states of tension such as the need for
recognition, esteem or belonging.
A number of different theories of human motivation have been propounded which have differing
implications for marketing and communications activity.
Freud's theory of motivation assumes that the real psychological forces influencing people's behaviour
are unconscious. Freud regards the process of growing up and accepting social rules as one which forces
an individual to repress many of the natural urges. These urges can never be eliminated or totally
controlled, and can emerge in dreams, slips of the tongue or neurotic behaviour. From a marketing
perspective, Freud's theory implies that people buy a product, not only for the rational reasons that they
may state overtly, but also for a hidden set of underlying unconscious motives (such as the need for
social esteem or belonging), that they may not articulate. The marketer, therefore, should be aware of
the impact of all aspects of the product that could trigger consumer emotions that stimulate or inhibit
purchase.
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6.2 Maslow's hierarchy of needs

Maslow seeks to explain why people are driven by particular needs at particular times. He argues that
human needs are arranged in a hierarchy, comprising, in their order of importance: physiological
needs, safety needs, social needs, esteem needs and self-actualisation needs. As Maslow is seen as
an important influence in understanding customer behaviour, we discuss it in some detail below.
Figure 3.2: Maslow's hierarchy of needs
‘Love and security’ are becoming stronger motivators of brand adoption than ‘esteem’.
According to his theory, the lowest 'level' or need which is unsatisfied is dominant. Once it is satisfied,
the next level 'up' becomes the dominant motivating impulse, until it in turn is satisfied – or until a lower-
level need becomes dominant again, through renewed deprivation.
Since no need is ever completely satisfied, the levels overlap in practice, and more than one level of
need may operate at the same time, but the prime motivator – the dominant impulse within the
individual at a given time – is said to be the lowest level of need that is substantially unsatisfied.
Maslow's need categories are:

(a) Physiological needs – food, water, air, shelter, sex
(b) Safety and security needs – freedom from threat, good health, but also security, order,
predictability, 'knowing where you are with people'
(c) Social needs – for friendships, affection, sense of belonging
(d) Esteem or ego needs – for self-respect and self-confidence, competence,

achievement, independence, prestige and reflection in the
perception of others
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MARKETING
(e) Self-actualisation needs – for the fulfilment of personal potential: 'the desire to
become more and more what one is, to become everything
that one is capable of becoming'
E X A M P L E
Physiological needs can be met by food and drink, houses and clothes; safety needs by insurance, job
training, double glazing and seatbelts; social needs by cosmetics, personal hygiene products and pets;
esteem or ego needs by luxury items, bigger cars and designer clothes; self-actualisation needs by
education and training services, health-club membership and career consultancy.
The hierarchy of needs as an operational tool

The hierarchy of needs can be adapted to facilitate:
(a) Market segmentation, by enabling advertisers to focus their messages on a need category that
is likely to be shared by a sizeable segment of the target population
(b) Product/brand positioning, by enabling advertisers to establish the product/brand in people's
perception as the means to satisfy a particular need category.
Examples of segmentation and positioning by need category
Physiological needs: Segment
Ads for 'Stop smoking' products: targeting people worried about
cancer
Position
Gas central heating ads: creating the perception of central heating as
a 'survival' tool (blizzards in the unheated hallway etc)
Safety needs: Segment
Pensions and insurance ads: target people with families and houses,
career peak age-groups etc
Position
Volvo ads: creating the perception of Volvo as the safe car
Social needs: Segment
Soft drink ads: target young people (associated with 'good times
together' situations)
Position
Mail/telephone service ads: putting you in touch with people you love
and miss
Esteem needs: Segment
Luxury car ads: target high-income, high-status groups
Position
Woolwich Building Society ads: creating the perception that you can
be proud of yourself for making a smart choice with the slogan 'You're
either with us, or without'
Self-actualisation needs: Segment
Health product ads: target at body-conscious young people
Position
Kleenex Velvet toilet tissue ads: creating the perception of luxury and
that you deserve the best
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6.3 Perception
Perception is defined by Assael as ‘the process by which people select, organise and interpret sensory
stimuli into a meaningful and coherent picture.’
Physical stimuli are only one input to this process. There are also internal inputs from the individual
himself, in the form of his own motives, expectations, personality, past experience and so on. This is why
perception is so personal: each individual's viewpoint is unique, and will affect the way they act in a
particular situation, or view an object or brand.
6.4 Learning
Learning describes changes in an individual's behaviour arising from experience. Theories about learning
state that it is the result of the interplay of five factors: drives, stimuli, cues, responses and
reinforcement.
A drive is a strong internal force impelling action, which will become a motive when it is directed to a
particular drive-reducing stimulus object (the product). Cues are minor stimuli (such as seeing the
product in action, favourable reactions to the product by family and friends etc) that determine when,
where and how the person responds. Once the product is bought, if the experience is rewarding then the
response to the product will be reinforced, making a repeat purchase the next time the situation arises
more likely. Marketers must, therefore, build up demand for a product by associating it with strong
drives, using motivating cues, and by providing positive reinforcement.
6.5 Beliefs and attitudes
A belief is 'a descriptive thought that a person holds about something'.
Beliefs are important to marketers as the beliefs that people have about products make up the brand
images of those products.
An attitude comprises a person's enduring favourable or unfavourable cognitive evaluations, emotions,

and action tendencies toward some object or idea.
Attitudes lead people to behave in a fairly consistent way towards similar objects. Attitudes can be
regarded as a short-cut in the thought processes by ensuring that people do not have to interpret
and react to every object in a fresh way. Attitudes settle into a consistent pattern and to change one
attitude may entail major changes to others. Marketers, therefore, are advised to ensure that their
product fits into people's existing attitudes rather than having to try to change attitudes.
E X A M P L E
Coca Cola had to return to the original recipe when customers rebelled against the idea of a ‘new’
flavour.
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MARKETING
7 Organisational buying behaviour

Organisational (or industrial) buying may be defined as 'the decision-making process by which
formal organisations establish the need for purchased products and services and identify, evaluate and
choose among alternative brands and suppliers'.
A number of differences between organisational and consumer markets exist which mean that a
modified approach needs to be taken when considering the process of buying behaviour.
Organisational markets normally comprise fewer buyers, with those buyers often being very
concentrated (a few buyers are responsible for the majority of sales). Because of this smaller customer
base and the importance and power of larger customers there is generally a close relationship
between buyer and seller in organisational markets, with a great degree of customisation and co-
operation on product specification and other requirements. Often organisational buyers are
geographically concentrated.
7.1 The process of organisational buying behaviour

The following stages in the process of organisational buying behaviour must be considered.
Recognise the problem

Develop product specifications to solve the problem
Search for products and suppliers
Evaluate products relative to specifications
Select and order the most appropriate product
Evaluate the product and supplier performance
This process is, in outline terms, similar to that for consumer buying behaviour. It begins with the
recognition that a problem exists, the stimulus for which may come either from within or outside the
company. The second stage of the process requires those people participating in the buying decision to
assess the problem or need and determine what will be required to resolve or satisfy it. Here, the DMU
comes into operation.
The third stage of the process is similar to that of information search; utilising trade shows, trade
publications, supplier catalogues, and soliciting proposals from known suppliers. This should result in a
list of alternative products which are then evaluated to ascertain whether they meet the product
specifications. Suppliers may also be evaluated according to criteria such as price, service and ability to
deliver.
The most appropriate product and supplier is then selected. In some cases an organisational buyer may
select a number of suppliers in order to reduce the possibility of disruption caused by strikes, shortages
or other failures of suppliers. The order will then be made, often with specific details regarding terms,
credit arrangements, delivery dates and technical assistance or after sales service. The product and
supplier will then be evaluated by comparing specifications regarding product quality and so on, and
assessing the performance of the supplier in relation to the terms of the contract for the sale.
In the light of the above and earlier sections of this chapter see if you can draw up a list of similarities
and differences between the purchase decision for an individual consumer and the purchase decision for
an organisation.
You will also find some suggestions in the remaining sections of this chapter.
48
7.2 Factors influencing organisational buying behaviour

There are four main forces influencing the organisational buyer, shown below in order of progressively
narrowing focus.
Environmental
Organisational
Interpersonal
Individual
Environmental forces include such factors as the level of primary demand, the economic outlook, the
cost of money, the rate of technological change, political and regulatory developments and competitive
developments. All these environmental forces must be monitored so as to determine how they will affect
buyers.
Each organisation has its own objectives, policies, procedures, organisational structures and systems
which may constrain the freedom of action of organisational buyers and this may in turn affect the
decision-making process. For example, an organisation may insist on long-term contracts or may require
special credit arrangements.
Interpersonal factors are important where the buying decision may involve a number of people. Within
the buying group the use of power and the level of conflict could significantly influence organisational
buying decisions.
Individual factors are the personal characteristics of the individuals in the buying group such as age,
education, personality and position in the organisation. These will affect the decision-making process,
and the seller must be aware of their potential influence.
7.3 The Decision-Making Unit

One of the major differences between consumer and organisational buying behaviour is the fact that
organisational purchase decisions are rarely made by a single individual. Normally purchasing decisions
are made by a number of people from different functional areas, possibly with different statuses within
the organisation. This obviously complicates the process of marketing and selling the product and it is
important that the marketer is fully aware of the composition of the buying group and the relative
importance to the purchase decision of the individuals within it.
Webster and Wind provided a framework for considering these issues with the concept of the Decision-
Making Unit (DMU).
The Decision-Making Unit is 'all those individuals and groups who participate in the purchasing
decision process, who share some common goals and the risks arising from the decisions'.
There are six groups within the DMU, as follows.
(a) Users, who may initiate the buying process and help define purchase specifications
(b) Influencers, who help define the specification and also provide an input into the process of
evaluating the available alternatives
(c) Deciders, who have the responsibility for deciding on product requirements and suppliers
(d) Approvers, who authorise the proposals of deciders and buyers
(e) Buyers, who have the formal authority for the selection of suppliers and negotiating purchase
terms
(f) Gatekeepers, who, by controlling the flow of information, may be able to stop sellers from
reaching individuals within the buying centre
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MARKETING
The size, structure and formality of the DMU will vary depending on the specific situation. However, the
marketer has to consider five questions.
(a) Who are the principal participants in the buying process?
(b) In what areas do they exert the greatest influence?
(c) What is their level of influence?
(d) What evaluative criteria do each of the participants make use of and how professional is the
buying process?
(e) To what extent, in large organisations, is buying centralised?
50
SUMMARY
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MARKETING
SELF-TEST QUESTIONS
1 What are the five stages in the buying process?
2 Which four factors influence consumer buying behaviour?
3 What are opinion leaders?
4 Why should marketers not try to change attitudes?
5 What are the six stages in the process of organisational buying behaviour?
6 What four main forces influence the organisational buyer?
7 What are the six groups within the organisational DMU?
8 What are Maslow's need categories?
9 Give two main uses of the Maslow model for the marketer.
52
SELF-TEST ANSWERS
1 Need, information, alternatives, purchase, post-purchase.
2 Cultural, social, personal, psychological.
3 Those to whom others look for advice, opinions and approval.
4 Attitudes are enduring and difficult to change. It is more effective to develop product concepts that are
in tune with target groups’ existing attitudes.
5 Problem recognition, specify solution, product and supplier search, evaluate solutions, select and order,
evaluate product and supplier performance.
6 Environmental, organisational, interpersonal, individual.
7 Users, influencers, deciders, approvers, buyers and gatekeepers.
8 Physiological, safety, love, esteem, self-actualisation.
9 Market segmentation and product positioning.
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MARKETING
1 You could be a patron in a cinema, theatre or concert hall; a passenger on an airline, boat, bus or train;
a patient at a chiropodist; a tenant in a flat. You can probably think of more. It is quite surprising that
many of these special relationships are now described differently. Residents in care are often called
clients instead of patients. Banks call us customers. The changes in name are brought about by a
recognition of changes in relationships between supplier and customer (such as increased customer
power).
2 The solution will depend upon your choice and your individual circumstances. If you have set down the
five headings and given some thought to each, you may be surprised at what has happened. You
certainly would not want to say 'I don't know why I bought this', especially if it were a large/special
purchase.
3 There is no direct solution for this Activity for obvious reasons. Read the preceding text again carefully
and satisfy yourself that you can really relate the concepts to the life that surrounds you.
4 Fashion, cosmetics, music, magazines and newspapers and cars could figure highly in the marketing
strategies which are influenced by lifestyle factors.
5 There are similarities in that the problem recognition – post-purchase behaviour model is generally
appropriate to both. The main differences are likely to seen in the scale, cost and formality of purchasing
behaviour. Out of these arise the critical consequences of purchase and supply. If the purchasing officers
of a manufacturing organisation make a bad purchase the consequences can be catastrophic for the firm.
It must be borne in mind that the decision to purchase can depend on a number of people in a domestic
group just as in a firm. The difference is that, in a firm the process is almost always a group decision
and/or activity.
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CHAPTER 4
MARKETING RESEARCH
Chapter objectives
An overview of the marketing information system
The scope of different types of research
The range of different types of data
The importance of secondary data
Ethical considerations in marketing research
Topic list
Marketing management and information
Marketing research: an introduction
The stages of the marketing research process
Ethical and social responsibilities
Secondary data, including the internet
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MARKETING
1 Marketing management and information

Firms are becoming increasingly aware of the competitive advantage that may be achieved through the
use of information. Information systems can affect the way the firm approaches customer service –
the very essence of the marketing concept – and can provide advantages over competitor approaches.
Superior customer service can only be achieved by being able to anticipate and satisfy customer needs.
In order to meet this objective, information which is up-to-date, accurate, relevant and timely is
essential.
Good information systems may alter the way business is done and may provide organisations with new
opportunities.
1.1 The organisation's marketing information requirements

Here is a list of questions that managers of marketing projects might need answered.
(a) Markets. Who are our customers? What are they like? How are buying decisions made?
(b) Share of the market. What are total sales of our product? How do our sales compare with
competitors' sales?
(c) Products. What do customers think of our product? What do they do with it? Are our products in
a 'growth' or 'decline' stage of their life cycle? Should we extend our range?
(d) Price. How do our prices compare with others: higher, average, lower? Is the market sensitive to
price?
(e) Distribution. Should we distribute directly, indirectly or both? What discounts are required?
(f) Sales force. Do we have enough/too many salespeople? Are their territories equal to their
potential? Are they contacting the right people? Should we pay commission?
(g) Advertising. Do we use the right media? Do we communicate the right message? Is it effective?
(h) Customer attitudes. What do they think of our product/firm/service/delivery?
(i) Competitors' activities. Who are our competitors? Are they more or less successful businesses?
Why are they more or less successful?
(j) Environmental factors. What factors impact on marketing planning?
Another way of viewing information needs in marketing management is to consider the four key
strategic questions.
Question Examples of information needed Sources of information: forms of

marketing research
Where are we Current sales by product/market Accounting system

now?
Market share by product/market Customer database
Situation
Competitors' market shares Market analysis/surveys
analysis
Customer attitudes and behaviour Competitor intelligence
Corporate image versus competitors' Customer surveys

image
Internal/external analyses
Company strengths and weaknesses
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4: MARKETING RESEARCH
Question Examples of information needed Sources of information: forms of

marketing research
Where do we Market forecasts by segment Industry forecasts/surveys

want to be?
Environmental changes PEST
Setting project
Growth capabilities Competitor research
objectives
Opportunities and threats Product/market research
Competitor response
New product/market potentials
How might we Marketing mix evaluation Internal/external audits

get there?
Buying behaviour Customer research
Shaping the
New product development Concept testing/test marketing
project
Risk evaluation Feasibility studies/competitor response
modelling/focus groups/marketing mix
Alternative strategic options
research
How can we Budgets Internal accounting, production and

ensure arrival? human resource systems
Performance evaluation
Controlling the Marketing information systems
project
Marketing audit
Benchmarking
External (financial) auditing
1.2 The role of information

Yet another useful approach is taken by Wilson who distinguishes four roles for marketing information.
(a) Descriptive information answers questions such as which products are customers buying,
where are they buying them
(b) Comparative information examines how one thing compares with another, for instance how
good is an organisation's after-sales support compared with its competitors.
(c) Diagnostic information is intended to explain customer behaviour: why are they buying less of
product A?
(d) Predictive information attempts to determine the outcome of marketing actions. How would
customers respond if this were made available in larger sized packs, and so on.
Assign the examples of required information listed in the second column of the table above to these
categories: descriptive, comparative, diagnostic and predictive.
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MARKETING
1.3 User specifications for information

It is worth stressing from the outset how important it is that managers specify in advance what their
information needs are. It can be very wasteful of time and money to collect answers to questions that
did not need to be asked or which were the wrong questions!
Key elements of user specifications will include the following.
(a) Rationale. How the need for information arose and what the users intend to do with the
information when they have it, in other words what decisions will be taken.
(b) Budget. In general the benefits of collecting information should be greater than the costs of
collecting it, but benefits in particular are not always easy to quantify. In any case the budget
may be limited by other organisational factors such as availability of cash or a head office
allocation of, say, £5,000 per annum for marketing research purposes. Clearly this will affect the
scale and type of information search that can be carried out.
(c) Timescale. Quite obviously, if the decisions have to be made by May then the information needs
to be collected and analysed before then. Once again this will have an impact on the sale and
type of information search that can be carried out.
(d) Objectives. The precise information needed, set out as clearly as possible. For instance 'To
determine customer response to a price reduction of £250 in terms of repeat purchasing, word-of-
mouth recommendations and willingness to purchase our other products and services'. The
objectives should relate only to the rationale: it might be 'nice to know' what type of car
customers drive, but if this will make no difference to the decisions that will be taken once the
information has been collected, there is no need to know about customers' cars in the first place.
(e) Methods. This need only be an outline, setting out, for instance, the scale of the search, the mix
of quantitative and qualitative information needed, the segments of the market to be included.
(f) Reports. How the final information should be presented. Considerations here might include style
of reports, degree of summarisation, use of charts and other graphics, format for quantitative
information (eg in Excel spreadsheets, for ease of further analysis).
2 Marketing research: an introduction

Strictly speaking marketing research is any kind of information gathering and analysis that aids the
marketing process as a whole (a study of competitors' strengths and weaknesses, say) while market
research is research into the characteristics of a market (France as opposed to India, say, or people
aged under 30 as opposed to people aged over 65).
Marketing research. 'The collection, analysis and communication of information undertaken to assist
decision-making in marketing.' (Wilson) Marketing research includes market research, price research and
so on.
To give you an idea of the scope of marketing research, the various components are summarised below.
58
Research type Application
Market research Forecasting demand (new and existing products)
Sales forecast by segment
Analysis of market shares
Market trends
Industry trends
Acquisition/diversification studies
Product research Likely acceptance of new products
Analysis of substitute products
Comparison of competitors' products
Test marketing
Product extension
Brand name generation and testing
Product testing of existing products
Packaging design studies
Price research Competitor prices (analysis)
Cost analysis
Profit analysis
Market potential
Sales potential
Sales forecast (volume)
Customer perception of price
Effect of price change on demand
Discounting
Credit terms
Sales promotion research Analysing the effect of campaigns
Monitoring/analysing advertising media choice
Evaluation of sales force performance
To decide on appropriate sales territories and make

decisions as to how to cover the area
Copy research
Public image studies
Competitor advertising studies
Studies of premiums, coupons, promotions
Distribution research Planning channel decisions
Design and location of distribution centres
In-house versus outsource logistics
Export/international studies
Channel coverage studies
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3 The stages of the marketing research process

You will find many slight variations on the suggested 'stages' of the market research process, partly
depending on whether you approach marketing research from the point of view of a client or that of a
market research agency. There is fairly general agreement, however, that the process will entail the
following stages, in this order (the process spells DODCAR, if you like mnemonics).
STAGE 1 Definition: identify and define the opportunity or threat
STAGE 2 Objectives: determine precisely what you need to know to deal with the opportunity or
threat
STAGE 3 Design the research and the methods to be used
STAGE 4 Collect the data
STAGE 5 Analyse the data
STAGE 6 Report on the findings
Where an organisation is using an agency or agencies to do the research it will send out a research
brief at the end of Stage 2 and the various agencies that are asked to tender for the work will then
submit research proposals (in outline, at least) covering Stage 3, explaining how they would do the
work and why they should be chosen. Research proposals are discussed at more length in the next
chapter.
The organisation will select its preferred supplier(s) based on the contents and quality of their proposals
(and on other factors such as cost, of course) and then Stage 3 will be undertaken in detail.
3.1 Stage 1: Identify and define the opportunity or threat

We have phrased the heading above so that it reminds you of SWOT analysis, since the identification of
a need for market research will usually arise from strategic and marketing planning processes and
reviews.
(a) An opportunity is something that occurs in the organisation's environment that could be
advantageous – a change in the law, say, or a new technology that could be exploited.
(b) A threat is an environmental development that could create problems and stop the organisation
achieving its objectives – a new competitor, perhaps, or an adverse change in buying
behaviour.
In either case the organisation will want to know more. How can it best take advantage? What action
is most likely to stave off or reverse the problem? The answers will depend on how the market reacts
to different possible solutions, and the organisation can be much more sure about this if it conducts
research.
Bear in mind that marketing research, however well organised, is not a substitute for decision-making. It
can help to reduce the risks, but it will not make the decision. Professional marketing depends partially
on sound judgement and reliable information, but it also needs flair and creativity.
3.2 Stage 2: Determine the objectives of the research

The objectives should set out the precise information needed, as clearly as possible: as already
mentioned, it is very wasteful of time and money to collect answers to questions that did not need to be
asked or which were the wrong questions. The objectives should relate only to the problem or
opportunity. They should be stated carefully, completely and precisely. The SMART mnemonic gives
some clues, though, as we have already discussed, there are several versions of just what this acronym
stands for. Here is one reasonable possibility for the current context.
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(a) They should be as specific as possible; vague objectives will lead to inconclusive, vague
research.
(b) They should relate to measurable matters: quantified information should be the target, but even
when a topic can only be dealt with in qualitative terms, the objectives should require as much
quantification as possible.
(c) They should be attainable with reasonable resources: objectives that are impossible to achieve
are nonsensical.
(d) They should focus on results rather than methods.
(e) They should be time-related: an overall time frame for the research should be agreed, with
suitable progress gates incorporated.
Marketing research can sometimes be a waste of effort and resources.
(a) The research undertaken may be designed without reference to the decisions that will depend on,
or be strongly influenced by, the results of the research.
(b) The research results may be ignored, misused, misunderstood, or misinterpreted. Sometimes this
happens accidentally; more often it is deliberate because the results do not comply with some
senior person's prejudices or established beliefs.
(c) The research may poorly designed or carried out.
(d) The results of the research may be inconclusive, giving rise to different opinions about what the
research signifies.
With issues like this in mind Wilson suggests early consultation and involvement of all parties
involved in implementing the decisions flowing from the proposed research. This has the advantage that
those closest to the project will probably have the best idea of what knowledge the organisation already
possesses and, therefore, does not need to be researched. And it means that the questions that need to
be answered are more likely to be asked.
Your company manufactures cruelty-free beauty products for a number of supermarket chains. You have
been given responsibility for researching the market for a new line of cruelty-free cosmetics. List the
likely research objectives.
Other matters that would be considered at this stage would be the available budget and the
timescale for the work, and perhaps there would be outline thoughts about the methods to be used
(for instance the scale of the research and the segments of the market to be included). All of this
information, together with the requirements for the final report, would be included in the research
brief if the work was now to be put out to tender.
3.3 Stage 3: Design the research and the methods to be used

The category of research must first be decided upon: the methods used will depend on that. Research
may be exploratory, descriptive or causal.
3.3.1 Exploratory research

As the name suggests, exploratory research tends to break new ground. For instance, if your
organisation has a completely new idea for a product or service which consumers have never been
offered before then exploratory research will be most appropriate in the first instance.
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MARKETING
(a) Potential consumers may be totally uninterested, in which case exploratory research will quickly
show that it is best to abandon the idea before any more money is spent on development.
(b) Consumers may not understand how the offer could benefit them, in which case exploratory
research would show that it may be worth simplifying the product and introducing it in a different
way, with different promotional techniques and messages.
(c) On the other hand, consumers may not have responded because the research methods used
were not appropriate, or because the wrong consumer group was chosen: exploratory research
can help to define how more detailed research should be carried out.
Exploratory research may therefore be a preliminary to more detailed development of marketing ideas
or a more detailed research project or it may even lead to abandonment of a product idea.
Research methods should involve as little cost and take as short a time as possible. If use can be made
of existing research by others then that is certainly desirable, as are methods that are not too labour and
cost intensive such as telephone research or limited Internet surveys. (Research methods are covered
later in this book.)
3.3.2 Descriptive research

Descriptive research aims to describe what is happening now (a single snapshot) or what has
happened over a limited period of time (several snapshots).
(a) Now (a 'cross-sectional study'): 'At present 45% of the target market are aware of our product
whereas 95% are aware of Competitor A's product'.
(b) Over time (a 'longitudinal study'): 'During the period of the in-store promotion (February to
April) awareness of our product rose from 45% to 73%'.
In other words descriptive research is useful for answering 'where are we now?' questions, and it can
also be used to summarise how things have changed over a period in time. Published market research
reports are examples of descriptive research: if you subscribe today you will find out 'where you were'
when the report was last published, and if you wait a while for the next edition you will find out how you
have progressed.
The main problem (for researchers) with longitudinal descriptive research is to ensure that their
respondents are either the same people each time or, if that is not possible, that answers from very
similar respondents are aggregated. Research methods are likely to include telephone research, with
the consumer's agreement, and specially invited panels of respondents.
3.3.3 Causal research

Although descriptive research is very common and is much used it may not really tell us the cause of the
event or behaviour it describes. To paraphrase Wilson, virtually all marketing research projects fall
somewhere along a continuum between purely descriptive and purely causal.
For example, the descriptive result 'During the period of the promotion (February to April) awareness of
our service rose from 45% to 73%' appears to suggest a reason for the change, but the only thing we
know for certain is that two to three months have gone by. The change may be little or nothing to do
with the promotion. It may be due to a completely random factor such as temporary unavailability of a
competitor's product, or uncontrolled and unmeasured actions taken by staff, or to other promotional
efforts such as TV ads.
The relationship between variables like this is not formally taken into account in descriptive research.
Causal research attempts to identify and establish the relationship between all the variables, and
determine whether one variable influences the value of others. Experimental research can be carried
out, where one variable is deliberately changed to see the effect, if any, on other variables. The most
obvious example is to see if lowering the price causes sales to rise.
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Research methods might be similar to those for longitudinal descriptive research (panels of consumers
for instance), but the information they are asked to provide will be more extensive and the time span
may be longer The researcher will need to consider the sampling method and parameters (how many
people and of what type), where the people can be found, and the means of obtaining information
(interviews, questionnaires and so on).
3.4 Stage 4: Collect the data

Data can be collected from either primary or secondary data sources.
(a) Primary data is information collected specifically for the study under consideration. Primary
data may be quantitative (statistics), qualitative (attitudes etc) or observational videos of
people browsing in a store, for instance).
(b) Secondary data is data collected for another purpose not specifically related to the proposed
research, for instance all the internal information in the company's marketing information
systems and databases, or information such as published research reports, government
information, newspapers and trade journals and so on.
Secondary data Primary data
What it is Data neither collected directly by the Data that is collected specifically by
user nor specifically for the user, or for the user, at source.
often under conditions unknown to
the user – in other words, data
collected not by YOU but by someone
else for their own purposes or for
general use.
Quantitative, Government reports – in the UK a A survey you conduct with a

'factual' or good example is Social Trends, which questionnaire you have designed,
'objective' contains government statistics about with regard to a sample. You aim to
example British society, employment in get a statistically significant result.
different industries, attitudes and so
An experiment.
on.
A company's published financial

statements summarise and interpret
company transactions data for the
benefit of shareholders, not the needs
of the Research and Analysis project.
Qualitative An article or a book about theories of A focus group you have conducted
example motivation. to talk about motivation.
Advantages Cheap Clear target
Widely available Controlled
Suggests further primary research Up-to-date
Disadvantages Lack of focus Expensive
Time consuming
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Data may also be primarily qualitative or quantitative.
(a) Qualitative research is geared towards gathering non-numeric information about, for instance,
attitudes and motivation, often in the form of pictures and words and using techniques such as
discussion groups.
Qualitative research – research data not subject to quantification or quantitative analysis.
(b) Quantitative research seeks to obtain data in numeric form, often using questionnaires and
surveys.
Quantitative research – studies that use mathematical analysis.
3.5 Stage 5: Analyse the data

This stage will involve getting the data into analysable form by entering it into a computer and using
statistics (for quantitative data) and other means of analysis and summary (qualitative data) to find out
what it reveals.
E X A M P L E
Averages are misleading. Divide the total number of working testicles in the UK by its population and you
arrive at the disconcerting conclusion that the average British citizen has one testicle.
Averages also hide the true complexity of a market. Averages are predicated on ignoring and absorbing
any and all variations or distributions in the data…
Averages are the enemy of market segments. More often than not a marketer will commission research
that could reveal the presence of multiple market segments. But thanks to the application of the trusty
average score, these segments remain hidden from view and any future marketing strategy. There is a
common misconception that you must commission a special piece of research to reveal market
segments. This is only true if you are applying averages to all your market research data. If you venture
beyond the mean and into the heady territory of standard deviation and cluster analysis, any market
research has the potential to reveal the presence of segments.
Averages are also peculiarly inappropriate to marketers because of their inherent focus on the mass at
the expense of the target minority. For example, we can ask consumers how positive they feel about
brand x on a scale of one (very unhappy) to seven (very happy). If we then apply an average to this
data and receive a score of five, we probably conclude that we could do better. However, the score could
indicate a brand that is generally well thought of by most consumers (in which case it is unlikely to
generate large market share when faced with more positively rated competitors), or a brand loved by
20% of the market and disliked by the rest (indicating a brand likely to be wildly successful).
Mark Ritson, Marketing, 14 December 2005
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3.6 Stage 6: Report on the findings

The final report is likely to take the form of a PowerPoint type presentation given to an audience of
interested parties and a detailed written report explaining and summarising the findings, with
appendices of figures and tables and so on.
In putting together the research plan, decisions need to be made under the following headings.
Data sources Primary data (data the organisation collects itself for the purpose)
Secondary data (collected by someone else for another purpose
which may provide useful information)
Type of data required Continuous/ad hoc

Quantitative (numbers)
Qualitative (important insights)
Research methods Observation
Focus groups
Survey
Experiment
Research tools Interviews (semi-structured, structured, unstructured; open v
closed questions)
Questionnaires
Mechanical tools (video, audio)
Sampling technique Sampling unit
(if required) Sample size
Sample procedure
Contact methods Telephone
Mail
Face-to-face
4 Ethical and social responsibilities

Marketing research aims to collect data about people. It could not take place at all if people were not
willing to provide data and that means that it is as much in the interests of the marketing research
industry as it is of respondents for researchers to behave responsibly with the information collected.
4.1 Data protection

Most developed countries have specific legislation to protect the privacy of individuals. Many people
feel unhappy about their personal details being retained by commercial organisations.
4.1.1 The Data Protection Act 1998

Data protection legislation was introduced in the UK in the early 1980s to try to prevent abuses. The
latest version is the Data Protection Act 1998.
The Act is concerned with 'personal data', which is information about living, identifiable
individuals. This can be as little as a name and address: it need not be particularly sensitive
information. If it is sensitive (explained later) then extra care is needed.
The Act gives individuals (data subjects) certain rights and it requires those who record and use
personal information (data controllers) to be open about their use of that information and to follow
'sound and proper practices' (the Data Protection Principles).
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4.1.2 The eight data protection principles

Data must be:
Fairly and lawfully processed

Processed for limited purposes
Adequate, relevant and not excessive
Accurate
Not kept longer than necessary
Processed in accordance with individual's rights
Secure
Not transferred to countries that do not have adequate data protection laws
4.1.3 Fair processing for limited purposes

When an organisation collects information from individuals it should be honest and open about why it
wants the information and it should have a legitimate reason for processing the data.
4.1.4 Adequate, relevant and not excessive; accurate and no longer than necessary
Organisations should hold neither too much nor too little data about the individuals in their list. For
instance, many companies collect date of birth or age range information from their customers, but in
many cases all they actually need to know is that they are over eighteen.
Personal data should be accurate and up-to-date as far as possible. Data should be removed when
it is no longer required for audit purposes or when a customer ceases to do business with the
organisation.
4.1.5 The rights of data subjects

Individuals have various rights including the following.
The right to be informed of all the information held about them by an organisation
The right to prevent the processing of their data for the purposes of direct marketing
The right to compensation if they can show that they have been caused damage by any
contravention of the Act
The right to have any inaccurate data about them removed or corrected
4.1.6 Security
Organisations should make sure that they provide adequate security for the data, taking into account
the nature of the data, and the possible harm to the individual that could arise if the data is disclosed or
lost.
Measures to ensure that access to computer records by staff is authorised (for instance a
system of passwords).
Measures to control access to records by people other than staff. For instance care should be
taken over the siting of computers to prevent casual callers to the organisation's premises being
able to read personal data on screen.
Measures to prevent the accidental loss or theft of personal data, for example back-ups and
fire precautions.
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4.1.7 Overseas transfers

If an organisation wishes to transfer personal data to a country outside the European Economic
Area (EEA) it will either need to ensure there is adequate protection (e.g. a Data Protection Act) for the
data in the receiving country, or obtain the consent of the individual.
4.2 Professional codes of practice

Brassington and Pettitt note that the ethical concerns surrounding marketing research have been the
subject of an ongoing debate in the industry for a long time. As much as consumer research involves
specific groups of consumers, including children and other groups that might be considered vulnerable, it
is essential that the researchers' credibility is maintained and that the highest standards of professional
practice are demonstrated. This is vital if researchers are to maintain the confidence of their clients, as
well as that of the general public and the government, so the industry has established a set of
professional ethical guidelines.
These do not have legal status, but breaches may result in disciplinary action by the professional body,
including barring the transgressor from membership.
The best known code is the ESOMAR code: the full document can be downloaded from the organisation's
website: www.esomar.org.
To what extent do you think it would be ethical for a condom manufacturer to undertake a survey of
fourteen to sixteen-year olds?
5 Secondary data, including the internet

5.1 Internal sources of secondary data
Most employers probably have large amounts of information, not designed for your research, but useful
to you. Monthly management accounts are only part of what is available for your research. And
remember, the accounts department is rarely the driver of a business.
Accounts department Sales and marketing department

Procedures manual Sales reports by region
Management accounts – balance sheets Sales by customer
Financial data Sales by product
Accounting policies Competitor intelligence
Tax details Market prospects and reports
Working capital Customer complaints
Marketing research reports
Brand strategy and values
Distribution chains
Production and operations department Human resources department

Operations data Number of employees
Efficiency and capacity detail Recruitment procedures
Process flow charts Training programmes
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MARKETING
Detailed product costings Staff turnover details

Input prices Details of pay
Supply chain
In many instances internal data is gathered in a relatively unorganised manner and people in the
organisation may have little knowledge of what data is actually available. The growth of marketing
information systems alongside the trend towards the computerisation of all business records can do
much to simplify the organisation and accessibility of internal data.
5.2 External secondary data

It is hard to give detailed rules about where you should look, except that you should search for relevant
data, and try to make use of the Internet.
Books
Books tend to date quickly but can provide a useful tool.
Journals and articles

Academic journals, such as the Harvard Business Review. Again, rather than list them here, you may
be able to find a list from your own college library of what is published – perhaps an article may be
obtained or copied for you.
Other business or current affairs journals and newspapers, such as The Economist, Euromonitor, Asian
Wall Street Journal etc, may have surveys relevant to different business areas.
Trade journals are also useful – most countries have journals produced by relevant trade bodies,
detailing developments in the industry. You can use the Internet to access the web sites of trade
associations. Increasingly, businesses in an industry are setting-up electronic markets.
The Internet is an excellent source of secondary data, if used with care.
(a) For example, you can use a search engine which will bring up web sites of interest. Some web
sites will allow you to download articles, such as the Economist Intelligence Unit, another is
www.ft.com. Many of these will be in PDF (portable document file) format. You will need to
download Adobe Acrobat Reader for this – fortunately Acrobat Reader is free and it is possible
that the site will have a link to Adobe to enable you to download the software yourself.
(b) Your Internet service provider may also refer you to magazines and online newspapers.
Government ministries and agencies

Government agencies are good sources of economic and other statistical information. Most countries
have an agency that provides national statistics. This varies significantly from country to country in terms
of what is produced and the format, but you should be able to find:
(a) Economic data (eg UK Annual Abstract of Statistics)

(b) Social data (eg on population size and structure – social trends)
(c) Market data (eg export promotion)
Regulatory bodies and industry associations

There are many quasi-government and other public sector bodies which can provide data on particular
industry sectors.
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E X A M P L E
The BCCCA (The Biscuit, Cake, Chocolate and Confectionery Association) for example, represents major
manufacturers such as Cadbury, Nestlé, United Biscuits and Ryvita together with over 70 smaller and
specialist manufacturers in this food sector. While representing the interests of the industry through its
PR work, part of the Association's role is to provide industry-specific information for its funding members
and to encourage the sharing of best practice through forums such as its annual conference. The
Association, also however, is a useful source of information for a wide range of interested parties as they
publish papers on a range of subjects such as obesity management and eating behaviours through its
annual publication Snack Facts. In 2006, for example, Snack Facts included research on pupils' attitudes
to school meals. In light of the publicity celebrity chef Jamie Oliver raised concerning the nutritional value
of food in schools, there are likely to be a number of non-snack food organisations (government bodies,
schools and catering providers) who are not members of the trade association but who would benefit
from using this information.
Trade associations are often overlooked as a source of information but marketers who take time to
search for related organisations are often richly rewarded with free information.
5.3 Using secondary data

Secondary data, while not necessarily fulfilling your information needs, can be of great use by:
(a) Setting the parameters, defining a hypothesis, highlighting variables, in other words, helping
to focus on the central problem
(b) Providing guidance, by showing past methods of research and so on, for primary data
collection
(c) Helping to assimilate the primary research with past research, highlighting trends and the
like
Secondary data is used in many business situations, not just in academic research.
Backdrop to primary research

Secondary data may also be used to set the parameters for primary research. In an unfamiliar field,
it is natural that the researcher will carry out some basic research in the area, using journals, existing
reports, the press and any contacts with relevant knowledge.
Substitute for primary research

The (often substantial) cost of primary research might be avoided should existing secondary data be
sufficient. Given the low response rate available for questionnaires, secondary research might do the job
just as well. There are some situations however, in which secondary data is bound to be insufficient.
However, some types of information can only be acquired through secondary data, in particular
trends over time. The historical data published on, say, trends in the behaviour of an industry over
time, cannot realistically be replaced by a one-off study.
5.4 Syndicated services

If the expense of conducting their own surveys is too great, companies and organisations can obtain
general surveys that they can buy into on a shared basis, for example the Nielsen Retail Audit. A
particular form of shared cost research is the omnibus survey, a variety of which are advertised in the
Marketing research Society Newsletters and range from general weekly surveys done by telephone (such
as phonebus) to special sector surveys (for example, Omnicar – motoring, Carrick James – children and
youth, small businesses and so on).
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MARKETING
The advantage is that for a few hundred pounds as opposed to many thousands, a company can ask a
few questions of a reasonably representative sample and have a report sent within two or three weeks.
5.5 Issues to bear in mind in using secondary data
Relevance The data may not be relevant to the research objectives in terms of the data
content itself, classifications used or units of measurement.
Cost Although secondary data is usually cheaper than primary data, some specialist
reports can cost large amounts of money.
Availability Secondary data may not exist in the specific product or market area.
Bias The secondary data may be biased, depending on who originally carried it out
and for what purpose. Attempts should be made to obtain the most original
source of the data, to assess it for such bias.
Statistical Was the sample representative?
accuracy Was the questionnaire or other measurement instrument(s) properly

constructed?
Were possible biases in response or in non-response dealt with and accounted for?
Was the data properly analysed using appropriate statistical techniques?
Was a sufficiently large sample used?
Does the report include the raw data?
In addition, was any raw data omitted from the final report, and why?
Sufficiency Even after fulfilling all the above criteria, the secondary data may be
insufficient and primary research would therefore be necessary.
Marketing research has traditionally been associated with manufacturers of consumer goods. Today, we
are experiencing an increasing number of organisations both profit-making and non-profit, using
marketing research. Why?
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SUMMARY
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MARKETING
SELF-TEST QUESTIONS
1 What does DODCAR stand for?
2 List the eight data protection principles.
3 What are the four key strategic questions which organisations have to ask themselves?
4 What is primary research?
5 What is secondary research?
6 Define qualitative research.
7 How does quantitative research differ from qualitative research?
8 What is syndicated research?
9 List six issues to consider when using secondary data.
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SELF-TEST ANSWERS
1 Definition, Objectives, Design, Collect, Analyse, Report. In other words the marketing research process.
2 Data must be:
Fairly and lawfully processed

Processed for limited purposes
Adequate, relevant and not excessive
Accurate
Not kept longer than necessary
Processed in accordance with individual's rights
Secure
Not transferred to countries that do not have adequate data protection laws
3 Where are we now, where do we want to be, how can we get there, how can we ensure arrival?
(section 1.1)
4 Primary research involves the marketing researcher collecting data for a specific problem which has to be
solved. (section 1.2)
5 Secondary research is based on data which for the most part has been collected for some other purpose.
(section 1.2)
6 Qualitative research is not subject to quantification or quantitative analysis. (section 1.4)
7 Quantitative research involves studies that use mathematical analysis. (section 1.4)
8 Syndicated research is assembled by one organisation and then sold to a number of clients. (section 1.6)
9 Relevance, cost, availability, bias, statistical accuracy and sufficiency. (section 3.5)
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1 We've not given you enough information to enable you to be too precise. You would have much more
information in real life, of course. Your objectives might look something like this:
To collect information about the market for a new line of cruelty-free cosmetics with a view to drawing
up and implementing a marketing plan.
(a) The size of market, value, number of items sold, number of customers
(b) The leading companies and their respective market share
(c) The breakdown of market by type of cosmetic (lipstick, eyeshadow and so on)
(d) Current consumer trends in buying cruelty-free cosmetics (price, colour and so on)
(e) Consumer preferences in terms of packaging and presentation
(f) The importance to consumers of having a choice of colours within the range
(g) The influence on consumers of advertising and promotion that emphasises the cruelty-free nature
of products
Remember that objectives need to be SMART.
Research objectives Example
Specific Size of market for cruelty-free cosmetics not cosmetics

in general
Measurable Respective market share in percentage terms of leading

players
Attainable Good guidance on attitudes to cruelty-free products

rather than absolute confidence
Results focus Interviewing technique is left to the experts
Time-related Information within three months so product can be

marketed for Christmas
2 You should have found this fairly straightforward (eg current sales is descriptive information,
competitors' market share is comparative, buying behaviour is diagnostic, forecasts and budgets are
predictive). Some of the examples could be considered to fit into more than one category. This exercise
is intended to fix the different roles of information in your mind.
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CHAPTER 5
MARKETING RESEARCH TECHNIQUES
Chapter objectives
Basic terminology of market research
The principles of effective questionnaire design
The characteristics and purposes of the various types of interview
How focus groups and projective techniques are used
How a range of surveys are conducted
The use of observation
The use and limitations of research and how data are validated
Topic list
Classification of research
Questionnaires
Interviews
Focus groups
Projective techniques
Survey methods
Observation
Assessing the value and validity of data
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1 Classification of research
Research may be divided into several types.
Desk research is concerned with the collection and analysis of secondary data.
Field research takes place outside the researcher’s laboratory or workplace and generates
primary data by means of direct contact with customers in the marketplace. The data generated
by field research may be subjected to subsequent analysis in a form of desk research.
Research under laboratory conditions will also generate primary data, though it is not, strictly
speaking, field research. However, it is sometimes referred to as such.
Qualitative data collection methods

Qualitative research methods include in-depth interviews, focus groups, group interviews and projective
techniques.
Quantitative data collection methods

Quantitative research methods include: surveys and questionnaires; research panels; observation and
experiments.
2 Questionnaires
The questionnaire is the primary tool of marketing research, a device for delivering questions to
respondents and recording their answers.
2.1 Designing the questionnaire

The first step in any type of survey is the outlining of the information to be obtained. The researcher has
then to develop a set of questions which can be answered correctly by the respondents.
(a) All the factors which seem to have some bearing on the problem must be set out.
(b) These factors must be discussed with people likely to have some special knowledge of the
problem.
Once the list of factors is verified, questions can be drawn up and the questionnaire designed. Each
question should be tested against the following criteria.
(a) What is the interviewer trying to find out by asking this question?
(b) Will all the target respondents understand the question?
(c) Will all the target respondents know how to answer?
(d) Have clear unequivocal instructions been given on the format of the answer?
(e) Having got answers to the question, can they be analysed meaningfully?
The initial draft of the questionnaire should be discussed with colleagues prior to being tested in a pilot
survey.
The table below gives examples of the types of question that can be asked.
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5: MARKETING RESEARCH TECHNIQUES
In practice, both survey and questionnaire design are fraught with difficulties and marketing managers
are well advised to seek the help of experts – preferably experienced members of the Market Research
Society.
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2.2 Common problems with questionnaire designs

There are a number of problems with questionnaires in terms of their design, common pitfalls include:
Asking two questions in one, for example, ‘Do you like and would you buy the new chocolate
flavour milkshake?’
Asking leading questions, for example, ‘Do you think it is right to deprive your child of the chance
to eat a healthier option?’
Using technical or inappropriate jargon
Making the questionnaire too lengthy
Using lots of confusing skips or jumps to different sections (especially in a self-completion survey)
Insufficient or inappropriate response options such as not including an 'other', 'don't know', 'neither' or
'not applicable' option are usually to be avoided. Some researchers use a technique known as 'forced
compliance' whereby they will only offer a set number of options such as 'yes' and 'no' rather than the
ability to choose 'don't know' in order to prevent respondents from 'sitting on the fence' and not
committing themselves. This should only be used in carefully considered circumstances, however,
otherwise the validity of the finding can be disputed.
2.3 Guest comment cards

Guests are often invited to complete and submit comment cards. These usually incorporate some
elements that make them rather like questionnaires, so, potentially, they are subject to the problems
discussed above. They also suffer from the fact that, typically, only a very small percentage of guests will
submit comment cards. These will tend to be those who are particularly pleased or displeased and thus
will not reflect the general level of guest satisfaction. Also, staff may attempt to influence the distribution
and collection of cards in order to manipulate the recording of guest opinion. Nevertheless, such cards
can be useful for revealing common problems.
3 Interviews
The main advantage personal contact methods have over other methods is that they normally achieve a
high response rate and that the likely level of error being introduced into the research results is low.
An interview has been defined as a conversation directed to a definite purpose other than satisfaction
in the conversation itself.
This type of research is most useful in providing the researcher with quantitative data such as 'so
many people said this, or think that or do this'. Fully structured questions should be easy to ask and easy
for respondents to answer. The major limitation of fully structured questionnaires is in their structure.
For example, if the researcher wanted to know which factors appeared to be most important in making
choices about holiday destinations, a fully structured questionnaire may provide the respondent with five
choices which the researcher feels are important. However, if the respondent identified other factors felt
to be important, they would be overlooked.
3.1 Fully structured interviews

In a structured interview, the interviewer presents each interviewee with the same questions in the
same order. This provides quantitative data and enables the responses to be analysed statistically and
allows comparisons to be made between groups of interviewees and over time. Generally, closed-end
questions are used.
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3.2 Unstructured interviews

Interviewers may have a checklist of topics to cover in questioning, but they are free to word such
questions as they wish. Unstructured interviews are a very useful way of capturing data which is
qualitative in nature. Over the course of a number of interviews, questions are likely to become
increasingly focused as the researcher becomes more knowledgeable about the topic under investigation.
Depth interviews are a type of unstructured interview often used in motivational research. Motives
and explanations of behaviour often lie well below the surface. It is a time-consuming and expensive
method of data collection. Taped interviews and analysis of transcripts is often the way in which the
depth interview and subsequent data analysis are conducted.
The strengths of depth interviews include the following.
(a) Longitudinal information (such as information on decision-making processes) can be gathered

from one respondent at a time, thereby aiding clarity of interpretation and analysis.
(b) Personal material can be more easily accessed and discussed.
There are, however, disadvantages to depth interviews.
(a) They are time-consuming to conduct and to analyse. If each interview lasts between one and
two hours, a maximum of three or four per day is often all that is possible.
(b) They are more costly than group discussions.
3.3 Semi-structured interviews

Semi-structured interviews consist of both closed-end questions and open-end questions which
offer respondents a free choice. For example, 'Which factors do you consider most important when
making a choice of holiday destination?' provides the respondent with an open question to which they
may respond freely.
The interviewer may decide to use probing questions such as: 'What other factors are there?' Probing
questions may trigger further responses and the interviewer may be more confident about the data
provided.
3.4 Informal guest feedback

While not strictly a form of interviewing, conversing with and listening to guests is a very important
means of obtaining customer and market data. Front line staff of all kinds can be trained to note and
report guest comments for recording and analysis, while some hotel operators require their managers to
interact frequently with guests, possibly during complimentary social occasions.
4 Focus groups
A focus group is a small group of people, considered to be representative of the target segment, invited
to openly discuss products or issues at their leisure in a relaxed environment. Brassington and Pettitt
Group discussions are useful in providing the researcher with qualitative data which can often provide
greater insight than quantitative data.
Group discussions usually consist of eight to ten respondents and an interviewer taking the role of group
moderator. The group moderator introduces topics for discussion and intervenes as necessary to
encourage respondents or to direct discussions if they threaten to wander too far off the point. The main
emphasis, however, is that the moderator simply guides rather than taking full control of the group by
asking lots of structured questions. General topic ideas are suggested rather than detailed questions.
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Group discussions may be recorded for later analysis and interpretation. Group discussion is very
dependent on the skill of the group moderator. It is inexpensive to conduct, it can be done quickly and it
can provide useful, timely, qualitative data. It is often used at the early stage of research to get a feel for
the subject matter under discussion and to create possibilities for more structured research.
According to Kent the key advantages of group discussions include the following.
(a) The group environment with 'everybody in the same boat' can be less intimidating than other
techniques of research which rely on one-to-one contact (such as depth interviews).
(b) What respondents say in a group often sparks off experiences or ideas on the part of others.
(c) Differences between consumers are highlighted, making it possible to understand a range of
attitudes in a short space of time.
(d) It is easier to observe groups and there is more to observe.
(e) Social and cultural influences are highlighted.
(f) Groups are cheaper and faster than depth interviews.
The principal disadvantages of groups are:
(a) Group processes may inhibit some people from making a full contribution and may encourage
others to become exhibitionistic.
(b) Group processes may stall to the point where they cannot be retrieved by the moderator.
(c) Some groups may take on a life of their own, so that what is said has validity only in the short-
lived context of the group.
Quite often groups are conducted in specially designed research premises which are designed to be
comfortable to put respondents at ease. A common feature of these facilities is a viewing window so
additional researchers can observe without distracting the group.
E X A M P L E
... ICM also commissioned a focus group on the image of the party leaders, asking respondents what
cars they associated with the party leaders (which sounds silly, but is actually a good way of looking at a
brand image). Blair was seen as a defunct Rover or a Lada, David Cameron was seen as BMW 5 Series,
Gordon Brown as a tank, suggesting that Cameron is seen as swish and modern, but perhaps something
associated with the rich rather than normal people, while Brown was seen as strong, straightforward, but
perhaps charmless and brutal. Ming Campbell was seen as an old Jag, which ironically, is what he
actually drives. Or did drive, before it was banished to his garage during the leadership election.
Anthony Wells, http://ukpollingreport.co.uk/blog/archives/171, 15 March 2006
5 Projective techniques
The objective of any projective test is to delve below the surface responses in order to obtain true
feelings, meanings or motivations. The rationale behind projective tests comes from the knowledge that
people are often reluctant to, or cannot, reveal their deepest feelings. In other instances they are
unaware of those feelings because of psychological defence mechanisms.
The most commonly applied projective tests used in market research are word-association tests,
sentence and story completion, cartoon tests and third person techniques.
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5.1 Word-association
A respondent is given a series of single words and then asked to match each with one of their own. The
goal is to elicit quick, unrestrained answers: it can be used to select brand names, advertising campaign
themes and slogans. For example, a cosmetic manufacturer might ask consumers to respond to the
following potential names for a new perfume: infinity, encounter, flame, precious.
5.2 Sentence and story completion

Sentence completion follows the same kind of pattern, eg
The people who shop at Asda are ……….
Asda should really ……..
Story completion is a longer version of sentence completion in which participants are presented with
incomplete scenarios and are asked to complete the story. For example,
Mrs X has just moved into the area. Her new neighbour Mrs Y goes to her home to welcome her. Mrs X
does not know the area and asks Mrs Y for some advice on where to do her shopping. The nearest
supermarket is Asda but she has heard some things about it. What is Mrs Y's reply?
5.3 Cartoon tests

These create a highly projective mechanism by means of cartoon figures or strips, similar to those in
comic books. They can be used to measure the strength of an attitude towards a particular product or
brand.
The cartoon must be sufficiently interesting to encourage discussion but ambiguous enough not to
disclose the nature of the research project. Clues should not be given to the character's positive or
negative predisposition.
5.4 Third person techniques

Rather than asking a respondent directly what they think, it is phrased as 'your friend' or 'some people'
or some other third party. Rather than ask a parent why they do not provide a nutritionally balanced
breakfast, a researcher would ask, 'Why don't some parents provide their children with nutritionally
balanced breakfasts?' The third-person technique is often used to avoid issues that might be
embarrassing or evoke hostility if answered directly by a respondent.
5.5 Role play

Role play provides an opportunity to project one's own feelings in the safety of an assumed identity and
is therefore less threatening and more likely to elicit a truthful response.
Why do you think projective techniques are so called?
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6 Survey methods
6.1 Postal research questionnaires
Postal research questionnaires are sent to respondents for self-completion. The major limitation of postal
research is the low response rate. Anything higher than 10% is considered reasonably good.
Pre-coding the questionnaire makes analysis of the data more straightforward. Tick box questionnaires
are easy for respondents and stand more chance of providing the researcher with a higher response.
Advantages and limitations of postal surveys

Advantages:
Low cost per response
No interviewer bias
Questionnaire length
Limitations:
Questionnaire scope
Respondent interaction
Sampling problems
Response rate problems
Lack of control over respondents
Wrong respondents and so wrong information
What do you consider to be the most appropriate applications for postal surveys?
6.2 Online and e-mail surveys

Increasingly popular, online and e-mail surveys have a number of advantages for researchers due to the
speed in which results can be obtained. When conducting research amongst children in order to
ascertain their preferences in a new range of toothbrushes, the research agency acting on behalf of
Colgate were able to produce preliminary results within 24 hours. The swift nature of this feedback
meant that product designers were able to implement changes to the design and work with the same
group of children in order to track their responses to each modified version.
Advantages and limitations of online and e-mail surveys

Advantages
Low cost
No interviewer bias
Speed of delivery and data collection
Ability to include complex skip patterns moving respondent to a relevant section of the survey,
based on their previous responses, seamlessly
Ability to integrate high quality visual materials
Higher response rate due to the ability for respondents to participate at their convenience
Minimises need for manual data entry and checking
Ability to interact with respondents virtually
Ability to use online technology
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Limitations
Access to certain groups who do not have Internet access
Larger size surveys are likely to be rejected
E X A M P L E
At Crufts 2007, The Kennel Club made use of a computerised virtual survey to conduct research at their
annual dog show. Visitors were able to access the survey from an un-manned research stand at the
show in order to comment on the facilities on offer.
6.3 Interview surveys

Most survey work in the UK is conducted through face-to-face interviews, usually by employees of a
market research company.
Advantages of interview surveys

Their prevalence as a data collection method and the quality of the data collected are probably due to
their obvious advantages.
(a) The interviewer can check the respondent is suitable before beginning the interview.
(b) The use of an interviewer ensures that all questions are answered in the correct order.
(c) The interviewer can check that the respondent has understood the questions and can encourage
respondents to answer as fully as possible.
(d) Response rates are generally higher than with other forms of questionnaire administration.
(e) Where quotas are applied (such as 20 women under 30), the interviewer can ensure that the
target number of interviews is achieved.
(f) Interviewers can attempt to persuade respondents to take part in the survey.
(g) A visual aid known as a 'showcard' can be used to show pictures, response options etc.
Disadvantages of interview surveys

These surveys can be expensive and it is possible that interviewers interfere with objectivity by
unwittingly introducing bias or by creating a particular mood when conducting the interview. For
example, if the interviewer takes too light-hearted an approach it may mean that the respondent treats
the survey in a light-hearted way and data collected is not meaningful as a result.
6.4 Types of interview survey

Interview surveys can be classified according to where they are carried out.
(a) Store/Mall intercept surveys are carried out in busy town centres, especially shopping
centres/malls. The interviewer tends to stand in one position and approaches potential
respondents as soon as the previous interview is completed, thereby eliminating time between
interviews. The interviews need to be brief, however, as respondents are unlikely to want to stop
for more than ten minutes.
(b) In-house (or more accurately door-step) interviews are part of those surveys where
respondent recruitment is door-to-door. Interviewers may be given a list of names and
addressees, or they may be limited to certain areas. Moreover, they may be given additional
information such as call at every fourth house. In contrast to mall intercept interviews, in-house
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interviews may be prearranged by telephone. Such interview methods can be time consuming but
longer interviews than mall intercept surveys are possible (although likely to be interrupted).
Often computer-assisted personal interview technology is used to improve speed and accuracy.
(c) Hall tests refer to interviews carried out in a pre-booked location. Recruitment is usually from a
nearby street and respondents are often given refreshments. Materials, videos and displays can
be used.
(d) In-store surveys may take place in a shop or just outside. Permission will, of course, be needed
from the shop. Recruitment could be on the basis of people leaving or entering the store. A study
of shopping intentions would require recruitment from the latter.
(e) Business interviews will normally take place at the interviewee's place of business but will need
to be arranged in advance.
Choice of respondent
In-house interviewees can be selected using random sampling techniques from the electoral register.
Interviewees for most other surveys will need to be selected using quota sampling or random location
sampling. Geodemographic analysis can be applied.
When training interviewers to undertake a specific personal interview survey, what kind of training is
necessary?
6.5 Panels
Consumer panel data can be gathered at the point-of-sale using bar-coding and related electronic
systems, or in the home by means of home audits, diaries, and more recently, electronic scanners used
in panel households.
Home audits
Home audits involve research staff visiting panel members' homes and, with their permission, physically
checking household stocks of specific products surveyed by the panel. Used packaging is saved by the
panel member and stored in a special container, so that these can also be checked ('dustbin check'). In
addition, respondents usually answer a brief questionnaire.
Diaries
Most panels use some form of diary, which members complete with details of purchases of a range of
food and other frequently purchased products. Some research organisations operate a weekly system of
reporting, which is considered to result in more reliable data than if the time interval is extended, but
costs are obviously a factor.
Electronic scanners
The AGB Superpanel in the UK comprises 10,000 households (33,000 individuals) who are equipped with
electronic scanners, similar to those used at supermarket check-out desks, which record price, place of
purchase and selected brand. This enables rapid trend analysis to be supplied to AGB's clients.
In June 1989, Nielsen launched the Homescan panel, which was the first panel in Europe to use in-home
scanning. This consumer panel, based on 7,100 homes, derived from the Nielsen establishment survey of
80,000 households in the UK and was designed to reflect accurately household purchases of all grocery
items, from fresh and pre-packed foodstuffs to household products, pet foods, toiletries, confectionery
and alcohol.
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Each household is provided with a small, hand-held bar-code scanner and after each shopping trip
purchased items are recorded; data captured include the date, items bought, any promotional offers
applicable, price, quantity and store used. On completion the information is downloaded via a modem to
Nielsen's host computer.
Electronic data capture and transfer allow daily collection of purchasing data, so Nielsen clients can be
provided with up-to-the-minute information and consumers' responses to marketing initiatives. Core data
can vary but standard analyses include: % of households purchasing, % of expenditure, average number
of visits per buyer, average spend per buyer, average spend per visit, brand comparisons, level of trial of
new products, brand loyalty and demographic analyses.
A marketing research company proposes to investigate food purchasing patterns among a sample of
consumers. It intends using diaries as the research instrument. Which areas of food purchasing may the
diaries fail to uncover?
6.6 Telephone surveys

Telephone research is a relatively fast and low cost means of gathering data. It is most useful when
only a small amount of information is required. It has been particularly useful in industrial research,
although the technique has been widely used for consumer research with the growth in home
telecommunications.
Disadvantages
There are a number of disadvantages to using the telephone in research, however.
(a) A biased sample may result from the fact that a proportion of people do not have telephones,
many of those who do are ex-directory and the telephone numbers listed may be outdated.
(b) The refusal rate is much higher than with face-to-face interviews.
(c) The interview must be short.
(d) There is no way to provide visual aids.
Advantages
Advantages associated with telephone research include the following.
(a) A wide geographical area can be covered with no travel costs
(b) There is a compulsion to answer the phone
(c) Efficient call backs can be made
(d) Relatively high response rate
(e) Question modification possible
CATI (computer-assisted telephone interviewing) has been used successfully by insurance services and
banks as well as consumer research organisations. The telephone interviewer calls up a questionnaire on
screen and reads questions to the respondent. Answers are then recorded instantly on computer.
6.7 Exit surveys

Hotel exit surveys use guest comment cards. The design of such cards varies widely: open-end and
closed-end questions are used, together with the various forms of rating scale. There may also be space
for free comment; indeed, some guest comment cards consist exclusively of such comment space plus
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identification data such as name, address, room number and date of stay. The wide variety of formats
means that both quantitative and qualitative data can be obtained.
Identify two marketing research projects for which a telephone questionnaire rather than a mail
questionnaire or personal interview would be more appropriate.
7 Observation
Interviews and questionnaires depend on respondents answering questions on behaviour and attitudes
truthfully. Sometimes it is necessary to observe behaviour, not only because respondents are unwilling
to answer questions but because such questions are unable to provide the researcher with answers.
Observation involves the personal or mechanical (eg video) monitoring of selected activities. It records
actions as they occur and thus there is no lack of accuracy caused by a respondent's faulty recollection of
their past actions or inadequate estimate of future ones.
Three conditions must usually exist if the observation method is to be effectively carried out:
1. The event must be observable: attitudes, motives and other mental activities are difficult to
record
2. The event must occur frequently or be predictable
3. The event must be completed over a short period of time
Observation is often used in shopping studies, especially in retail outlets, when the customer is looking at
the shelves and deciding what to buy. Observations of the in-store environment can include distribution,
shelf price, shelf facings, shelf location, display activity, presence of point-of-purchase material.
Observation within both households and stores typically requires the setting-up of a panel, making it
subject to sampling difficulties and maintaining participation. Another problem is the quality of the data
obtained.
7.1 Observation categories

The major categories of observations are as follows.
(a) Home audit. Also termed indirect observation, this involves the investigation of the respondent's
home, office or premises so as to determine the extent of ownership of certain products/brands.
(Note that the home audit and diary panels are termed consumer panel research.)
(b) Direct observation. This involves the direct observation of the behaviour of the respondent by
the researcher.
(c) Recording devices. Such devices record micro behaviour in laboratory settings and macro
behaviour in natural settings.
(i) Laboratory settings
(1) Psychogalvanometers measure a subject's response to, say, an advertisement by
measuring the perspiration rate.
(2) Eye cameras are used to assess those parts of, for example, an advertisement
which attract most attention and those parts which are neglected.
(3) Pupilometric cameras are used in assessing the visual stimulation derived from
an image.
(ii) In natural settings video and movie cameras are used to record behaviour.
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The use of observation as a data collection method has been stimulated by advances in electronics.
EPOS systems allow firms to observe stock on hand, inflows, outflows and the speed at which stock
items are moving through the store.
Observation techniques can also be qualitative in nature with common research methods including
accompanied shopping, for example where the researcher goes shopping with the respondent and
discusses their behaviour both before, during and after the trip.
A building society branch manager feels that staff are too reluctant to generate sales 'Leads' from
ordinary investors and borrowers which may be passed on to the society's consultants in order that they
can attempt to sell life insurance policies, pensions and unit trusts. You would like to understand the
reasons for their reluctance. As an observer, how would you go about this?
7.2 Experiments
Experimental methods are based within the field of causal research where the relationships between
factors are tested. Experiments are designed with a control group to test whether or not the factor under
investigation accounts for a significant difference in opinion, behaviour or attitude of the sample
respondents. An example marketing research project could be an investigation by a yoghurt
manufacturer to establish the effect of an ingredient change on consumer preference. In this scenario,
the researcher would conduct taste tests where one group of respondents would taste the modified
yoghurt and another 'matched' group (where respondents fitted the same sampling criteria) would taste
the existing recipe. Alternative experimental designs may use just one sample group but make changes
to the factor under investigation over a specified time period.
8 Assessing the value and validity of data

Some approaches to this assessment are outlined below.
(a) Commonsense. Clearly data which is dated, which emanates from dubious sources or which is
based on unrepresentative samples should be treated with extreme caution, if not totally
disregarded.
(b) Statistical approaches. There are a variety of sampling methods for survey data as already
described, which are appropriate to different situations. All of them involve some degree of risk
(some probability of error). The degree of risk of statistical error can, however, be computed as
we have seen.
(c) Expert judgement. 'There are lies, damned lies and statistics.' The same data can be
interpreted differently by different people – you have only to look at differences between
economists or between politicians of different parties on the latest figures to see ample evidence
of this. The following array – 98.7, 98.6, 98.6, 98.4, 98.1, 98.1 – might be regarded by a
statistician as a declining trend but to a marketing manager the figures may represent a very
steady state, especially if they were percentages of actual sales against budgeted sales for the
last six years. In using this approach, therefore, the marketing manager might be wise to consult
more than one expert before making a decision.
(d) The intuitive approach. Some people have a better feel for figures than others and seem able
to judge the value and validity of data intuitively. For example, it is said that Rank Xerox ignored
survey findings that there was no market for a dry copier and in doing so went on to become a
world leader in this field. This approach, while perhaps successful for a chosen few, is not,
however, recommended.
(e) The questioning approach. Always question the origin and the basis of the data. Ask for
further information. An actual spend of 180% of budget is not important if the amount concerned
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is only £10. A much smaller variance on a much larger amount could, however, be quite serious.
Recognise that human errors occur when manipulating data, that bias can occur in questionnaire
design: ask to see the questionnaire, check the figures.
8.1 The limitations of market research

You should be aware that research cannot supply marketers with perfect and comprehensive answers to
all the questions. This may be because the research itself is badly designed (the sample populations
inappropriate, the questions misleading and so on) but it can also happen because systematic research,
by definition, can only ask the questions which exist in marketers' mind and elicit responses within the
framework of respondents' imaginations.
As Nishikawa claims in his 1989 article for the Journal of Long Range Planning, the most important point
in building marketing strategy is not logical analysis or investigative excellence, but creative action. Only
proactive creativity, generating products and services in anticipation of customer needs and
expectations, can create marketing advantage; organisations which are customer driven (as opposed to
being customer focused) are invariably reactive. Responding to declared customer needs is acting too
late for successful marketing: in order to forecast the future, organisations require creativity rather than
responsiveness, challenge rather than passivity.
Nishikawa claims that marketing research linked to new products and services is especially defective,
because of certain features in customer psychology.
(a) Indifference. Customers often provide negative responses to ideas for new products/services
simply because they are indifferent to something they have not thought about or tried before.
(b) Absence of responsibility. People will say more or less anything when responding to research
surveys, often out of a desire to please the researcher.
(c) Conservative attitudes. Most customers choose conventional and familiar products/services. To
put it another way, only about 3% of customers are Early Adopters.
(d) Vanity. Customers will try to put on a good appearance about their motives and will seldom want
to admit that cheapness (for example) was the major reason for a purchase decision.
(e) Insufficient information. Researchers often approach customers with information and ideas
seen from the seller's rather than from the customer's point of view.
One of Nishikawa's key points is that customers are most sincere when spending rather than talking.
8.2 Use of research data

Jobber notes the findings of two studies of Marketing Information Systems and the factors that affect
usage. Systems are used more when:
The system is sophisticated and confers prestige to its users

Other departments view the system as a threat
There is pressure from top management to use the system
Users are more involved in automation
Research into the use of marketing research by Piercy and Evans (1983) showed that use is higher if:
Results conform to the client's prior beliefs

The presentation of results is clear
The findings are politically acceptable
The status quo is not challenged
These findings suggest that marketing researchers need to appreciate not only the technical aspects of
research and the need for clarity in report presentation but also the political dimension of information
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provision. It is unlikely that marketing research reports will be used in decision-making if the results
threaten the status quo or are likely to have adverse political repercussions. The sad fact is that perfectly
valid and useful information may be ignored in decision-making for reasons that are outside the technical
competence of the research.
E X A M P L E
Many growers and retailers, have been misled by surveys suggesting that 70% of consumers would
purchase organic vegetables and fruit. In the event only 11% are doing so, the remainder have
demonstrated by their actions that behaviour and attitudes are not necessarily synonymous. Perhaps
they had not seriously considered the possibility that organic produce would cost more or that it would
look less attractive; quite possibly they gave 'ethically correct' responses when completing a
questionnaire, but had no real intention of acting differently.
8.3 Overall research technique considerations

When designing your research there are a number of decisions to be made in order to be confident that
you have a reliable method. Everything itemised below should be included within the methodology
section of a research proposal together with justified reasons for the choice.
Research philosophy – Exploratory, explanatory or descriptive?
Availability of existing research? – Primary, secondary or both data required?
Research duration? – A longitudinal approach or an ad hoc piece?
Expected quality of the data (how detailed and contextually rich does the data need to
be?) – Qualitative, quantitative or mixed data?
Sampling philosophy and selection
Level of control of the sample that is required?

How easy is it to access to sample?
Actual fieldwork data collection method – In order to assess the suitability of a particular
data collection technique, the following considerations should also be made.
9 Available resources – Cost, time, personnel
9 Sample characteristics
9 Research questions/objectives
9 Depth of questions
9 Sensitivity of questions
9 Extent of prior knowledge or research within the area about the topic under investigation
9 Level of detailed analysis required
9 Distribution issues (eg, how easy would it be to give out questionnaires etc)
9 Expected quality of the data (how detailed and contextually rich does the data need to be)
9 Quantity of data required (does it need to be generalisable?)
9 Importance of high response rates
9 Complexity versus versatility requirements in fieldwork collection
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SUMMARY
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SELF-TEST QUESTIONS
1 What is field research?
2 What are the two disadvantages of depth interviews?
3 How many respondents usually make up a focus group?
4 List three advantages of using focus groups.
5 Where might the third person technique be employed?
6 What does a semantic differential scale consist of?
7 How would you describe a Likert scale?
8 Name three advantages of postal surveys.
9 What is the AGB Superpanel?
10 List three disadvantages of using telephone research.
11 What are the three main categories of observation?
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SELF-TEST ANSWERS
1 Field research takes place outside the researcher’s laboratory or workplace and generates primary data
2 They are time consuming to conduct and analyse, and so are more expensive.
3 Eight to ten respondents and a moderator.
4 The group environment can be less intimidating than a one-to-one interview; group dynamics can
encourage participation; differences between respondents can be highlighted; groups are easy to
observe; social and cultural differences are highlighted; group discussions are cheaper and faster than
depth interviews.
5 When dealing with subjects which may be embarrassing, such as personal hygiene, or those that might
evoke hostility if answered directly by the respondent.
6 The scale consists of a number of bipolar adjectival phrases and statements, each of which has seven
categories.
7 In the Likert method a series of statements is provided and respondents are required to rate each
statement on the basis of the strength of their personal feelings toward it. –2 infers strong disagreement
and +2 strong agreement.
8 Low cost per response, no interview bias and the questionnaire length.
9 It comprises 10,000 households who are equipped with electronic scanners to record their purchases.
10 High refusal rate, incomplete sampling frame and no opportunity to provide visual aids.
11 Home audit, direct observation and the use of recording devices.
1 Spontaneous, impulse purchases such as chocolate and sweets.
Purchased by people who are meant to be on a diet (secret purchases).

Goods not purchased as part of the 'weekly shop' eg milk delivered to the door.
'Top up' purchases during the week, eg fresh vegetables
Takeaway meals.
2 Two market research projects for which a telephone questionnaire rather than a main questionnaire or
personal interview would be more appropriate.
Where the impact of a TV advertising campaign was being assessed. Phone calls could be made
immediately after the advertisements had run to determine who had seen it and what the impact
had been.
Telephone questionnaires are particularly useful when time is short and the study requires a
broad geographic sample. This could be useful in the prototype phase of a new product or service
development.
3 The problem here is that staff behaviour may be modified and so untypical when a senior member of
staff is present. Consideration could be given to using the mystery customer technique to improve the
reliability of results.
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CHAPTER 6
SEGMENTATION AND POSITIONING
Chapter objectives
The general bases on which markets are divided into usable segments
Typical segmentation bases for the travel and hospitality industries
How chosen segments are targeted using the marketing mix
Topic list
Assessing customer groups
Travel and hospitality segmentation
The marketing mix
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MARKETING
1 Assessing customer groups

Ultimately, it is the reaction of the customer that will determine whether or not a strategy was
worthwhile. Careful targeting of specific customer groups is an essential feature of marketing activity and
a marketing strategy must explain which customers are to be targeted, why and how. This will require
the acquisition and presentation of appropriate marketing research information, as covered elsewhere in
this Study Guide.
1.1 Segmentation
A market is not a mass, homogeneous group of customers, each wanting an identical product. Market
segmentation is based on the recognition that every market consists of potential buyers with different
needs, and different buying behaviour.
Market segmentation may be defined as 'the subdividing of a market into distinct and increasingly
homogeneous subgroups of customers, where any subgroup can conceivably be selected as a target
market to be met with a distinct marketing mix'. (Kotler)
There are two important elements in this definition of market segmentation.
(a) Although the total market consists of widely different groups of consumers, each group consists
of people (or organisations) with common needs and preferences, who perhaps react to
market stimuli in much the same way.
(b) Each market segment can become a target market for a firm, and would require a unique
marketing mix if the firm is to exploit it successfully.
1.1.1 Reasons for segmenting markets

The overall purpose of market segmentation is to be able to make sensible marketing decisions.
Reason Comment
Better satisfaction of customer needs One solution won't satisfy all customers
Growth in profits Some customers will pay more for certain benefits
Revenue growth Segmentation means that more customers may be attracted
by what is on offer, in preference to competing products
Customer retention By targeting customers, a number of different products can
be offered to them
Targeted communications Segmentation enables clear communications as people in the
target audience share common needs
Innovation By identifying unmet needs, companies can innovate to
satisfy them
Segment share Segmentation enables a firm to implement a focus strategy
successfully
STEP 1 Identify segmentation variables and segment the market

Segmentation
STEP 2 Develop segment profiles
STEP 3 Evaluate the attractiveness of each segment

Targeting
STEP 4 Select the target segment(s)
STEP 5 Identify positioning concepts for each target segment

Positioning
STEP 6 Select, develop and communicate the chosen concept
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6: SEGMENTATION AND POSITIONING
Jot down possible segmentation variables for adult education, magazines, and sports facilities.
1.1.2 Identifying segments

(a) One basis will not be appropriate in every market, and sometimes two or more bases
might be valid at the same time.
(b) One basis or 'segmentation variable' might be 'superior' to another in a hierarchy of variables.
There are thus primary and secondary segmentation variables.
E X A M P L E
An airport cafe conducted a segmentation exercise of its customers. It identified a number of possible
segments.
• Business travellers
• Airport employees
• Groups
• Single tourists
However, further analysis revealed that running through each of these categories was the same fault
line.
• Those 'in a hurry'

• Those with time to spare
For marketing purposes, this latter segmentation exercise was more useful, and the firm was able to
develop an 'express menu' for those in a hurry.
Jobber identifies three main approaches to segmenting consumer markets.

Behavioural. This is the fundamental form of segmentation, in that it is consumer behaviour that
has direct implications for marketing decisions.
Psychographic. Psychographic segmentation is appropriate when it is believed that consumers’

purchasing behaviour correlates with their personality or lifestyle variables.
Profile. Profile variables such as social class are required in order to define and communicate
with target markets.
The theoretical implication of this is that initial segmentation is carried out in terms of behavioural or
psychographic categories, with the assessment of profile variables forming a second phase, primarily for
purposes of communication. However, Jobber says that, in practice, profile segmentation will be a first
step, with subsequent testing for behavioural differences between the groups identified.
1.2 Behavioural segmentation

Behavioural segmentation segments buyers into groups based on their attitudes to, and use of, the
product. There are five main segmentation bases.
(a) Benefits sought. Benefits might be a simple as flavour in a food product or pleasure from
watching a DVD or as complex as the comfort and status conferred by a stay at a luxury hotel.
The degree of a consumer’s sensitivity to price is also an important benefit segmentation
variable.
Are people always aware of the benefits they seek from a product or service?
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MARKETING
(b) Purchase occasion. Purchase occasion covers such aspects of behaviour as whether the
purchase is seasonal, daily, impulse, as a gift, part of weekly grocery shopping or for
convenience.
(c) Purchase behaviour. Purchase behaviour includes the degree of brand loyalty and how long the
consumer takes after product launch to adopt the product.
(d) Usage. Segmentation can be based on the extent of use of the product, whether heavy,
moderate or light. It can also be based on the occasion of use: for example, whether consumed
alone, in a family setting or as part of a wider social group.
(e) Perceptions, beliefs and values. Segmentation may be based on consumers’ attitudes to the
market and to individual products.
Identify half a dozen products that are targeted at market segments based on perceptions, beliefs and
values.
Benefit segmentation of the toothpaste market
Segment Principal Demographic Special Brands Personality Lifestyle

name benefit strengths behavioural disproportion- character- characteristi
sought characteristics ately favoured istics cs
The Sensory Flavour, Children Users of spear- Colgate, Stripe High self- Hedonistic
segment product mint flavoured involvement
appearance toothpaste
The Brightness Teens, young Smokers Macleans, Ultra- High sociability Active
Sociables of teeth people Brite
The Worriers Decay Large families Heavy users Crest High Conservative
prevention hypochondriasis
The Price Men Heavy users Brands on sale High autonomy Value-oriented
Independent
segment
1.2.1 Risk reduction

A benefit of a product is that it reduces risk. Toothpaste reduces the risk of tooth decay, for example.
This is relevant to the worriers in the table above. Perceptions of risk are often very subjective.
Attitudes to risk are useful in that they offer segmentation opportunities.
(a) Research has indicated high, medium, and low risk segments for producers of professional
services by organisations such as consultants and market research agencies.
(b) Risk can also affect how a product is positioned. According to Marketing Business (January
1997), certain 'food studies identified the feminine image of wine as a risk inhibiting the drinking
of wine in certain segments'.
E X A M P L E
The credit card market in the UK is becoming increasingly fragmented. Newcomers tend to offer lower
interest rates than the mainstream competitors such as Barclaycard. The newcomers target or cherry-
pick certain groups of customers with a good credit history, and who are motivated mainly by price.
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Other card operators offer different customer benefits, by linking their cards to charitable organisations,
so that some of the commission on each transaction goes to charity.
1.3 Psychographic segmentation

Psychographic segmentation is not based on objective data so much as how people see themselves and
their subjective feelings and attitudes towards a particular product or service, or towards life in general.
Jobber suggests that the main bases of psychographic segmentation are lifestyle and personality
characteristics.
Lifestyle dimensions
Activities Interests Opinions Demographics
Work Family Themselves Age
Hobbies Home Social issues Education
Social events Job Politics Income
Vacation Community Business Occupation
Entertainment Recreation Economics Family size
Club membership Fashion Education Dwelling
Community Food Products Geography
Shopping Media Future City size
Sports Achievements Culture Stage in lifecycle
Source: Plummer, J (1974), Journal of Marketing, January, pp33-37.
Taylor Nelson identifies three main groups with sub groups.
(a) Sustenance driven group
(i) Belongers. What they seek is a quiet undisturbed family life. They are conservative,
conventional, rule followers. Not all are sustenance driven.
(ii) Survivors. Strongly class-conscious, and community spirited, their motivation is to get by.
(iii) Aimless. Comprises two groups, (a) the young unemployed, who are often anti-authority,
and (b) the old, whose motivation is day-to-day existence.
(b) Outer directed group
(i) The balance of the belongers.
(ii) Conspicuous consumers. They are materialistic and pushy, motivated by acquisition,
competition, and getting ahead. Pro-authority, law and order.
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MARKETING
(c) Inner directed group
(i) Self-explorers. Motivated by self-expression and self-realisation. Less materialistic than

other groups, and showing high tolerance levels.
(ii) Social resistors. The caring group, concerned with fairness and social values, but often
appearing intolerant and moralistic.
(iii) Experimentalists. Highly individualistic, motivated by fast moving enjoyment. They are
materialistic, pro-technology but anti-traditional authority.
Variations on the lifestyle or psychographic approach have been developed, analysing more precisely
people's attitudes towards certain goods or services. The value of this approach is that it isolates
potential consumer responses to particular product offerings.
E X A M P L E
The Henley Centre for Forecasting has outlined four different kinds of consumers in the market for
technological and media products.
(a) Technophiles (24% of the population) 'are enthusiastic about technology in a general sense and
also show a high level of interest in applications of new technology. They are concentrated among
the under-35s, are more likely to be male than female, and more likely to belong to social grade C1
than AB'.
(b) Aspirational technophiles (22% of the population) 'are excited in a general sense about technology
but are much less interested in its applications. They are more likely to be male than female, and
are concentrated in the AB social grade'.
(c) Functionals (25% of the population) 'claim to be uninterested in technology but are not hostile to
its applications, especially those areas which offer an enhancement of existing services. These
consumers are more likely to be family ... and are most numerous among the over-45s'.
(d) Technophobes (28% of the population) 'are hostile to technology at all levels and are sceptical
about whether technology can offer anything new. Technophobes are concentrated in the over-60
age group, are more likely to be female than male, and are distributed fairly evenly through the
social grades'.
1.4 Profile segmentation

Profile segmentation is of fundamental importance: the segmentation variables are clear and easily
applied and the resulting segmentation is appropriate for the design of marketing communication
strategy. The need to communicate means that even where target segments have been identified using
behavioural or psychographic variables, there may be a need to re-analyse in profile terms in order to be
able to communicate with them.
There are three main types of profile segmentation, though the approaches are generally combined with
one another in modern practice.
Demographic
Socio-economic
Geographic
1.5 Demographic segmentation

Demographic segmentation involves classifying people according to objective variables about their
situation, including age, sex and life cycle stage.
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1.5.1 The family life cycle

The family life cycle (FLC) is a summary demographic variable that combines the effects of age,
marital status, career status (income) and the presence or absence of children. It is able to identify the
various stages through which households progress.
The table below shows features of the family at various stages of its life cycle. Particular products and
services can be target-marketed at specific stages in the life cycle of families.
Figure 6.1: The family life cycle

It is important to remember that the model of the family life cycle shown in the table displays the
classic route from young single to older unmarried. In contemporary society, characterised by divorce
and what may be the declining importance of marriage as an institution, this picture can vary. It is
possible and not uncommon to be young, childless and divorced, or young and unmarried with children.
Some people go through life without marrying or having children at all. Individuals may go through the
life cycle belonging to more than one family group. At each stage, whether on the classic route or an
alternative path, needs and disposable income will change. Family groupings are, however, a key
feature of society.
There has been some criticism of the traditional FLC model as a basis for market segmentation in recent
years. (See, for example, Rob Lawson, 'The Family Life Cycle: a demographic analysis', Journal of
Marketing Management (Summer 1988).)
(a) It is modelled on the demographic patterns of industrialised western nations – and
particularly America. This pattern may not be universally applicable.
(b) As noted above, while the FLC model was once typical of the overwhelming majority of American
families, there are now important potential variations from that pattern, including:
(i) Childless couples – because of choice, career-oriented women and delayed

marriage
(ii) Later marriages – because of greater career-orientation and non-marital

relationships: likely to have fewer children
(iii) Later children – say in late 30s. Likely to have fewer children, but to
stress quality of life
(iv) Single parents – (especially mothers) because of divorce
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MARKETING
(v) Fluctuating labour status – not just in work or retired, but redundancy, career
change, dual-income
(vi) Extended parenting – young, single adults returning home while they
establish careers/financial independence; divorced
children returning to parents; elderly parents requiring
care; newly-weds living with in-laws
(vii) Non-family households – unmarried (homosexual or heterosexual) couples
– divorced persons with no children
– single persons (often due to delaying of first marriage

and the fact that there are more women than men in
the population)
– widowed persons (especially women, because of longer

life-expectancy)
An alternative or modified FLC model is needed to take account of consumption variables such as:
(a) Spontaneous changes in brand preference when a household undergoes a change of status
(divorce, redundancy, death of a spouse, change in membership of a non-family household)
(b) Different economic circumstances and extent of consumption planning in single-parent

families, households where there is a redundancy, dual-income households
(c) Different buying and consumption roles to compensate/adjust in households where the
woman works. Women can be segmented into at least four categories – each of which may
represent a distinct market for goods and services:
Stay-at-home homemaker
Plan-to-work homemaker
'Just-a-job' working woman
Career-oriented working woman
1.6 Socio-economic segmentation

Age and sex present few problems but social class has always been one of the most dubious areas of
marketing research investigation. Class is a highly personal and subjective phenomenon, to the extent
that some people are class conscious or class aware and have a sense of belonging to a particular group.
JICNAR's social grade definitions (A-E), which correspond closely to what are called Social Classes I-V on
the Registrar General's Scale, are often used in quota setting.
1.7 Geographic segmentation

Geographic segmentation is appropriate when there are observable differences in consumption that
correlate with geographic location. Jobber gives the example of beer, which is preferred with a foamy
head in the north of England, whereas effete southerners prefer their beer flat. In Germany, a relatively
large number of local brewers produce beer that satisfies local tastes. Geographic and, especially,
national cultural differences are also important in marketing communications.
1.8 Geodemographic segmentation

Geographic and demographic information is combined in geodemographic segmentation. Social class
information may also be included. For example, the ACORN system divides the UK into 17 groups which
together comprise a total of 54 different types of areas, which share common socio-economic
characteristics.
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Registrar JICNAR
General's Characteristics
Social classes Social grades Social status of occupation (of head of household)
I A Upper middle Higher managerial/professional eg lawyers,

class directors
II B Middle class Intermediate managerial/administrative/

professional eg teachers, managers, computer
operators, sales managers
III C1 Lower middle Supervisory, clerical, junior managerial/

class administrative/professional eg foremen, shop
(i) non-manual
assistants
(ii) manual C2 Skilled Skilled manual labour eg electricians, mechanics

working class
IV D Working class Semi-skilled manual labour eg machine operators
V Unskilled manual labour eg cleaning, waiting

tables, assembly
E Lowest level State pensioners, widows (no other earner),

of subsistence casual workers
From 2001 UK Office for National Statistics used a new categorisation system, reflecting recent changes
in the UK population.
New social
class Occupations Examples
1 Higher managerial and professional occupations
1.1 Employers and managers in larger organisations Bank managers, company directors
1.2 Higher professional Doctors, lawyers
2 Lower managerial and professional occupations Police officers
3 Intermediate occupations Secretaries/PAs, clerical workers
4 Small employers and own-account workers
5 Lower supervisory, craft and related occupations Electricians
6 Semi-routine occupations Drivers, hairdressers, bricklayers
7 Routine occupations Car park attendants, cleaners
How useful are these socio-economic categories for predicting purchasing patterns?
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(a) The 17 ACORN groups are as follows.
The ACORN targeting classification: abbreviated list % of population

A Thriving (19.7%)
A1 Wealthy achievers, suburban areas 15.0

A2 Affluent greys, rural communities 2.3
A3 Prosperous pensioners, retirement areas 2.4
B Expanding (11.6%)
B4 Affluent executives, family areas 3.8
B5 Well-off workers, family areas 7.8
C Rising (7.8%)
C6 Affluent urbanites, town and city areas 2.3
C7 Prosperous professionals, metropolitan areas 2.1
C8 Better-off executives, inner city areas 3.4
D Settling (24.1%)
D9 Comfortable middle agers, mature home-owning areas 13.4
D10 Skilled workers, home-owning areas 10.7
E Aspiring (13.7%)
E11 New home-owners, mature communities 9.7
E12 White collar workers, better-off multi-ethnic areas 4.0
F Striving (22.7%)
F13 Older people, less prosperous areas 3.6
F14 Council estate residents, better-off homes 11.5
F15 Council estate residents, high unemployment 2.7
F16 Council estate residents, greatest hardships 2.8
F17 People in multi-ethnic, low-income areas 2.1
(b) As an example of a more detailed breakdown, group E ('Aspiring') contains the following groups.
E Aspiring (13.7% of population)
E11 New home-owners, mature communities (9.7%)
11.33 Council areas, some new home-owners 3.8
11.34 Mature home-owning areas, skilled workers 3.1
11.35 Low rise estates, older workers, new home-owners 2.8
E12 White collar workers, better-off multi-ethnic areas (4.0%)
12.36 Home-owning multi-ethnic areas, young families 1.1
12.37 Multi-occupied town centres, mixed occupations 1.8
12.38 Multi-ethnic areas, white collar workers 1.1
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Unlike geographical segmentation, which is fairly crude by area, geodemographics enables similar groups
of people to be targeted, even though they might exist in different areas of the country. These various
classifications share certain characteristics, including:
Car ownership
Unemployment rates
Purchase of financial service products
Number of holidays
Age profile
1.9 Segmentation of the industrial market

Segmentation may apply more obviously to the consumer market, but it can also be applied to industrial
markets (also known as organisational markets).
Industrial markets can be segmented with many of the bases used in consumer markets such as
geography, usage rate and benefits sought. Additional, more traditional bases include customer type,
product/technology, customer size and purchasing procedures.
(a) Geographic location. Some industries and related industries are clustered in particular areas.
Firms selling services to the banking sector might be interested in the City of London.
(b) Type of business (eg service, manufacturing)
(i) Nature of the customers' business. Accountants or lawyers, for example, might choose
to specialise in serving customers in a particular type of business. An accountant may
choose to specialise in the accounts of retail businesses, and a firm of solicitors may
specialise in conveyancing work for property development companies.
E X A M P L E
The UK Standard Industrial Classification of Economic Activities 2003 is created by UK National Statistics.
It is a hierarchical five digit system. At the first or highest level of aggregation, it is divided into 17
sections, each denoted by a single letter from A to Q. Some sections are, in turn, divided into
subsections (each denoted by the addition of a second letter). The letters of the sections or subsections
can be uniquely defined by the next breakdown, the divisions (denoted by two digits). The divisions are
then broken down into groups (3 digits), then into classes (4 digits) and, in several cases, again into
subclasses (5 digits). So for example we have:
section D Manufacturing (comprising divisions 15 to 37)
subsection DB Manufacture of textiles and textile products (comprising divisions 17 and 18)
division DB17 Manufacture of textiles
group DB17.5 Manufacture of other textiles class
class DB17.51 Manufacture of carpets and rugs
subclass DB17.51/1 Manufacture of woven carpets and rugs
(ii) Components manufacturers specialise in the industries of the firms to which they
supply components.
(iii) Type of organisation. Organisations in an industry as a whole may have certain needs in
common. Employment agencies offering business services to publishers, say, must offer
their clients personnel with experience in particular desktop publishing packages. Suitable
temporary staff offered to legal firms can be more effective if used to legal jargon. Each
different type of firm can be offered a tailored product or service.
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(iv) Size of organisation. Large organisations may have elaborate purchasing procedures,
and may do many things in-house. Small organisations may be more likely to subcontract
certain specialist services.
(c) Use of the product. In the UK, many new cars are sold to businesses, as benefit cars. Although
this practice is changing with the viability of a 'cash alternative' to a company car, the varying
levels of specification are developed with the business buyer in mind (eg junior salesperson gets
an Escort, Regional Manager gets a Mondeo).
2 Travel and hospitality segmentation

2.1 Profile segmentation
Age and life cycle segmentation is used by many tourism and hospitality businesses:
(a) Heritage museums and historic sites are typically visited largely by older people.
(b) Parents with young children find some fast food outlets to be an economic way of feeding the
family.
(c) ‘Stag’ and ‘hen’ night parties have been prominent users of low-cost airlines and accommodation
in cities offering low-cost entertainment.
(d) Women have been actively targeted by some hotel chains, especially in the design of room
facilities.
2.2 Psychographic segmentation

Consumer lifestyle and social class are important segmentation variables for many bars restaurants
and hotels.
Personality is important in brand management, in that establishments may deliberately reflect the
founder or owner’s personality or promotional efforts may be centred on creating a ‘personality’ for the
establishment or chain itself. The aim is to attract a market segment that sees itself as appreciative of
some of the aspects of that personality, such as good taste or humorousness.
2.3 Behavioural segmentation

Purchase occasion segmentation is particularly valid for hotels, travel companies and restaurants.
(a) Air travel is largely undertaken for reasons connected with business, holidays and family occasions
such as birthdays, anniversaries weddings and graduations.
(b) The honeymoon market segment is important for airlines and hotels.
(c) Extensively promoted calendar events such as Mothers’ day and Valentine’s day; and public
holidays such as Christmas and New Year create demand for travel and hospitality businesses.
User status
Regular users and potential users may be regarded as more important than former users and non-users.
The conversion of first-time users into regular users will be a major marketing priority.
Rate of use
The rate or extent of use, in terms of heavy, medium or light, is important. The Pareto rule that a very
high proportion of sales and profit are generated by a small proportion of customers frequently applies.
Frequent flyer and frequent guest programmes of benefits are based on this idea.
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Loyalty
Loyalty status can be used to segment a market. It is believed that loyal customers are relatively
insensitive to price, while customers who display no brand loyalty often make purchase decisions on
price or convenience.
3 The marketing mix

3.1 Targeting market segments
Undifferentiated marketing: ignores segmentation entirely and supplies a single product or service,
hoping to persuade as many customers as possible to buy it. This is an unsophisticated policy and can be
improved on by segmenting the market. Limited resources, competition and large markets mean that
organisations are not usually able to sell with equal efficiency and success to every market segment. It is
necessary to select target markets. A target market is a particularly attractive segment that will
be served with a distinct marketing mix. There are two policy options.
(a) Concentrated marketing: the company attempts to produce the ideal product for a single
segment of the market (eg Rolls Royce cars for the wealthy).
(b) Differentiated marketing: the company attempts to introduce several product versions, each
aimed at a different market segment. For example, manufacturers of soap powder make a
number of different brands, marketed to different segments.
The major disadvantage of differentiated marketing is the additional costs of marketing a range of
services: higher development, promotion costs and administrative costs; and the loss of economies of
scale. When the costs of further differentiation of the market exceed the benefits from further
segmentation and target marketing, a firm is said to have over-differentiated.
The major disadvantage of concentrated marketing is the business risk of relying on a single
segment of a single market. On the other hand, specialisation in a particular market segment can give a
firm a profitable, although perhaps temporary, competitive edge over rival firms.
It is important to assess company strengths when evaluating attractiveness and targeting a market. This
can help determine the appropriate strategy, because once the attractiveness of each identified segment
has been assessed it can be considered together with relative strengths to determine the potential
advantages the organisation would have. In this way preferred segments can be targeted.
3.2 Product positioning

It is not always possible to identify a market segment where there is no direct competitor, and a
marketing problem for the firm will be the creation of some form of product differentiation (real or
imagined) in the marketing mix of the product. The aim is to make the customer perceive the product as
different from its competitors.
A perceptual map of product positioning can be used to identify gaps in the market. This example might
suggest that there could be potential in the market for a low-price high-quality bargain brand. A company
that carries out such an analysis might decide to conduct further research to find out whether there is
scope in the market for a new product which would be targeted at a market position where there are few or
no rivals.
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MARKETING
High price
Cowboy brands Premium brands
•
•
•
• •
•
Low quality High quality
Economy brands Bargain brands
•
•
•
•
Low price
Figure 6.2: Map of product positioning

Similar matrices to explore possible product positions in terms of, for instance, attributes, applications,
users, occasions for use and specific aspects of quality may be drawn to refine knowledge of product
position.
3.3 The marketing mix
Marketing mix: 'the set of controllable variables and their levels that the firm uses to influence the
target market'. These are product, price, place and promotion and are sometimes known as the four
Ps.
The marketing mix is the means by which a product offering is designed for a target market segment.
Elements in the marketing mix act partly as substitutes for each other and they must be
integrated. This is so the product can be positioned in the market to appeal to the customer. For
example, a firm can raise the selling price of its products if it also raises product quality or advertising
expenditure. Equally, a firm can perhaps reduce its sales promotion expenditure if it is successful in
achieving a wider range and larger numbers of sales outlets for its product.
We will provide you with an overview of the marketing mix here and discuss it in more detail in
subsequent chapters.
3.4 Product
A product (goods or services) is anything that satisfies a need or want. It is not a 'thing' with 'features'
but a package of benefits.
From the firm's point of view the product element of the marketing mix is what is being sold, whether it
be holidays, meals, power stations, haircuts, or financial advice. From the customer's point of view, a
product is a solution to a problem or a package of benefits. Many products might satisfy the
same customer need. On what basis might a customer choose?
(a) Customer value is the customer's estimate of how far a product or service goes towards
satisfying his or her need(s).
(b) Every product has a price, and so the customer makes a trade-off between the expenditure
and the value offered.
(c) According to Kotler a customer must feel he or she gets a better deal from buying an item than
by any of the alternatives.
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The nature of the product
(a) The core product is the most basic description of the product – a hotel room. The actual
product is the room as provided itself, with all its features such as a TV, a minibar and Internet
access. The augmented product is the room plus the benefits that come with it, such as priority
reservations, concierge services and and airport transfers.
E X A M P L E
Asian Alliance Insurance introduced the first ever pet insurance policy, "Alliance Pet Insurance – Deluxe",
in Sri Lanka with a medical and surgical cover for pets in December 2008.
Market feedback indicated a demand for an augmented product . . . This resulted in "Alliance Pet
Insurance – Premier", an extended product designed after careful analysis and research of varied
customer needs and market trends. Customers now have a choice with the type of pet insurance policy
best suited for their pets.
http://www.dailymirror.lk/ 18 May 2009
(b) The product range has two dimensions.
(i) Width. Differentiated marketing determines the width of the product range. A narrow
product range serves only a single market segment.
(ii) Depth. Depth depends on the extent that product options are available.
(c) Benefits offered to the customer. Customers differ in their attitudes towards new products
and the benefits they offer.
Product issues in the marketing mix will include such factors as:
Design (size, shape) Service

Features Packaging
Quality and reliability
3.5 Place
Place deals with how the product is distributed, and how it reaches its customers. Distribution is
particularly important for companies providing physical products, such as bulk catering and janitorial
supplies.
(a) Channel is very important in retail operations. Where are products sold? In supermarkets, corner
shops? Which sales outlets will be chosen?
(b) Logistics. The location of warehouses and efficiency of the distribution system is also important.
A customer might have to wait a long time if the warehouse is far away. Arguably, the speed of
delivery is an important issue in place.
A firm can distribute the product itself (direct distribution) or distribute it through intermediary
organisations such as wholesalers and retailers. Key issues are:
(a) Product push: the firm directs its efforts to distributors to get them to stock the product.
(b) Customer pull: the firm persuades consumers to demand the product from retailers and
distributors, effectively pulling the product through the chain.
Place is particularly important in the travel and hospitality industries, though in a slightly different way:
the location of businesses such as hotels and restaurants is clearly very important to their success,
whether it provides convenience, a picturesque setting or other benefits. Similarly, location is an
important consideration in the development of resorts, while the growth of low-cost airlines has
depended to some extent on the availability of low-cost airports at suitable locations.
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3.6 Promotion
Many of the practical activities of the marketing department are related to promotion. Promotion is the
element of the mix over which the marketing department generally has most control. A useful mnemonic
is AIDA which summarises the aims of promotion.
Arouse attention
Generate interest
Inspire desire
Initiate action (ie buy the product)
Promotion in the marketing mix includes all marketing communications which informs the public of the
product or service.
Advertising (newspapers, billboards, TV, radio, direct mail, internet)

Sales promotion (discounts, coupons, special displays in particular stores)
Direct selling by sales personnel
Public relations
3.7 Price
The price element of the marketing mix is the only one which brings in revenue. Price is influenced by
many factors.
(a) Economic influences: supply and demand; change in demand as price and income change
(b) Competitors' prices. Competitors include other firms selling the same type of product, as well
as firms selling substitute products. Generally, firms like to avoid price wars.
(c) Quality connotations. High price is often taken as being synonymous with quality, so pricing
will reflect the a product's image.
E X A M P L E
Stella Artois lager was once marketed in the UK as being ‘reassuringly expensive’.
(d) Discounts. These can make the product attractive to distributors.
(e) Payment terms (eg offering a period of interest free credit)
(f) Trade-in allowances
(g) The stage in the product life cycle.
(i) Penetration pricing is charging a low price to achieve early market share advantages
(ii) Skimming pricing charging high prices early on to reap the maximum profits.
3.8 The extended marketing mix

This is also known as the service marketing mix because it is specifically relevant to the marketing of
services rather than physical products. The intangible nature of services makes these extra three Ps
particularly important.
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3.8.1 People
The importance of employees in the marketing mix is particularly crucial in service marketing, because
of the inseparability of the service from the service provider: the creation and consumption of the
service generally happen at the same moment, at the interface between the server and the served.
Front-line staff must be selected, trained and motivated with particular attention to customer care and
public relations.
In the case of some services, the physical presence of people performing the service is a vital aspect
of customer satisfaction. The staff involved are performing or producing a service, selling the service and
also liaising with the customer to promote the service, gather information and respond to customer
needs.
3.8.2 Processes
Efficient processes can become a marketing advantage in their own right. If an airline, for example,
develops a sophisticated ticketing system, it can offer shorter waits at check-in or wider choice of flights
through allied airlines. Efficient order processing not only increases customer satisfaction, but cuts down
on the time it takes the organisation to complete a sale.
Issues to be considered include the following.
Policies, particularly with regard to ethical dealings (a key issue for many consumers)
Procedures, for efficiency and standardisation
Automation and computerisation of processes
Queuing and waiting times
Information gathering, processing and communication times
Capacity management, matching supply to demand in a timely and cost effective way
Accessibility of facilities, premises, personnel and services
Such issues are particularly important in service marketing; because of the range of factors and people
involved, it is difficult to standardise the service offered. Quality in particular specifications will vary with
the circumstances and individuals.
Services are also innately perishable: their purchase may be put off, but they cannot be stored.
This creates a need for process planning for efficient work.
3.8.3 Physical evidence

Services are intangible: there is no physical substance to them. This means that even when money has
been spent on them the customer has no evidence of ownership. These factors make it difficult for
consumers to perceive, evaluate and compare the qualities of service provision, and may therefore
dampen the incentive to consume.
Issues of intangibility and ownership can be tackled by making available a physical symbol or
representation of the service product or of ownership, and the benefits it confers. For example, tickets
and programs relating to entertainment; and certificates of attainment in training are symbolic of the
service received and a history of past positive experiences.
Physical evidence of service may also be incorporated into the design and specification of the service
environment by designing premises to reflect the quality and type of service aspired to. Such
environmental factors include finishing, decor, colour scheme, noise levels, background music, fragrance
and general ambience.
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SUMMARY
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SELF-TEST QUESTIONS
1 What name is given to a homogeneous sub-division of a market?
2 How is segmentation linked to innovation?
3 What is the most fundamental approach to market segmentation?
4 Why is profile segmentation needed?
5 What does Jobber suggest are the main bases of psychographic segmentation?
6 State three important real world family situations not covered by the family life cycle model.
7 How could a restaurant make use of psychographic segmentation?
8 How does concentrated marketing differ from differentiated marketing?
9 What are the four Ps of the marketing mix?
10 What does AIDA stand for?
SELF-TEST ANSWERS
1 Market segment
2 By identifying unmet needs, companies can innovate to satisfy them
3 Behavioural segmentation
4 To make it possible to communicate with target markets
5 Personality and lifestyle
6 Childless couples, later marriages, later children, single parents, fluctuating labour status, extended
parenting, non-family households
7 Restaurants can be themed to reflect consumer lifestyle and social class, or to establish an attractive
‘personality’.
8 Concentrated marketing targets a single segment with a single product while differentiated marketing
aims different product versions at different segments.
9 Product, place, promotion and price
10 Attention, interest, desire, action
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MARKETING
1 (a) Adult education
Age
Sex
Occupation
Social class
Education
Family life cycle
Lifestyle
Leisure interest and hobbies
(b) Magazines and periodicals

Sex (Woman's Own)
Social class (Country Life)
Income and class aspirations (Ideal Home)
Occupation (Marketing Week, Computer Weekly)
Leisure interests (Railway Modeller)
Political ideology (Spectator, New Statesman)
Age
(c) Sporting facilities

(i) Geographical area (rugby in Wales, skiing in parts of Scotland, sailing in coastal towns)
(ii) Population density (squash clubs in cities, riding in country areas)
(iii) Occupation (gyms for office workers)
(iv) Education (there may be a demand for facilities for sports taught at certain schools, such as
rowing)
(v) Family life cycle or age (parents may want facilities for their children, young single or
married people may want facilities for themselves)
2 Here are some suggestions
Fairtrade coffee
Clothing displaying a logo
Electric and hybrid cars
Bottled water
Non-disposable nappies
Linen sheets
Private education
Gym and health club membership
National Trust membership
Self-improvement books
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CHAPTER 7
PRODUCT AND PRICE
Chapter objectives
Branding and its impact on marketing mix decisions
Methods for maintaining and managing the brand
How a product or service portfolio is developed to achieve marketing objectives
The new product development process including innovative, replacement, relaunched and imitative products
and the role of innovation
Pricing frameworks available to, and used by, organisations for decision marketing
How pricing is developed as an integrated part of the marketing mix
Topic list
Managing the product
New product development
Brands and branding
Price
Pricing policy
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1 Managing the product

1.1 The product
In the previous chapter, we said that a product (goods or services) is anything that satisfies a need or
want. It is not a 'thing' with 'features' but a package of benefits.
A product may be said to satisfy needs by possessing the following attributes.
(a) Tangible attributes (b) Intangible attributes

Availability and delivery Image
Performance Perceived value
Price Design
These features are interlinked. A product has a tangible price, for example, but for your money you
obtain the value that you perceive the product to have. You may get satisfaction from paying a very
high price for your wine glasses, because this says something about your status in life: the glasses
become part of your self-image.
There are very few pure products or pure services. Most products have some service attributes and many
services are in some way attached to products. We will discuss this in more detail when we consider the
extended marketing mix for services in a later chapter.
Unique selling proposition
The promotion of a product feature as a unique selling proposition (or point) (USP) is an attempt to
differentiate the product from competing products in the eyes of the customer. If successful, such
promotion can have a significant effect on sales. There are three elements to a successful USP.
It offers a specific benefit to the consumer

It is unique: competing products do not have it
It must be attractive enough to influence the purchasing decision
Simple examples of failed attempts to create USPs abound: the arms race between seaside B&B hotels is
a good one. Many years ago, it was enough to advertise hot and cold water in all rooms. Then TVs in all
rooms became necessary. Today we might see boards advertising free broadband Internet, possibly even
in all rooms.
This underlines an important point about USPs: what will be the competitors’ response? If it is to match
the offer very quickly, it may be felt that the temporary increase in sales would not justify the increased
product cost.
1.2 The product life cycle

The product life cycle (PLC) asserts that products are born (or introduced), grow to reach maturity and
then enter old age and decline.
The PLC concept is linked closely to physical products, and particularly to retail products. However, it is
also relevant to services of many kinds.
The product life cycle is an attempt to recognise distinct stages in a product's sales history. In particular,
the profitability and sales position of a product can be expected to change over time. Despite criticisms,
the product life cycle has proved to be a useful control device for monitoring the progress of new
products after introduction.
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7: PRODUCT AND PRICE
Here is the classic representation of the PLC.
Figure 7.1: Product life cycle

(a) Introduction. A new product takes time to find acceptance and there is a slow growth in sales.
Unit costs are high because of low output; there may be early teething troubles with production
technology and prices may be high to cover production and sales promotion costs. Pocket
calculators, video cassette recorders and mobile telephones were all very expensive when
launched. The product, for the time being, is a loss-maker.
E X A M P L E
Starwood Hotels & Resorts Worldwide Inc. is partnering with digital publisher Zinio to provide guests
access to a branded news-stand, offering digital magazines.
The hotel-branded digital news-stands – powered by Zinio – will be accessible for free in Starwood's
guest rooms and lobby kiosks. It will feature select single issues at all Element and Aloft properties and
participating Four Points by Sheraton properties.
Magazines offered will include: Caribbean Travel & Life, Destination Weddings & Honeymoons, Field &
Stream, Golf Fitness Magazine, Kiteboarding, Macworld, mental_floss, Outside, Outside's GO, PC World,
Saveur, Ski Magazine, Skiing, Spa Magazine, U.S. News & World Report, Wakeboarding and Working
Mother. Starwood will be the first hotel company to offer VIVmag (www.vivmag.com), the first
interactive digital women's luxury-lifestyle magazine, conceived and designed exclusively to be read
digitally. Additional international titles will be offered for Starwood's overseas properties.
Starwood is introducing the digital news-stands through on-property marketing and online marketing
efforts beginning with The Element North American and followed by the global rollouts of Aloft and Four
Points by Sheraton. Within the first year, the expected audience-reach for the Zinio partnership will
range between three and five million impressions.
Tanya Irwin http://www.mediapost.com/ 29 May 2009
(b) Growth. Sales will eventually rise more sharply and the product starts to make profits. As
production rises, unit costs fall. Since demand is strong, prices tend to remain fairly static for a
time. However, the prospect of cheap mass production and a strong market will attract
competitors so that the number of producers is increasing. With the increase of competition,
manufacturers must spend a lot of money on product improvement, sales promotion and
distribution to obtain a dominant or strong position in the market.
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(c) Maturity. The rate of sales growth slows down and the product reaches a period of maturity which is
probably the longest period of a successful product's life. Most products on the market will be at the
mature stage of their life. Eventually sales will begin to decline so that there is overcapacity of
production in the industry. Severe competition occurs, profits fall and some producers leave the
market. The remaining producers seek means of prolonging the product life by modifying it and
searching for new market segments.
(d) Decline. Many producers are reluctant to leave the market, although some inevitably do because
of falling profits. If a product remains on the market too long, it will become unprofitable and the
decline stage in its life cycle then gives way to a 'senility' stage.
Can you think of any products that have disappeared in your lifetime or are currently in decline?
E X A M P L E
The technology underpinning the music industry has changed. With easy Internet downloads, you might
assume that the market for CD-singles would disappear, and many music industry people are worried
about this. However, it is possible that people are willing to pay for CDs but not at the prices they are
expected to pay. By 2004, mobile phone ring tones outsold CD singles and earned more revenue for
music companies.
1.3 Buying participants through PLC stages

The introductory stage represents the highest risk in terms of purchasing a new and, as yet, untested
product. Buyers reflect this: they typically consist of the relatively wealthy, to whom the risk of a loss is
relatively small, and the young, who are more likely to make risky purchases.
In the growth and mature stages the mass market needs to be attracted. By the time decline sets in the
product is well tested with all its faults ironed out. At this stage enter the most risk-averse buyers,
termed laggards. These are the mirror image of those who participated in the introductory stage, being
the poorer and older sections of the community.
1.4 How are life cycles assessed?

It is plausible to suggest that products have a life cycle, but it is not so easy to sort out how far through
its life a product is, and what its expected future life might be. To identify these stages, the following
should be carried out.
(a) There ought to be a regular review of existing products.
(b) The future of each product should be estimated in terms of both sales revenue and profits.
(c) Estimates of future life and profitability should be discussed with any experts
available to give advice about product life; costs and revenues; and markets and demand.
Once the assessments have been made, decisions must be taken about what to do with each product.
There are three possibilities.
(a) To continue selling the product, with no foreseeable intention of stopping production.
(b) To initiate action to prolong a product's life, perhaps by advertising more, by trying to cut
costs or raise prices, by improving distribution, or packaging or sales promotion methods, or by
putting in more direct selling effort.
(c) To plan to stop producing the product and either to replace it with new ones in the same line
or to diversify into new product-market areas.
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Costs might be cut by improving productivity of the workforce, or by redesigning the product slightly,
perhaps as a result of a value analysis study.
Where do you consider the following products or services to be in their product life cycle?
Mobile telephones Mortgages

Baked beans Writing implements
Satellite television Car alarms
Cigarettes Organically grown fruit and vegetables
Carbon paper
1.5 Criticisms of the product life cycle

(a) Stages cannot easily be defined.
(b) Some products have no maturity phase, and go straight from growth to decline. Others have a
second growth period after an initial decline. Some have virtually no introductory period and go
straight into a rapid growth phase.
(c) Strategic decisions can change a product's life cycle: for example, by repositioning a product in
the market, its life can be extended. If strategic planners decide what a product's life is going to be,
opportunities to extend the life cycle might be ignored.
(d) Competition varies in different industries, and the strategic implications of the product life cycle
will vary according to the nature of the competition. The traditional life cycle presupposes
increasing competition and falling prices during the growth phase of the market and also the
gradual elimination of competitors in the decline phase. This pattern of events is not always found
in financial markets, where there is a tendency for competitors to follow-my-leader very quickly.
Competition may build-up well ahead of demand. The rapid development of various banking
services is an example of this: for example, with bank cash dispenser cards, when one bank
developed the product all the other major banks followed immediately.
There must be many products that have been around for as long as you can remember. Companies like
Cadbury's have argued that they spend so much on brand maintenance that they should be able to show
a value for their brands as an asset in their accounts (though accountants find this hard to swallow).
Think of some examples of products that go on and on from your own experience and try to identify
what it is about them that makes them so enduring.
E X A M P L E
(a) KitKat was once the UK's most popular confectionary, but has now been overtaken.
(b) Doorstep deliveries of milk are almost a thing of the past: consumers now obtain milk from the
supermarket.
1.6 The strategic implications of the product life cycle

Having made these reservations about product life cycle planning, the strategic implications of the
product life cycle might be as follows.
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Phase
Introduction Growth Maturity Decline
Product Initially, poor quality Competitor's Products become Products even less
Product design and products have more standardised differentiated. Quality
development are a marked quality and differences becomes more
key to success and technical between variable

No standard product differences competing
and frequent design products less

Quality improves
changes (eg distinct
microcomputers in Product reliability
the early 1980s) may be important
Customers Initial customers Customers Mass market Customers are

willing to pay high increase in sophisticated buyers
Market saturation
prices number of a product they
Repeat-buying understand well
Customers need to
be convinced about Markets become
buying segmented
Marketing High advertising High advertising Segment specific Less money spent on
issues and sales promotion costs still, but as a advertising and sales
Choose best
costs % of sales, costs promotion
distribution
are falling
High prices possible
Brand image
Prices falling
Distribution
problematic More distributors
Competition Few or no More competitors Competition at its Competitors gradually

competitors enter the market keenest: on exit from the market
prices, branding,
Barriers to entry Exit barriers can be
servicing
can be important important
customers,
packaging etc
Profit High prices but High prices. High Falling prices but Still low prices but
margins losses due to high contribution good profit falling profits as sales
fixed costs margins, and margins due to volume falls, since
increasing profit high sales volume total contribution falls
margins towards the level of
High prices in
fixed costs Some
High P/E ratios for some market
increases in prices
quoted companies segments
may occur in the late
in the growth
decline stage
market
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2 New product development

Innovation is the life blood of a successful organisation and the management of innovation is central to
this success.
(a) New products may be developed as a result of a technical breakthrough, or as a consequence

of changes in society, or simply to copy and capitalise on the success of existing products. They
may therefore be a reactive response to competitive innovation.
(b) Management, however, can adopt a proactive approach to product development by

establishing research and development departments to look into ideas for new products, although
they do not have to come through this formal departmentalised system. Management, sales
people, customers and competitors can all generate new product ideas.
2.1 What is a new product?

One that opens up an entirely new market
One that replaces an existing product
One that broadens significantly the market for an existing product
An old product can be new
If it is introduced to a new market

If it is packaged in a different way
If a different marketing approach is used
If a mix variable is changed
Any new product must be perceived in terms of customer needs and wants.
Can you think of examples of new products and 'new' old products to fit into each of the above
categories?
There are several degrees of newness.
(a) The unquestionably new product. Marks which distinguish such a new product include
technical innovation, high price, performance problems and patchy distribution. An example is the
MP3 music player.
(b) The partially new product, such as the cassette tape recorder. The mark distinguishing such a
product is that it performs better than the old ones did. An example would be the Pentium
microchip.
(c) Major product change, such as the transistor radio. The mark distinguishing this product is the
radical technological change which alters the accepted concept of the order of things.
(d) Minor product change, such as styling changes. It is these extras which give a boost to a
product.
E X A M P L E
Organic food
Many retailers are switching to organic foods and adding organic food to their portfolios.
Firms such as Seeds of Change and Green & Blacks make branded organic products. Other firms produce
organic versions of their existing brands (such as organic Weetabix).
There is evidence that the market for organic food is a growth market. New entrants, such as Seeds of
Change, have an opportunity.
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It is useful to think of new products under the following headings
(a) Replacement product – a product intended to take over market position of an established
product reaching the decline stage of its life cycle eg in cosmetics, probably a product revitalised
by a new name, packaging or promotion.
(b) Relaunched product – a newish product that has not achieved its planned market success –
relaunch will be largely based on new promotion, but may include other features of the marketing
mix such as improved distribution, changed price and possibly, in extreme cases changes to the
core product itself, eg the Marks and Spencer Autograph cosmetics range was relaunched with
new packaging in Spring 2003.
(c) Imitative product – a 'me too' or ‘copy cat’ product introduced to exploit the market created by
a competitor's unprotected product – probably with a small price advantage – similar to an 'own
brand' product, eg Boots 17 and No 7 brands of cosmetics.
E X A M P L E
Gillette and Duracell
In May 2003 the Financial Times reported on changes being made to Gillette by the recently appointed
CEO. One aspect concerned was product development.
In 1996 Gillette acquired Duracell, the battery maker. Gillette had had great success with introducing
improved razors; once customers had used them they were convinced of their higher quality and were
prepared to pay a premium for them.
Gillette tried a similar policy with a superior Duracell battery called the Ultra. This new product failed to
impress. It turned out that customers did not want better batteries, they wanted cheaper ones. The
traditional Gillette product-led strategy had failed with batteries.
By 2003 Gillette was shifting promotional spending from batteries towards blades and razors.
3 Brands and branding

A brand is a name, term, sign, symbol or design intended to identify the product of a seller and to
differentiate it from those of competitors. It amounts to a promise of consistent quality and value.
Not long ago most products were sold unbranded from barrels and bins. Today in developed countries
hardly anything goes unbranded. Even salt, oranges, nuts and screws are branded. There has however
been a limited return recently to generics. These are cheap, unbranded products, packaged plainly and
not heavily advertised.
Branding is a very general term covering brand names, designs, trademarks, symbols, jingles and the
like. A brand name refers strictly to letters, words or groups of words which can be spoken. A brand
image is created by the values the company would like to be associated with the brand and distinguishes
a company's product from competing products in the eyes of the user.
Branding and reputation are linked. the important thing to remember is that a brand is something that
customers value: it exists in the customer's mind. A brand is the link between a company's marketing
activities and the customer's perception.
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E X A M P L E
In suburban Philadelphia is a retail establishment called Ed's Beer Store. It's a wonderfully prosaic one.
Customers know what they can buy there, and if they have a complaint they know whom to talk to.
But what about companies with names like Agere, Agilent or Altria? Or Diageo, Monday and Verizon? Or
Accenture, Cingular and Protiviti?
Except for Monday, which may be a strange thing to call a company but it is nonetheless a real word, all
these names are fabricated. What's more, none of them, even Monday, tells potential customers
anything about the businesses they are in. Plus, they sound so contrived that you might conclude they
will do nothing but elicit snickering and confusion in the market place.
According to marketing professors at Wharton, however, that is not necessarily the case. They say
peculiar names, by themselves, may mean nothing to begin with. But if backed by a successful branding
campaign, they will come to signify whatever the companies want them to mean.
What characteristics do the following brand names suggest to you?
Brillo (scouring pads) Hush Puppies (shoes)

Pampers (baby nappies) Bombay Sapphire (Gin)
Cussons Imperial Leather (soap) Seeds of Change (organic food)
Kerrygold (butter) Smile (internet bank)
Branding is a form of product differentiation.
(a) Brand identity conveys a lot of information very quickly and concisely. This helps customers
readily to identify and select the goods or services and so helps to create a customer loyalty to
the brand. It is, therefore, a means of increasing or maintaining sales.
(b) Advertising needs a brand name to sell to customers, and advertising and branding are very
closely related aspects of promotion; the more similar a product (whether an industrial good or
consumer good) is to competing goods, the more branding is necessary to create a separate
product identity.
(c) Branding leads to a readier acceptance of a manufacturer's goods by wholesalers and

retailers.
(d) It facilitates self-selection of goods in self-service stores and also makes it easier for a
manufacturer to obtain display space in shops and stores.
(e) It reduces the importance of price differentials between goods.
(f) Brand loyalty in customers gives a manufacturer more control over marketing strategy and
his choice of channels of distribution.
(g) Other products can be introduced into a brand range to 'piggy back' on the articles already known
to the customer (but ill-will as well as goodwill for one product in a branded range will be
transferred to all other products in the range). Adding products to an existing brand range is
known as brand extension strategy.
(h) It eases the task of personal selling.
(i) Branding makes market segmentation easier. Different brands of similar products may be
developed to meet specific needs of categories of users.
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MARKETING
The relevance of branding does not apply equally to all products. The cost of intensive brand advertising
to project a brand image nationally may be prohibitively high. Goods which are sold in large numbers, on
the other hand, promote a brand name by their existence and circulation.
Where a brand image promotes an idea of quality, customers will be disappointed if their experience of a
product fails to live up to their expectations. Quality control is therefore an important element in
branding policy. It is especially a problem for service industries such as hotels and airlines, where there is
less possibility than in a manufacturing industry of detecting and rejecting the work of an operator before
it reaches the customer. Bad behaviour by an employee in a face-to-face encounter with a customer will
reflect on the entire company and possibly deter the customer from using any of the company's services
again.
The decision as to whether a brand name should be given to a range of products or whether products
should be branded individually depends on quality factors.
(a) If the brand name is associated with quality, all goods in the range must be of that standard.
An example of a successful promotion of a brand name to a wide product range is Virgin.
(b) If a company produces different quality (and price) goods for different market segments, it would
be unwise to give the same brand name to the higher and the lower quality goods because this
would deter buyers in the high quality/price market segment.
3.1 Branding strategies

Branding strategy Description Implies
Family branding The power of the family name Image of family brand
to help products applicable across a range of
goods
Brand extension (or Adding new products to the High consumer loyalty to
stretching) brand range existing brand
Multi-branding Different names for similar Consumers make random

goods serving similar purchases across brands
consumer tastes
Family branding: the power of the family name to assist all products is being used more and more by
large companies, such as Heinz. In part, this is a response to retailers' own-label goods. It is also an
attempt to consolidate highly expensive television advertising behind just one message rather than
fragmenting it across the promotion of numerous individual items. Individual lines can be promoted more
cheaply and effectively by other means such as direct marketing and sales promotions.
Brand extension: new additions to the product range are beneficial for two main reasons.
(a) They require a lower level of marketing investment (part of the image already being
created).
(b) The extension of the brand presents less risk to consumers who might be worried about trying
something new. Recent examples of brand extension include Easy Jet transferring into car rental
and Internet Cafes.
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Multi-branding: the introduction of a number of brands that all satisfy very similar product
characteristics.
(a) This can be used where little or no brand loyalty is noted, the rationale being to run a large
number of brands and so pick up buyers who are constantly changing brands.
(b) The best example is washing detergents. The two majors, Lever Brothers and Proctor & Gamble,
have created a barrier to fresh competition as a new company would have to launch several
brands at once in order to compete.
A manufacturer might supply large retailers with goods under their own brand names, (own label or
dealer brands). The major examples are the own brands of supermarkets and major chain stores (eg
Tesco, Sainsbury's and St Michael for Marks & Spencer). This industrial structure has developed for
several reasons.
(a) A high level of sales may be necessary to cover fixed costs of production; supplying dealer
branded goods may be a way of achieving a profitable sales level. New market segments can be
covered profitably at less risk and outlay to the producer.
(b) Large retailers with a high sales turnover and considerable control over the retail trade may insist
on having their own brand, and supplying dealer branded goods may be essential to retain
their business.
(c) A manufacturer may wish to concentrate on production only, leaving the problem of design,
quality and distribution to a multiple retailer.
3.2 Brand management

It is usual to appoint a marketing professional to manage a brand, or group of brands. This brand
manager is responsible for the long-term integration of the corporate effort that goes into making the
brand a success. A matrix style of management is indicated here, since the brand manager is unlikely to
have direct authority over the resources needed by the brand. Inputs will be required from all
departments and top management is likely to take a close interest. The primary role of the brand
manager is therefore co-ordination. The job may require a small team of marketing people for each
major brand.
The most important aspect of this co-ordination is the promotion of customer orientation. The brand
manager must be the focus for all communication to and from the customer. In particular, complaints
should be dealt with by the brand management team.
A secondary role for the brand manager is to act as the brand's advocate in the internal contest for
organisational resources.
3.3 Brand values

We have already said that that a brand amounts to a promise of consistent quality and value. The overall
object of branding is that the customer should perceive greater value in the branded good than in the
unbranded equivalent. There may be some objective basis for this perception, but much brand value in
fact exists exclusively in the mind of the purchaser. The customer places a subjective valuation on such
brand messages as style, quality, masculinity, sophistication and reliability. These are known as brand
values.
Clearly, such customer perceptions are extremely valuable and can lead to higher than average returns.
They must also be protected from erosion or dilution of brand values by neglect or the hostile action of
competitors. Manufacturers of exclusive brands will, therefore, go to great lengths to ensure that they
are distributed only through up-market outlets, for instance.
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E X A M P L E
Just how does the Queen’s grocer respond to an economic downturn? Well, no retailer can ever afford to
stand still. This is especially true in tough economic times.
This is not empty rhetoric. In March, Waitrose undertook strategically our biggest and most important
launch ever, with Essential Waitrose.
The Essential Waitrose range consists of more than 1,400 affordable, everyday food and non-food lines
priced to offer the very best value to our customers.
It features fresh new packaging to ensure customers can easily identify and navigate through the various
price points straddled by our own-label products – our research had shown this was an issue that we
needed to address.
However, as our latest television ad campaign that begins airing this week will make clear, Essential
Waitrose is not an economy or value range. Some press commentators, keen to reinforce the depth of
the recession, presented our launch in this way but they are wrong.
All products sold under the Essential Waitrose banner are produced to the same high specifications they
have always been by producers who share our values; the packaging and many of the prices may have
changed but the quality has not. To have done anything else would have contradicted all our brand
values.
Mark Price, MD of Waitrose, 29 May 2009
3.4 Global brand decisions

For the international company marketing products which can be branded there are two further policy
decisions to be made. These are:
(a) If and how to protect the company's brands (and associated trademarks).
(b) Whether there should be one global brand or many different national brands for a given product.
The major argument in favour of a single global brand is the economies of scale that it produces,
both in production and promotion. But whether a global brand is the best policy or even possible
depends on a number of factors.
3.5 Legal considerations

(a) Legal constraints may limit the possibilities for a global brand, for instance where the brand name
has already been registered in a foreign country.
(b) Protection of the brand name will often be needed, but internationally is hard to achieve because:
In some countries registration is difficult
Brand imitation and piracy are rife in certain parts of the world.
3.6 Cultural aspects

Even if a firm has no legal difficulties with branding globally, there may be cultural problems, such as
unpronounceable names, names with other meanings (undesirable or even obscene).
There are many examples of problems in global branding, for example Maxwell House is Maxwell Kaffee
in Germany, Legal in France and Monky in Spain. But sometimes a minor spelling change is all that is
needed, such as Wrigley Speermint in Germany.
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3.7 Threats to the brand

There are three main threats to a brand.
(a) Competition. Brands must be protected against competition. The principle way of doing this is
by promotion aimed at establishing the brand's unique identity and values.
(b) Infringement of intellectual property rights. Trademarks, designs and text are all forms of
intellectual property and can be granted legal protection against unlicensed use.
(c) Generic names. A brand can be too successful. If a brand name comes into common, everyday
use as the generic name of a particular type of product, its owners may forfeit their rights over it.
It is for this reason that Rolls-Royce take action against claims that such-and-such a product is
the 'Rolls-Royce' of its market. It is important that 'Rolls-Royce' does not become established in
everyday speech as a synonym for best. Nylon and aspirin were once brand names.
4 Price
Assuming it is acceptable to the customer and a sale is made, price measures the value created by the
seller.
Pricing is the only element of the mix which generates revenue rather than creating costs. It also has an
important role as a competitive tool to differentiate a product and an organisation and thereby exploit
market opportunities. Pricing must be consistent with other elements of the marketing mix since it
contributes to the overall image created for the product. No organisation can hope to offer an exclusive
high quality product to the market with a low price – the price must be consistent with the overall
product offer.
In what circumstances would you expect price to be the main factor influencing a consumer's choice?
Although pricing can be thought of as fulfilling a number of roles, in overall terms a price aims to
produce the desired level of sales in order to meet the objectives of the business strategy. Pricing must
be systematic and at the same time take into account the internal needs and the external constraints of
the organisation.
The ultimate objective of pricing, as with other elements of the marketing mix, is to produce the required
level of sales so that the organisation can achieve its specified objectives. Two broad categories of
objectives may be specified for pricing decisions; not mutually exclusive, but different nonetheless.
(a) Maximising profits is concerned with maximising the returns on assets or investments. This
may be realised even with a comparatively small market share depending on the patterns of cost
and demand.
(b) Maintaining or increasing market share involves increasing or maintaining the customer base
which may require a different, more competitive approach to pricing, while the company with the
largest market share may not necessarily earn the best profits.
Either approach may be used in specifying pricing objectives, and they may appear in some combination,
based on a specified rate of return and a specified market share. It is important that stated objectives
are consistent with overall corporate objectives and corporate strategies.
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4.1 Price setting in theory

Economic theory suggests that price for any good is set by market forces. Under conditions of perfect
competition, an equilibrium price will exist such that demand and supply are perfectly matched and
there is neither surplus or shortage of the good in question.
This simple mechanism gives a reasonable picture of commodity markets, in which there are many
buyers and sellers and none has significant market power; that is, the ability to influence price other
than by buying and selling relatively small quantities. Many businesses will strive to avoid commodity
status for their products so that they can influence the prices they are able to charge.
4.2 Price setting in practice

There are three main types of influence on price setting in practice: costs, competition and demand.
4.2.1 Costs
In practice, cost is the most important influence on price. Many firms base price on simple cost-plus
rules: in other words, costs are estimated and then a profit margin is added in order to set the price.
This method is fairly easy to apply and ensures that costs are covered. Costs are usually available from
accounting records, sometimes in great detail.
The price may be based on direct costs or full costs, the difference being that full cost includes
overheads whereas direct cost does not.
E X A M P L E
A hotel accountant finds that the following costs count as overheads, in that they have to be paid
whether any guests are accommodated or not
Rent Franchise fees
Rates Building insurance
Overdraft interest Telephone system rental
Each time a guest stays for one night in a single room, costs of the items, below, are incurred.
These are direct costs: they do not occur if no guests are accommodated
Laundry Confirmation correspondence
Janitorial and toiletry supplies Breakfast food items
Airport transfer motor fuel Kitchen fuel
A suitable margin is added to either direct or full cost. Under the direct cost method this has to cover
overheads as well as profit. Under the full cost method, the margin represents profit only. While
appearing to ignore demand, this method can take account of market conditions by adjusting the margin
applied.
The advantage of using direct costs is that it makes use of the concept of contribution.
The contribution from the sale of a product is its selling price minus the direct costs of providing it to
the customer.
‘Contribution’ is an abbreviation of the phrase ‘contribution to overheads and profit. The importance of
contribution is that in the short-run, sales at a price that covers direct costs and achieves some payment
to overheads are worth making, even if they do not achieve a profit margin. So-called ‘contribution
pricing’ is therefore a useful approach for setting promotional prices during low season or in times of
economic downturn. Some contribution is better than none at all.
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The problems with cost-plus pricing arise out of difficulties in defining direct costs and allocating
overheads, and with over- or under-estimation of attainable sales levels. Because the full cost-plus
approach leads to price stability, with price changing only being used to reflect cost changes, it can lead
to a marketing strategy which is reactive rather then proactive. In addition, there is very limited
consideration of demand in full cost-based pricing strategies. From a marketing perspective, full cost-
based pricing may lead to missed opportunities as little or no account is taken, particularly in the
short-run, of the price consumers are willing to pay for the brand, which may actually be higher than
the cost-based price.
4.2.2 Competition
In some market structures price competition may be avoided by tacit agreement leading to
concentration on non-price competition; the markets for cigarettes and petrol are examples of this. Note
that explicit agreement to fix prices is illegal. Price-setting here is influenced by the need to avoid
retaliatory responses by competitors resulting in a breakdown of the tacit agreement and so to
price competition. Price changes based on real cost changes are led in many instances by a
representative firm in the industry and followed by other firms. From time-to-time tacit agreements break
down leading to a period of price competition. This may then be followed by a resumption of the tacit
agreement. Often such actions are the result of external factors at work on the industry. Industry level
agreements do not necessarily preclude short-term price competition for specific brands, especially
where sales promotion devices, such as special offers, are used.
There is at least one service industry in which this practice is the norm and which is regularly reported in
the headlines. Can you think of it?
4.2.3 Demand
Rather than cost or competition as the prime determinants of price, a firm may base pricing strategy
on the intensity of demand. Cost and competition factors, of course, remain influences or constraints
on its freedom to set price. Strong demand may lead to a high price, and weak demand to a low
price: much depends on the ability of the firm to segment the market in terms of price sensitivity.
Whenever there is a single price for a good, consumers who would pay a higher price effectively enjoy a
benefit. If such consumers can be identified and a higher price charged to them, the supplier obviously
benefits. This is called price discrimination or differential pricing.
In practice, implementing differential pricing can be very difficult. There are a number of bases on which
discriminating prices can be set.
(a) By market segment. A cross-channel ferry company would market its services at different
prices in England, Belgium and France, for example. Services such as cinemas and hairdressers
are often available at lower prices to old age pensioners and juveniles.
(b) By product version. Many car models have 'add on' extras which enable one brand to appeal to
a wider cross-section of customers. Final price need not reflect the cost price of the add on extras
directly: usually the top of the range model would carry a price much in excess of the cost of
provision of the extras, as a prestige appeal.
(c) By place. Theatre seats are usually sold according to their location so that patrons pay different
prices for the same performance according to the seat type they occupy.
(d) By time. This is perhaps the most popular type of price discrimination.
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E X A M P L E
Off-peak travel bargains, hotel prices, telephone and electricity charges are all attempts to increase sales
revenue by covering variable but not necessarily average cost of provision. UK rail operators are
successful price discriminators, charging more to rush hour rail commuters whose demand is inelastic at
certain times of the day.
5 Pricing policy
Price sensitivity will vary amongst purchasers. Those who can pass on the cost of purchases will
be least sensitive and will respond more to other elements of the marketing mix.
(a) Provided that it fits the corporate budget, the business traveller will be more concerned about
the level of service and quality of food in looking for an hotel than price. In contrast, a family on
holiday are likely to be very price sensitive when choosing an overnight stay.
(b) The corporate purchasing manager is likely to be more price sensitive than the actual
business traveller who might be the actual user of the travel and hospitality services being
sourced. The traveller and the purchasing manager are using different criteria in making the
choice. The traveller places product characteristics as first priority, the purchasing manager is
more price-oriented.
5.1 Factors affecting price decisions
5.1.1 Competitors' actions and reactions

An organisation, in setting prices, sends out signals to rivals. These rivals are likely to react in
some way. In some industries (such as petrol retailing) pricing moves in unison; in others, price changes
by one supplier may initiate a price war, with each supplier undercutting the others.
5.1.2 Suppliers
If an organisation's suppliers notice that the prices for an organisation's products are rising, they may
seek a rise in the price for their supplies to the organisation, arguing that it is now more able to pay
a higher price. This argument is especially likely to be used by the trade unions in the organisation when
negotiating the 'price' for the supply for labour.
5.1.3 Inflation
In periods of inflation the organisation's prices may need to change in order to reflect increases in the
prices of supplies, labour, rent and so on. Such changes may be needed to keep relative (real) prices
unchanged (this is the process of prices being adjusted for the rate of inflation).
5.1.4 Quality connotations

In the absence of other information, customers tend to judge quality by price. Thus a price
change may send signals to customers concerning the quality of the product. A rise may be taken to
indicate improvements, a reduction may signal reduced quality, for example, through the use of inferior
components or a poorer quality of raw material. Thus any change in price needs to take such factors into
account.
5.1.5 New product pricing

Most pricing decisions for existing products relate to price changes. Such changes have a reference
point from which to move (the existing price). But when a new product is introduced for the first
time there may be no such reference points; pricing decisions are most difficult to make in such
circumstances. It may be possible to seek alternative reference points, such as the price in another
market where the new product has already been launched, or the price set by a competitor.
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5.1.6 Income effects

In times of rising incomes, price may become a less important marketing variable than, for instance,
product quality or convenience of access (distribution). When income levels are falling and/or
unemployment levels rising, price will become a much more important marketing variable.
5.1.7 Multiple products

Most organisations market not just one product but a range of products. These products are
commonly interrelated, perhaps being complements or substitutes. The management of the pricing
function is likely to focus on the profit from the whole range rather than that on each single product.
Take, for example, the use of loss leaders: a very low price for one product is intended to make
consumers buy other products in the range which carry higher profit margins. Another example is selling
razors at very low prices while selling the blades for them at a higher profit margin. People will buy many
of the high profit items but only one of the low profit items – yet they are 'locked in' to the former by the
latter. Loss leaders also attract customers into retail stores where they will usually buy normally priced
products as well as the loss leaders.
5.1.8 Sensitivity
Price-setting decisions are often seen as highly sensitive and as such may involve top management
more clearly than other marketing decisions. As already noted, price has a very obvious and direct
relationship with profit.
5.1.9 Price structure – purchase quantity discounts

It is usual to offer discounts according to the volume of goods or services purchased on a single order.
This is because the marketing and administrative costs related to a single order are much the same
whatever the quantity purchased. There is thus a scale economy for the supplier, some of which can be
used to reduce price, thereby encouraging larger orders and increasing sales. In the hotel trade, for
example, it is usual for bulk purchasers, such as airlines needing to accommodate crew, to receive
significant discounts
5.2 Price setting strategies

Market penetration objective: here the organisation sets a relatively low price for the product or
service in order to stimulate growth of the market and/or to obtain a large share of it. This
strategy was used by Japanese motor cycle manufacturers to enter the UK market. It worked famously:
UK productive capacity was virtually eliminated and the imported Japanese machines could then be sold
at a much higher price and still dominate the market.
Such sales maximisation is appropriate under three conditions.
Unit costs will fall with increased output (economies of scale).

The market is price sensitive and relatively low prices will attract additional sales.
Low prices will discourage new competitors.
Market skimming objective: Skimming involves setting a high initial price for a new product in
order to take advantage of those buyers who are ready to pay a much higher price for a
product. A typical strategy would initially be to set a premium price and then gradually to reduce the
price to attract more price sensitive segments of the market. This strategy is really an example of price
discrimination over time. It may encourage competition, and growth will initially be slow.
This strategy is appropriate under three conditions.
There is insufficient production capacity and competitors cannot increase capacity.

Some buyers are relatively insensitive to high prices.
High price is perceived as high quality.
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Early cash recovery objective: an alternative pricing objective is to recover the investment in a new
product or service as quickly as possible, to achieve a minimum payback period. The price is set to
facilitate this objective. This objective would tend to be used in three circumstances.
The business is high risk.

Rapid changes in fashion or technology are expected.
The innovator is short of cash.
Product line promotion objective: here, management of the pricing function is likely to focus on
profit from the range of products which the organisation produces rather than to treat each
product as a separate entity. The product line promotion objective will look at the whole range from
two points of view.
The interaction of the marketing mix.

Monitoring returns to ensure that net contribution is worthwhile.
Intermediate customers. Some companies set a price to intermediaries and allow them to set
whatever final price they wish. A variant involves publishing an inflated recommended retail price so
that retailers can offer large promotional discounts.
Cost-plus pricing. A firm may set its initial price by marking-up its unit costs by a certain percentage or
fixed amount, as already discussed.
Target pricing. A variant on cost-plus where the company tries to determine the price that gives a
specified rate of return for a given output.
Price discrimination (or differential pricing). The danger is that price cuts to one buyer may be
used as a negotiating lever by another buyer. This can be countered in three ways.
(a) Buyers can be split into clearly defined segments, such as overseas and home, or students'
concessionary fares.
(b) Own branding, where packaging is changed for that of a supermarket.
(c) Bulk buying discounts and aggregated rebate schemes can favour large buyers.
Going rate pricing. Try to keep in line with industry norm for prices, as discussed earlier.
Quantum price: in retail selling the concept of a quantum point is often referred to. When the price
of an item is increased from, say, £9.65 to £9.95, sales may not be affected because the consumers do
not notice the price change. However, if the price is increased from £9.95 to £10.05 a major fall in sales
may occur, £10 acting as a quantum point which can be approached but not passed if the price is not to
deter would-be purchasers.
Odd number pricing: sometimes referred to as psychological pricing, the odd number pricing
syndrome (pricing at £1.99, say, rather than £2) is said to have originated not as a marketing concept
but in department stores in order to ensure the honesty of sales assistants. The customer has to wait for
change from £1.95 when, as is usual, they offer £2 in payment, so the assistant has to use the till.
One coin purchase: confectionery firms have used another psychologically based concept of a one
coin purchase. Rather than change price to reflect cost changes, such firms often alter the quantity in
the unit of the product and keep the same price. This is a case of 'price-minus' pricing. The firm
determines what the market will bear and works backwards, planning to produce and market a brand
which will be profitable to them, selling at the nominated retail price.
Gift purchases: gift purchasing is often founded on the idea of price which is taken to reflect quality.
Thus if a gift is to be purchased in an unfamiliar product category, a price level is often fixed by the
buyer and a choice made from the brands available at that price. Cosmetics are often priced at £4.99
and £9.99 to appeal to gift purchasers at the £5 and £10 price level. Importantly, packaging is a
major part of the appeal and must reflect a quality brand image, an important part of the psychology
of gift choice.
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E X A M P L E
Credit cards
The price of a credit card may include an annual fee and an interest rate. The interest rate may be
influenced by the actual rate and any period of free credit.
Interest rates vary:
Some customers who are low risk can get low rates.
Others are charged high rates.
Price discrimination is thus used for different groups of customers.
To capture business, card companies offer:
Interest-free or low interest periods
Free balance transfers
Reward points
In other words, price is consciously used to attract new customers.
The only major innovation in the 'packaging' of credit cards has been the firm Mint which has changed
the shape of the credit card. This innovation alone has gained it many new customers.
E X A M P L E
Pricing is often a real headache for marketing managers, and an area where managers are least certain
they are doing well. The rewards of a better pricing strategy are an increase in profit without heavy
upfront costs. For example, announcing a fall in sales, the UK retailer Marks & Spencer, indicated that its
new product range was well received but that consumers preferred lower prices.
Some consumers are prepared to pay more if value is added: this is how US retailers (such as Target)
have competed effectively against Wal-Mart.
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SUMMARY
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SELF-TEST QUESTIONS
1 What are the stages of the product life cycle (PLC) and how do they affect profitability?
2 What are the criticisms of the PLC concept?
3 What are the marketing implications of the introductory phase of the PLC?
4 What is a new product?
5 What is brand extension?
6 What are brand values?
7 What are the two broad categories of objective for pricing decisions?
8 What is ‘contribution pricing’?
9 What is the probable effect of (a) strong demand and (b) weak demand on price?
10 What is the difference between market penetration and market skimming?
SELF-TEST ANSWERS
1 Introduction; growth; maturity; decline; senility.
2 Where technology remains unimproved, products can be perennial

Some products appear to go direct from growth to decline
A product's life cycle can be managed and its progress affected by marketing decisions
The model presupposes a particular pattern of competition that does not exist in all industries
3 High promotion costs; high prices possible; distribution problematic.
4 One that opens up an entirely new market, replaces an existing product or broadens significantly the
market for an existing product
5 Adding products to an existing brand range
6 The customer’s subjective valuation of such brand messages as style, quality, masculinity, sophistication
and reliability
7 Maximising profits; and maintaining or increasing market share
8 Setting price on the basis of a mark-up on direct costs in order to achieve a contribution to overheads
and profit.
9 (a) Price rises

(b) Price reductions
10 Market penetration aims for high turnover in units early on in a product's life by charging a low price.
Market skimming changes a high initial price to exploit the customers who are prepared to pay it, thus
achieving maximum positive cash flow while volumes are still low.
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1 Some ideas to start you off are manual typewriters, unleaded petrol and vinyl records. Also, almost
anything subject to fads or fashions.
2 You could perhaps pin down some of these items, but most are open to discussion, especially if you take
an international perspective. For many you may consider that the PLC is not valid, and you will not be
alone.
3 Here are some examples: Mars bar; Oxo cube; Burberry trench coat; Hunter gumboots.
4 You should try to think of your own examples, but these suggestions may help.
New product
Entirely new market Web browsers, National Lottery
Replacing an existing product Faster PCs
Broadening the market Cable for satellite TV and telephones
'New' old product

In a new market German confectionery (in the UK)
New packaging Anything
New marketing French wine competing with Australian wine
5 This is a very subjective activity, but most people will think of things that are highly relevant to the
purchaser of the product. For example, Brillo implies shininess, which people buying panscrubs are likely
to want in their pans.
6 You might have identified a number of different factors here. Perhaps the most important general point
to make is that price is particularly important if the other elements in the marketing mix are relatively
similar across a range of competing products. For example, there is a very wide variety of toothpastes on
the market, most of them not much differentiated from the others. The price of a particular toothpaste
may be a crucial factor in its sales success.
7 The industry referred to is the financial services industry. When economic factors cause alterations in
interest rates (one of the main 'costs' borne by building societies and banks, because of their interest
payments to investors), the societies reduce or increase their lending rates (the price of their mortgage
products). It is usual to see one of the larger societies leading the way, after which the others fall into
line.
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CHAPTER 8
THE EXTENDED MARKETING MIX
Chapter objectives
The nature of services
Special features of services marketing
How travel and hospitality services are made available to the market
How the relationship of the firm with its most important customers is managed
Topic list
Services marketing
The extended marketing mix
Distribution
The importance of location
The customer relationship
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1 Services marketing
Services:
' ...those separately identifiable but intangible activities that provide want-satisfaction, and that are not,
of necessity, tied to, or inextricable from, the sale of a product or another service.' Cowell
' ... any activity of benefit that one party can offer to another that is essentially intangible and
does not result in the ownership of anything. Its production may or may not be tied to a physical
product.' Kotler
Marketing services face a number of distinct problems, and as a consequence, the approach adopted
must be varied, and particular marketing practices developed.
Characteristics of services which make them distinctive from the marketing of goods have been
proposed. These are five major differences.
Intangibility
Inseparability
Heterogeneity
Perishability
Ownership
1.1 Intangibility
Intangibility is the lack of physical substance in service delivery. Clearly, this creates difficulties and can
inhibit the propensity to consume a service, since customers are not sure what they have.
We can view insubstantiality as a continuum, as shown in the diagram below.
Figure 8.1: The goods-services continuum
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8: THE EXTENDED MARKETING MIX
Clearly, for each service, the number, complexity and balance of the various elements involved will vary
a great deal. What is experienced remains insubstantial, although many parts of the process (the
machines, buildings and staff of an airline, for instance) are very substantial.
The consumer needs information to form some grounds for judgement, and to cut down risk. The
marketer wishes to make the choice of the product safer and make consumers feel more comfortable
about paying for something that has no physical form.
The intangibility may be countered in two ways.
By the consumer seeking opinions from other consumers

By the marketer offering the consumer something tangible to represent the purchase
Marketing implications
Dealing with the problems may involve strategies to enhance tangibility.
(a) Increasing the level of tangibility. When dealing with the customer, staff can use physical
representations or illustrations to make the customer feel more confident as to what it is that the
service is delivering.
(b) Focusing the attention of the customer on the principal benefits of consumption. This
could take the form of communicating the benefits of purchasing the service so that the customer
visualises its appropriateness. Promotion and sales material could provide images or records of
previous customers' experience.
(c) Differentiating the service and reputation-building. This is achieved by enhancing

perceptions of service and value through offering excellence in the delivery of the service and by
promoting values of quality, service reliability and value for money. These must be attached as
values to brands, which must then be managed to secure and enhance their market position.
1.2 Inseparability
A service often cannot be separated from the provider of the service. The performance of a service
often occurs at the same instant as its consumption. Think of checking-in to an hotel or travelling
by air. Neither service exists until actually consumed by the purchaser.
Marketing implications
Provision of the service may not be separable from the provider. Consequently, increasing importance is
attached to values of quality and reliability and a customer service ethic which can be transferred to
the service provision. This emphasises the need for customer orientation, high quality people and high
quality training for them.
1.3 Heterogeneity
Many services face a problem of maintaining consistency in the standard of output. Variability of
quality in delivery is inevitable, because of the number of factors which may influence it. This may create
problems of operations management. For example, it may be difficult or impossible to attain:
(a) Precise standardisation of the service offered. The quality of the service may depend
heavily on who delivers the service and when it takes place. Booking a holiday using standard
procedures, may well be quite different on a quiet winter afternoon and on a hectic spring
weekend, and may well vary according to the person dealing with the client.
(b) Influence or control over perceptions of what is good or bad customer service. From
the customer's perspective, it is very difficult to obtain an idea of the quality of service in advance
of purchase.
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As a result, it is necessary to monitor customer reactions constantly and to maintain an attitude and
organisational culture which emphasises three things.
Consistency of quality control

Consistency of customer service
Effective staff selection, training and motivation
Other important matters

(a) Clear and objective quality measures
(b) Standardising as much as possible within the service
(c) The Pareto principle suggests that 80% of difficulties arise from 20% of events surrounding the
provision of the service. Therefore, identify and respond most closely to these potential
troublespots.
1.4 Perishability
Services cannot be stored. They are innately perishable. Performances at a theatre or the services
of a chiropodist consist in their availability for periods of time, and if they are not occupied, the service
they offer cannot be used later.
This presents specific marketing problems. Meeting customer needs in these operations depends
on staff being available when they are needed. This must be balanced against the requirement to
minimise unnecessary expenditure on staff wages. Anticipating and responding to levels of demand is,
therefore, a key planning priority. There are two risks.
Inadequate level of demand is accompanied by substantial fixed cost.
Excess demand may result in lost custom through inadequate service provision.
Policies must seek to match demand with supply by price variations and promotions to stimulate off-peak
demand.
1.5 Ownership
Services do not result in the transfer of property. In the case of purchasing a product, there is
permanent transfer of title and control over the use of an item. An item of service provision is often
defined by the length of time it is available.
This may very well lessen the perceived customer value of a service, and consequently make for
unfavourable comparisons with tangible alternatives. Attempts have been made to overcome this
problem by providing symbolic tangible items which can be taken away and kept. Car brochures,
theatre programmes and the plethora of corporate giftwares such as golf umbrellas, pens and keyrings,
are all examples of this.
What are the marketing implications of the lack of ownership of a service received?
2 The extended marketing mix

The standard 4P approach to the marketing of products should be extended for services by the addition
of three more Ps.
• People
• Process
• Physical evidence or ambience
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Services are provided by people for people. If the people providing the service are not up to standard,
the service is spoiled. In the case of a bus service, a cheap fare, a clean vehicle and a frequent service
can be spoiled by a surly driver.
Services are usually provided in a number of sequential steps. This is process. The service can be
spoiled or enhanced at any step in the sequence.
Finally, there is the physical evidence or ambience. The latter can be a maker or spoiler of the
service experience, but note that an important aspect of physical evidence is the provision of a physical
token of the service provided, such as a brochure or other documentation, to overcome in part the
absence of tangibility.
An alternative approach identifies four extra Ps.
Personal selling
Place of availability
People and customer service
Physical evidence
2.1 Personal selling

Personal selling is very important in the marketing of services, because of the greater perceived
risk involved and greater uncertainty about quality and reliability. The reputation of the supplier may be
of higher importance, and the customer places more reliance on the honesty of the individual
salesperson. When consumers seek reassurance, personal contact with a competent, effective
representative may provide the necessary confidence. Conversely, inappropriate selling may generate
increased anxiety.
2.2 Place of availability

Place of availability is really covered by the distribution system, but there are special problems for
services in operations management. The place and frequency of availability are key service variables
but service resources must be used economically.
The level and quality of service are sensitive to the efficiency of the processes by which services are
delivered. There are three key factors.
(a) Capacity utilisation: matching demand sequences to staff utilisation to avoid both the costs of
overstaffing and the lost revenue of underprovision.
(b) Managing customer contact, to avoid crowding and customer disruption, meet needs as they
arise, and increase employee control over interactions.
(c) Establishing objectives within the not-for-profit sector, for example, standards for
teachers or medical staff.
Interactions between customers are a key strategic issue. Customers often interact to gather
information and form views about the service they are contemplating purchasing. Minimising exposure to
negative feedback, and promoting the dissemination of positive messages about the service are
important objectives.
Place of availability is dealt with in more detail later in this chapter.
2.3 People and customer service

For some services, the physical presence of people performing the service is a vital aspect of
customer satisfaction. For example, staff in catering establishments are performing or producing a
service, selling the service and liaising with the customer to promote the service, gather information and
respond to customer needs. Customer orientation is needed in all sectors of organisational activity.
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Customers will tend to use cues to establish a view about the organisation from the demeanour and
behaviour of staff. The higher the level of customer contact involved in the delivery of a service, the
more crucial is the staff role in adding value. In many cases, the delivery of the service and the physical
presence of the personnel involved are completely inseparable; here, technical competence and skill
in handling people are of equal importance in effective delivery of the service.
As a consequence of the importance of people, service marketing organisations have certain common
areas of emphasis.
(a) Selection and training: where possible staff with an aptitude for delivering service to a high
standard should be selected and all staff should receive thorough initial and refresher training. All
training should emphasise the importance to the customer of satisfactory service and, by
implication, its importance to the success of the service organisation.
(b) Internal marketing to promulgate the culture of service within the firm.
(c) Ensuring conformance with standards:
Behaviour
Dress and appearance
Procedures
Modes of dealing with the public
(d) Mechanising procedures where possible.
(e) Constantly auditing personnel performance and behaviour.
(f) Extending the promotion of the service and its qualities into the design of service environments
and the engineering of interactions between staff and customers and among the customers
themselves.
All levels of staff must be involved in customer service. To achieve this end, it is vital for senior
management to promote the importance of customer service. How do you think that this might be
achieved?
2.4 Physical evidence

Physical evidence is an important remedy for the intangibility of the product. This may be a physical
item associated with the service itself, (for example, credit cards which represent the service
available to customers); built-up by identification with a specific individual (a 'listening' bank
manager); or incorporated into the design and specification of the service environment,
involving the building, location or atmosphere.
What do you think that design can achieve in services marketing?
3 Distribution
Most physical products have to be moved from their place of production to the place at which they are
consumed. Organising this movement and the attendant processes of warehousing, wholesaling, retailing
and transportation is the realm of distribution or place as it is known (for tidiness) in the 4Ps marketing
mix mnemonic.
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Travel and hospitality services are also distributed, often through a variety of intermediaries, though, of
course, there is no physical movement of goods involved, because of the inherent intangibility of
services. In this section we will deal with this aspect of ‘place’. Place, in a different sense, will be dealt
with in the next section.
3.1 Principals and intermediaries

The organisations that provide the various travel and hospitality products are known as principals.
Principals generally need the services provided by intermediaries if they are to make contact with the
public. Some, though not all, of these intermediaries are known as agents: we will use the general term
intermediary. Unlike the distribution of physical goods, a major aspect of the work of services
intermediaries is selling.
The intermediaries create value in several ways.
Provision of a network of convenient access points

Provision of advice and a range of information about competing products
Creation of ad hoc travel packages
Provision of an advance reservation and payments system
Some principals manage without the services of intermediaries for the distribution of at least some of
their products. This direct to customer service is called direct marketing. Direct marketing is
particularly useful for retaining existing customers. It also allows principals to retain more of the value
they create, since the costs of the intermediary do not have to be met.
Direct marketing by larger principals is usually Internet-based, with facilities for online enquiries,
planning, booking and payment.
3.2 Referrals
Referrals are common within hotel and restaurant chains, each establishment providing marketing
services for all of the rest, whether they are owned, franchised or voluntarily associated. The basic form
of referral is a prominently positioned rack of brochures; more advanced systems allow for direct booking
at other chain establishments using telephone, e-mail or a computerised reservation system. Referrals
are also very cost effective, since the service provider acts, in a sense, as its own agent.
3.3 Travel agents

Effectively, travel agents provide retail outlets for hospitality and travel products. They advise customers
about the price, availability and features of products from a range of providers, make bookings, take
payments and provide documentation. Their role is to serve the customer, though in their traditional
form, their services are paid for by the principals involved.
Some travel agents specialising in the business travel market do not take commission from principals,
instead operating as consultants and working strictly in the interest of their clients. They charge their
clients service fees and negotiate with principals to obtain good rates for them.
Customers may obtain impartial advice from independent travel agents, though they also undertake
directional selling, which is the deliberate recommendation of a particular principal for reasons
unrelated to customer benefit.
3.4 Tour operators

Tour operators perform a role similar to that of wholesalers in the distribution of physical products. They
negotiate bulk purchase prices with travel and hospitality principals, assemble suitable packages and, in
the simplest case, sell them direct to the public. Their income derives from the margin they charge their
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customers over their costs. Tour operators also sell through travel agents; when they do this, they must
pay the agent a fee, which reduces their margin and hence their profit.
3.5 Integrated travel companies

While some major travel and hospitality organisations specialise in one type of business, others display a
degree of horizontal or vertical integration.
(a) A horizontally integrated organisation would operate a number of similar businesses, such as
several chains of hotels, each chain offering a slightly different type of accommodation and other
services. Horizontal integration can bring economies of scale such as bulk purchase of supplies,
cross-selling from one brand to another and easier access to capital markets.
(b) A vertically integrated organisation will aim to capture all of the value created at each stage of
the distribution process and the buyer’s experience. Thus, a single company might operate an
airline, a chain of travel agents, a tour operator and a chain of hotels.
Vertical and horizontal integration can, of course, be combined in a single organisation.
4 The importance of location

In the generally used version of the marketing mix, ‘place’ means distribution and logistics, as discussed
above. However, in many aspects of travel, catering and tourism, place could as easily be used to mean
the physical location of the land and buildings used to provide the services concerned. You should
remember this important extra meaning of the word ‘place’ because location is of fundamental
significance to the degree of success that travel and hospitality companies achieve. You have only to
think of the priority of climate to holiday destinations to understand this, but you should also be aware
of other equally vital matters. Location is fundamental to concerns of convenience, local facilities, status
and charges. Here are some examples.
(a) The location of a city restaurant should match the habits and aspirations of its customers: a fast
food outlet could be in any busy street but a high quality restaurant would be out of place in a
low-rent district.
(b) The location of airports is a major influence on their desirability as destinations: long transfers
detract from convenience and satisfaction.
(c) The location of an hotel will largely determine the nature of its clientele. A city-centre hotel may
attract some of the same guests who visit a country house hotel on other occasions, but their
reasons for visiting the two establishments are likely to be different.
5 The customer relationship

5.1 Customer retention
Customers vary in their behaviour. The most important aspect of this variation is whether or not the
customer comes back for more. Customers should be seen as potentially providing a lifetime of
purchases so that the turnover from a single individual over time might be very large indeed.
It is widely accepted that there is a non-linear relationship between customer retention and profitability
in that a fairly small amount of repeat purchasing generates significant profit. This is because it
is far more expensive in promotion and overhead costs to convert a non-buyer into an occasional buyer
than to turn an occasional buyer into a frequent buyer. The repeat buyer does not have to be persuaded
to give the product a try or be tempted by special deals; he needs less attention from sales staff and
already has his credit account set up. New customers usually have to be won from competitors.
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Today's highly competitive business environment means that customers are only retained if they are
very satisfied with their purchasing experience. Any lesser degree of satisfaction is likely to
result in the loss of the customer. Companies must be active in monitoring customer satisfaction
because very few will actually complain. They will simply depart. Businesses which use
intermediaries must be particularly active, since research shows that even when complaints are made,
the principals hear about only a very small proportion of them.
The most satisfactory way to retain customers is to offer them products which they perceive as providing
superior benefits at any given price point. However, there are specific techniques which can increase
customer retention.
E X A M P L E
Loyalty schemes such as frequent flyer programmes, augment the product in the customer's eyes. The
club concept, as used by Sainsbury's and Tesco, offers small discounts on repeated purchases. The
principal benefit of both these types of scheme, however, is the enhanced knowledge of the customer
which they provide. Initial registration provides name, address and post code. Subsequent use of the
loyalty card allows a detailed purchasing profile to be built up for individual customers. This enables
highly targeted promotion and cross-selling later.
Research indicates that the single largest reason why customers abandon a supplier is poor
performance by front-line staff. Any scheme for customer retention must address the need for
careful selection and training of these staff. It is also a vital factor in relationship marketing.
5.2 Relationship marketing

Relationship marketing is defined very simply by Grönroos as the management of a firm's market
relationships.
E X A M P L E
Much has been written in recent years on relationship marketing. Gummesson suggests it is a
'paradigm shift' requiring a dramatic change in marketing thinking and behaviour, not an add-on to
traditional marketing.' In his book Total Relationship Marketing, he suggests that the core of marketing
should no longer be the 4Ps, but 30Rs, which reflect the large number of complex relationships
involved in business. Kotler says 'marketing can make promises but only the whole organisation can
deliver satisfaction'. Adcock expands on this by remarking that relationship marketing can only exist
when the marketing function fosters a customer-oriented service culture which supports the network
of activities that deliver value to the customer. The metaphor of marriage has been used to describe
relationship marketing, emphasising the nature of the necessary long-term commitment and mutual
respect.
Relationship marketing is thus as much about attitudes and assumptions as it is about techniques.
The marketing function's task is to inculcate habits of behaviour at all levels and in all departments which
will enhance and strengthen the customer relationship. It is very easy for customers to switch allegiance
between travel and hospitality providers, so it is particularly important for such providers to build good
relationships with valuable customers. The conceptual or philosophic nature of relationship marketing
leads to a simple principle, that of enhancing satisfaction by precision in meeting the needs of
individual customers. This depends on extensive two-way communication to establish and record the
customer's characteristics and preferences and build a long-term relationship. There are three important
practical methods which contribute to this end.
Building a customer database

Developing customer-oriented service systems
Extra direct contacts with customers
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Modern computer database systems have enabled the rapid acquisition and retrieval of the individual
customer's details, needs and preferences. Using this technology, relationship marketing enables
telephone sales staff to greet the customer by name, know what he purchased last time, avoid taking his
full delivery address, know what his credit status is and what he is likely to want. It enables new
products to be developed that are precisely tailored to the customer's needs and new procedures to be
established which enhance his satisfaction. It is the successor to mass marketing, which attempted to
be customer-led but which could only supply a one-size-fits-all product. The end result of a relationship
marketing approach is a mutually satisfactory relationship which continues indefinitely.
Relationship marketing extends the principles of customer care. Customer care is about providing a
product which is augmented by high quality of service, so that the customer is impressed during his
transaction with the company. This can be done in ignorance of any detail of the customer other than
those implicit in the immediate transaction. The customer is anonymous. Relationship marketing is
about having the customer come back for further transactions by ending the anonymity. The
culture must be right; the right people must be recruited and trained; the structure, technology and
processes must all be in place.
It is inevitable that problems will arise. A positive way of dealing with errors must be designed into the
customer relationship. Front line sales people cannot usually deal with the causes of mistakes as they
are built into the products, systems and organisation structure. It is, therefore, necessary for
management to promote vertical and horizontal interaction in order to spur changes to eliminate the
sources of mistakes.
It is inevitable that there will be multiple contacts between customer and supplier organisations. Each
contact is an opportunity to enhance or to prejudice the relationship, so staff throughout the supplier
organisation must be aware of their marketing responsibilities. Two-way communication should be
encouraged so that the relationship can grow and deepen. There is a link here to the database
mentioned above: extra contacts provide more information.
5.3 Differences between transactional and relationship marketing

Transactional Relationship
Importance of single sale Importance of customer relations
Importance of product features Importance of customer benefits
Short time scale Longer time scale
Less emphasis on service High customer service
Quality is concern of production Quality is concern of all
Competitive commitment High customer commitment
Persuasive communication Regular communication
The relationship marketing mix. By now you are familiar with the 4Ps of the basic marketing mix.
Relationship marketing is highly dependent upon a fifth P: people. The features of the basic 4Ps must
support the commitment to developing mutually beneficial customer relationships. The behaviour of
the people involved in the customer relationship is even more important, because relationship
marketing success depends on their motivation to achieve it. In turn, that motivation depends to a great
extent upon the leadership exercised by marketing managers. It is not enough to expect self-motivation
because all staff are involved, not just those with a sales role.
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5.4 Key accounts

So far we have considered the retention of customers as an unquestionably desirable objective.
However, for many businesses a degree of discretion will be advisable. 'Key' does not mean
large. A customer's potential is very important. The definition of a key account depends on the
circumstances.
Customers can be assessed for desirability according to such criteria as the profitability of their
accounts; the prestige they confer; the amount of non-value adding administrative work they
generate; the cost of the selling effort they absorb; the rate of growth of their accounts and, for
industrial customers, of the turnover of their own businesses; their willingness to adopt new
products; and their credit history. Such analyses will almost certainly conform to a Pareto distribution
and show, for instance that 80% of profit comes from 20% of the customers, while a different 20%
generate most of the credit control or administrative problems. Some businesses will be very aggressive
about getting rid of their problem customers, but a more positive technique would be to concentrate
effort on the most desirable ones. These are the key accounts and the company's relationship with
them can be built-up by appointing key account managers.
Key account management is often seen as a high level selling task, but should in fact be a business wide
team effort about relationships and customer retention. It can be seen as a form of co-operation
with the customer's purchasing function. The key account manager's role is to integrate the efforts of the
various parts of the organisation in order to deliver an enhanced service. This idea has long been used
by advertising agencies and was successfully introduced into aerospace manufacturing over 40 years
ago. It will be the key account manager's role to maintain communication with the customer, note any
developments in his circumstances, deal with any problems arising in the relationship and develop the
long-term business relationship.
The key account relationship may progress through several stages.
(a) At first, there may be a typical adversarial sales-purchasing relationship with emphasis on price,
delivery and so on. Attempts to widen contact with the customer organisation will be seen as a
threat by its purchasing staff.
(b) Later, the sales staff may be able to foster a mutual desire to increase understanding by wider
contacts. Trust may increase.
(c) A mature partnership stage may be reached in which there are contacts at all levels and
information is shared. The key account manager becomes responsible for integrating the
partnership business processes and contributing to the customer's supply chain management.
High 'vendor ratings', stable quality, continuous improvement and fair pricing are taken for
granted.
5.5 Building the database

A database is a collection of available information on past and current customers together with future
prospects, structured to allow for the implementation of effective marketing strategies. Database
marketing is a customer-oriented approach; it is only possible if modern computer database systems
are used. It enables the company to do three things.
To extend help to a company's target audience

To stimulate further demand
To stay close to them
Recording and keeping a record of customers and prospects and of all communications and commercial
contacts helps to improve all future contacts.
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The database may be used to meet a variety of objectives with numerous advantages over traditional
marketing methods.
Focusing on prime prospects

Evaluating new prospects
Cross-selling related products
Launching new products to potential prospects
Identifying new distribution channels
An effective database can provide important management information.
Usage patterns, for example, reasons for account closures

Evaluation of marketing activities, for example response rates
Segmentation analysis to ensure accurate targeting
Account analysis, for example value, duration, product type
Updated market research information
The database should not be seen as a tool simply to generate the one-off sale, requiring the marketing
effort to be re-engaged time and time again. The reason for this is simple: it is four times more
expensive to win a new customer than it is to retain an existing one.
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SUMMARY
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SELF-TEST QUESTIONS
1 What are the five marketing characteristics of services?
2 What are the marketing implications of the intangibility of services?
3 What issues arise from the perishability of services being marketed?
4 What are the additional 'Ps' in the service marketing mix?
5 In what areas should rigorous procedures be applied to take account of the importance of people in
services marketing?
6 Why are direct marketing and referrals cost effective?
7 What is directional selling?
8 Why might a budget hotel be located close to a motorway junction?
9 What might be called the fifth P of relationship marketing?
10 Give five types of information which could be obtained from an effective database.
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SELF-TEST ANSWERS
1 Intangibility, inseparability, heterogeneity, perishability, ownership.
2 Strategies are required to do three things.
Increase the degree of tangibility

Focus attention on benefits
Differentiate the service
3 Since services cannot be stored, customer needs can only be met if staff are available.
4 People Personal selling

Process OR Place availability
Physical evidence People and customer service
Physical evidence
5 Selection and training

Culture of service
Standards
Mechanisation
Audit of performance
Design of service environments and interactions
6 They do not involve paid intermediaries.
7 The deliberate recommendation of a particular principal by a travel agent for reasons unrelated to
customer benefit.
8 To attract guests travelling by motor vehicle.
9 People.
10 Usage patterns; evaluation of marketing activities; segmentation analysis; account analysis; market
research information.
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1 Possible marketing implications.
(a) Promote the advantages of non-ownership. This can be done by emphasising, in promotion, the
benefits of paid-for maintenance, and periodic upgrading of the product. Radio Rentals has used
this as a major selling proposition with great success.
(b) Make available a tangible symbol or representation of ownership (certificate, membership of

professional association). This can come to embody the benefits enjoyed.
(c) Increasing the chances or opportunity of ownership (eg time-shares, shares in the organisation
for regular customers).
2 There must be continuous development of service-enhancing practice.
Policies on selection
Programmes of training
Standard, consistent operational practices ('MacDonaldisation')
Standardised operational rules
Effective motivational programmes
Managerial appointments
The attractiveness and appropriateness of the service offer
Effective policies of staff reward and remuneration
3 Things design can do:
Convey the nature of the service involved

Transmit messages and information
Imply aesthetic qualities, moral values, or other socio-cultural aspects of a corporate image
Reinforce an existing image
Reassure
Engender an emotional reaction in the customer, through sensory and symbolic blends
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CHAPTER 9
PROMOTION
Chapter objectives
The communication process
The objectives and techniques of advertising
The nature and use of sales promotion and merchandising
The communication and promotion roles of PR
The techniques of direct marketing
Topic list
Marketing communications
Advertising
Advertising media
Sales promotion
Public relations
Direct marketing
Internet marketing
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1 Marketing communications
1.1 Communicating with customers
Marketing communications is the process of both informing and educating users and dealers about
the company, and of influencing attitudes and behaviour.
Sales Messages
Sales team
Organisation Customer base
Marketing activity
Market Feedback
Figure 9.1: Communicating with customers
Communication with customers involves many aspects of the marketing mix, but promotion is
paramount. In firms with a co-ordinated promotional strategy the activity of the sales team will be
supported and supplemented by a combination of other communication tools. This combination is
referred to as the promotional mix.
Figure 9.2: Organisation's promotional mix

These other communication tools are used to increase the effectiveness of the sales effort. In
combination, these represent the entire external communications activity of the organisation. Personal
selling will be dealt with later in this Work Book. In this chapter we will deal with the remaining
promotional techniques.
It is possible to use the same model of the communication process to describe one-to-one
communication between friends, or a major multinational organisation communicating with its market
place. Effective communication requires several elements.
A sender
A receiver
A message
A communication channel or medium
A feedback mechanism
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This simple model of

communication can
also be used to show
where failures in the
process can cause
communication to be
less effective.
Figure 9.3: Simple communication model
1.2 Push and pull strategies

The promotional mix is often described in terms of 'push' and 'pull' effects and towards whom the
marketing strategy is emphasised. A balance is needed between the need to communicate with
consumers, with distributors and with all other stakeholders.
Audience Message focus
• Consumers, customers Products and services
• Members of the marketing channel, such as dealers Products and services
• All stakeholders, to raise the visibility of the organisation The organisation
(a) A pull effect occurs when customers ask for the brand by name, inducing retailers or distributors
to stock-up with the company's goods.
(b) A push effect is targeted on getting the company's goods into the distribution network. This
could be by giving a special discount on volume to ensure that wholesalers stock-up with products
that the company is promoting.
E X A M P L E
Continental, the German tyre group used a combination of 'push' and 'pull'.
Push to the big car manufacturers and the tyre fitting trade
Pull via consumers buying replacement tyres
The tyre-fitting trade plays a large role in the route to the customer. Continental carries out a lot of push
activity here, with incentive programmes, training and education to make sure that the fitters understand
the brand segments (premium quality, economy, budget, own label). A greater challenge was to get
consumers to think about tyres as more than those black things attached to their cars. TV and press
advertising in Europe sought to change this perception.
Adapted from Marketing Business, January 2002
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1.3 The product life cycle and developing promotional strategy

According to the product life cycle (PLC) model, each of the stages from introduction to decline have
different strategic requirements from their promotional activities.
Promotional Introduction Growth Maturity Decline

activities
Strategic focus Strong push then Pull to Pull and push to Some pull to
pull for differentiate sustain loyalty and remind core users
awareness exposure through
reassurance
Public relations x x
Advertising x x
Direct marketing x x x
Personal selling x x x x
Sales promotion x x x
The table above sets out the strategic focus for each phase, and the main promotional activities to
be considered. One particular benefit of the PLC is that it is possible to overlay the various stages of the
process of diffusion. Through this it is possible to identify the different types of buyer involved with
the product at each stage and through this fine tune the appropriate message and media.
1.3.1 Introduction
For consumer brands this phase is critical as the primary need is to secure trade acceptance (and
hence shelf space) and then build public (target audience) awareness. Sunny Delight was
developed by Procter & Gamble in consultation with major multiple grocers. When the product was
launched the multiples accepted the brand as it had been developed partly to their specification on price,
ingredients and packaging/size.
1.3.2 Growth
During growth, promotional activity is used competitively to build market share. Customers are
normally willing to buy, having been made aware, but their problem becomes one of brand choice.
Marketing communications should therefore be used to differentiate and clearly position a product
such that it represents significant value for the customer.
1.3.3 Maturity
Once the rapid growth in a market starts to ease, the period of maturity commences. The primary
characteristic of this stage is that there is little or no growth. The battle therefore is to retain customer
loyalty, and to do this sales promotions are often used, to encourage trial by non-users of a brand and
as a reward for current users.
1.3.4 Decline
As sales start to decline it is normal practice to withdraw a great deal of promotion support. Direct
marketing and a little well targeted advertising to remind and reassure brand loyals is the most
commonly used.
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2 Advertising
Perhaps the most obvious way in which the marketer can communicate with large numbers of potential
customers is advertising. One of the aims of advertising is to create the 'pull' effect described above.
Advertising is defined by the American Marketing Association as:
Any paid form of non-personal presentation and promotion of ideas, goods or services by an identifiable
sponsor.
This definition clearly distinguishes advertising from personal selling and publicity (which is often not paid
for and, even if it is, the sponsor does not openly present ideas or products).
Promotion, especially advertising, can be seen as attempting to move consumers along a continuum
stretching from complete unawareness of the product to regular usage (brand loyalty). The AIDA
model is a simple example of this approach, known as the 'hierarchy of effects' model.
Awareness → Interest → Desire → Action
These models assume that customers formulate a behavioural intention which then leads to actual
purchasing behaviour.
A basic method of determining which promotion tool is key to a particular situation is to analyse what is
happening using the AIDA model. The following diagram relates each stage of the promotion process to
specific promotional tools. It will readily be recognised that such a diagram is useful only as a broad
guideline and specific situations will require detailed solutions.
Desired
Awareness Interest Desire Action
response
Effective
Public Sales Personal
promotion Advertising
relations promotion selling
tool
The action stage of the AIDA model has been highlighted currently with an increasing regard for a 'call to
action' being included in all marketing messages.
2.1 The purpose of advertising

Advertising is 'purposive communication' to a target market segment. It assists in selling by drawing
attention to the characteristics of a product which will appeal to the buying motives of customers in
the target segment of the market.
The following are examples of what advertising is mainly used for, couched in broad terms.
Support sales increases

Encourage trial
Create awareness
Inform about a feature or benefit
Remind
Reassure
Create an image
Modify attitudes
Gain trade and sales staff support
These are examples of general, wide-ranging goals. It is necessary, for control purposes, to be specific
and to express objectives in SMART terms. Here are some examples.
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MARKETING
(a) To support a sales increase on product X from 400,000 units to 500,000 units over the next 12
months.
(b) To raise awareness of service A amongst its target audience from its current level of 30% to 50%
by the end of 200X.
(c) To reinforce retailer Z's image as a company which offers a good range of basic food products at
value for money prices.
Advertising is often classed under one of three headings.
(a) Informative advertising conveys information and raises consumer awareness of the product. It
is common in the early stages of the lifecycle, or after a product update.
(b) Persuasive advertising is concerned with creating a desire for the product and stimulating
actual purchase. It is used for well established products in the growth and maturity stages of the
PLC. It is the most competitive form of advertising.
(c) Reminder advertising reminds consumers about the product or organisation, reinforcing the
knowledge held by potential consumers and reminding existing consumers of the benefits they
are receiving from their purchase.
2.2 Brand versus generic advertising

It will only be worthwhile for an individual firm to advertise if it can differentiate its brands from
competitors' in the eyes of the consumer. In the absence of product differentiation all advertising
purchased by an individual firm would be generic, benefiting all producers equally at the firm's expense.
This is a particular danger for commodity goods such as flour and sugar.
2.3 Above and below-the-line

In an advertising agency's accounts earnings on a commission basis are shown ‘above-the-line’ while
earnings on a fee basis are shown ‘below-the-line’.
(a) Above-the-line advertising appears in media such as the press, radio, TV and cinema.
(b) Below-the-line media include direct mail, exhibitions, package design, merchandising and so
on. The term ‘below the line’ is, effectively, synonymous with sales promotion.
2.4 Objectives of an advertising campaign

The more specific targets of a particular advertising campaign might be as follows.
(a) To communicate certain information about a product. This is perhaps the most important
objective.
(b) To highlight specific features of a product which make it different from the competitors'. The
concept of the unique selling proposition (USP) is that by emphasising a unique feature which
appeals to a customer need, customers will be influenced to buy the product.
(c) To build-up a brand or company image through corporate advertising.
(d) To reinforce customer behaviour.
(e) Influencing dealers and resellers to stock the items (on as much shelf-space as possible).
(f) In the case of government advertising, to achieve a policy objective.
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Look through a magazine or watch commercial TV for a while and see if you can spot examples of each
of these types of advertising.
3 Advertising media
The UK is a media rich country. Special research agencies cover sales and coverage.
(a) The press

(b) Television
(c) Magazines
(d) Posters
(e) Radio
(f) Cinema
(g) Internet
3.1 The press

The press is the largest media sector in the UK. Although some press spending will come under the
heading classified advertising (for example, recruitment, property, sales and wants), the bulk of the
expenditure is on display advertising.
The press sector is divided into discrete segments, allowing for accurate targeting against specific
audiences.
(a) Newspapers
National coverage newspapers divide into broadsheet and tabloid (or quality and mass market).
For a more tightly defined geographical coverage, morning or evening regionals are more
appropriate.
(b) Consumer magazines

Readers of magazines tend to have more clearly defined characteristics than readers of
newspapers, allowing for better segmentation and targeting.
(c) Business-to-business magazines

Whatever the trade sector, there is likely to be a number of specialist magazines catering for that
sector.
(d) Directories
For small local service businesses entries in the relevant Yellow Pages and Thomson Local
Directories are practically mandatory if they want to survive.
Advantages and disadvantages of the press

The advantages and disadvantages of press media are summarised below.
Advantages Disadvantages Comment

National Reach large numbers of Short life
newspapers people
Advertising clutter
Serious environment
Short copy lead times
Some colour availability
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Regional Reader loyalty Lack of readership data Good for test markets
newspapers Local features Complex planning and
High coverage of buying
geographical area
Consumer Precise targeting of Long copy deadlines Deliberate read

magazines special interest groups
Lack of immediacy
Good colour reproduction
Business Read closely

magazines
Directories Source of reference on a A must for small local

local basis businesses
3.2 Television
Television takes the next largest slice of the media cake after press. Television is a dynamic media
sector, undergoing a period of rapid change.
Television airtime is bought and sold either on a spot-by-spot basis or in packages of airtime with
guaranteed audience delivery. With the latter, the scheduling of the advertisement is left to the television
company, so some control over the airtime is lost.
Airtime is generally priced on the basis of demand and supply, with commercial breaks selling for what
the TV market will bear. Peak spots, such as the centre break of Coronation Street, sell within a higher
priced banding than do off-peak or early evening spots.
Television ratings (TVRs)

The unit of measurement by which television is bought and sold is the TVR or television rating. A TVR
is a percentage measurement of how many within a specified audience (homes, adults, men) were
watching at a specific point in time.
Television campaign media objectives will be couched in terms of TVRs, coverage and opportunities
to see.
Advantages and disadvantages of TV

The advantages and disadvantages of television as a medium are as follows.
Advantages Disadvantages
Mass market coverage Expensive production
Flexible by region Expensive airtime
Transient
Flexible by time of day Some wastage
Passive
Audio visual Long lead times
Does TV advertising have to be entertaining?
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3.3 Outdoor advertising

Outdoor advertising includes posters on roadside and perimeter hoardings; and transport facilities such
as railway and underground stations; airports; and buses and taxis.
Posters are a relatively flexible medium. They can be changed frequently and booked by the fortnight.
In large cities, some electronic sites are also available.

High impact awareness Long lead times Good for building
Flexible by region Limited prime sites Good for teaser campaigns
High audience coverage Possible vandalism Reminder medium

in urban areas Some unsuitable
environments
3.4 Radio
Previous criticisms that commercial radio has a downmarket profile have been overturned with the
advent of new national commercial stations.

Local targeting Lacks creativity Good for local advertisers
Immediacy Wallpaper syndrome* Support medium
Low cost
High frequency
* The view that people do not actually listen attentively to their radios, regarding them as providing a
kind of ‘acoustic wallpaper’.
3.5 Cinema
Cinema has experienced consistent growth in terms of popularity with the public. This has translated into
a gain in advertising revenue for this medium.
The growth of Multiplex screen venues is one factor contributing to this success. The Cinema Advertising
Association's research suggests another reason: that video, far from endangering cinema, has fuelled its
growth.
Cinema advertising can be bought on a per cinema basis, or alternatively in packages (the London area,
say, or Central Scotland).
Although one of the minority media, cinema can be important for targeting a young audience who are
waiting to be entertained by big budget movies with high production values.

High attention span Production expense Another support medium
High impact Low national coverage
Regional flexibility
What do you find most annoying about cinema advertising?
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4 Sales promotion
Sales promotion: a range of tactical marketing techniques, designed within a strategic marketing
framework, to add value to a product or service, in order to achieve a specific sales and marketing
objective. Institute of Sales Promotion
(a) Sales promotion encompasses a range of techniques appropriate for targeting consumers, for
instance via price reductions, competitions or gifts with purchases. However, trade and sales
force incentives are also implied under the general heading of sales promotion.
(b) Sales promotion is viewed by the Institute of Sales Promotion as a tactical promotional tool.
The majority of companies will use sales promotion as a means of achieving a short-term
objective, for instance to gain short-term sales volume or to encourage trial and brand switching
by a rival manufacturer's consumers.
(c) Although it is used as a tactical tool, sales promotion works within a strategic marketing
framework. Sales promotion should start with due regard to the strategic objectives for the
brand.
(d) Sales promotion always seeks to add value to a product or service. Thus consumers are offered
something extra for their purchase, or the chance to obtain something extra.
Sales promotion includes both sales pull and sales push techniques.
Be aware of the potential for confusion between the terms promotion, which means communication
techniques in general, and sales promotion, which is a specialist term reserved for the specific
techniques described here.
4.1 Sales promotion objectives

The following are examples of consumer sales promotion objectives stated in broad terms.
(a) To increase awareness and interest amongst target audiences.
(b) To achieve a switch-in buying behaviour from competitor brands to your company's brand.
(c) To encourage consumers to make a forward purchase of your brand, thus shutting out
competitor purchase opportunities.
(d) To increase display space allocated to your brand in store.
(e) To smooth seasonal dips in demand for your product.
(f) To generate a consumer database from mail-in applications.
Sales promotion objectives will link into overarching marketing and marketing communications
objectives.
E X A M P L E
Marketing objective To increase brand X market share by 2 percentage points in the
period January to December 200X
Marketing To contribute to brand share gain of 2% in 200X by

communications increasing awareness of X from 50% to 70% amongst target
objective consumers
Sales promotion To encourage trial of brand X amongst target consumers by offering

objective a guaranteed incentive to purchase.
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Tesco and Sainsbury's issue a type of loyalty card which shoppers present when they reach the check-
out. Points are awarded for sums spent over a minimum amount and these are added up each quarter.
Money-off vouchers to be used against future grocery bills are sent to the shopper's home. What do you
think is the value of this?
4.2 The growth of sales promotion

Sales promotion grew in importance as a communication tool during the 1980s and will continue to grow.
The technique has been used successfully in the financial, travel and leisure, automotive and business-
to-business sectors, as well as in the fast moving consumer goods sector, which has been its natural
home.
4.3 Consumer sales promotion techniques
Reduced price
Price promotions may take the form of a discount to the normal selling price of a product, or
alternatively, offer the consumer more product at the normal price (20% extra free; three for the price of
two).
Cross-brand promotions may be regarded as a form of reduced price promotion as they offer the
opportunity for the customer to sample the promoted product plus the complementary product at a
discount (shampoo and styling mousse or teabags and biscuits are typical examples).
Trade promotions
This category of promotion acts to encourage the distributor to stock or sell more of a product or service.
In addition to the examples listed below, discounts and special terms may be used as part of the trade
promotional armoury.
Mystery shoppers
Mystery shoppers are sometimes used as a trade motivator alongside a consumer promotion that has
gained national distribution. All retail outlets are forewarned (as part of the promotion) that a mystery
shopping team will be touring the country, checking that the consumer promotion is properly displayed
and accurately described by sales assistants dealing with queries. Outlets satisfying the mystery
shopper's judging criteria are rewarded. This is an important tactic as on average many retailers within
the grocery industry only show promotions in 80% of the stores they are supposed to.
4.4 Sales force promotion

Incentives and competitions can be used as a means of motivating the salesforce to sell more. Trade and
salesforce promotions may be designed in an attempt to maximise distribution.
4.5 The mechanics of a sales promotion

All aspects of a sales promotion need to be considered very carefully before proceeding with the
promotion itself. A poorly planned sales promotion is not just likely to back fire, it may self-destruct
causing irreparable harm to the company.
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E X A M P L E
The Hoover free flights episode is likely to remain the classic example of a badly designed sales
promotion offer. Hoover offered free flights to anyone spending more than £100 on one of their
products. As virtually all their products cost more than the minimum amount the offer was a fantastic
success – in terms of sales. However press reports estimate that the promotion cost the company over
£20 million in providing flights for all consumers who took up the offer. At first the offer was not
honoured and the bad publicity forced Hoover into action. Several senior Hoover staff lost their jobs.
4.6 Merchandising
Merchandising is a method by which the producers of products or services try to ensure that
distributors sell as many of their products as quickly as possible. The producers provide advice to the
distributors, either from the sales force or from full-time merchandising specialists.
Merchandising is concerned with presenting the market offering in the right place at the right time.
Merchandising methods appropriate to the hospitality and travel industries include the following.
(a) Posters (for example, holiday posters in travel agents' offices)

(b) Showcards (for example, dispensers from which customers can take the product)
(c) Mobiles (display items suspended from the ceiling of, say, a supermarket)
(d) Metal or plastic stands to display cards and brochures
(e) Plastic shopping bags for documentation
5 Public relations
Public relations (PR) has been defined as 'the management of the corporate reputation'. While this is a
useful one-line summary it can be expanded.
Public relations: 'the planned and sustained effort to establish and maintain goodwill and mutual
understanding between an organisation and its public.' Institute of Public Relations
5.1 The scope of PR

PR is relevant to organisations of all kinds, not just commercial ones, and, indeed, to individuals. It
involves a variety of activities.
Establishing and maintaining two-way communication based on truth and full information
Preventing conflict and misunderstandings
Promoting mutual respect and social responsibility
Promoting goodwill with staff, suppliers and customers
Projecting a corporate identity
The scope of public relations activity, if implemented effectively, should embrace the whole organisation.
Public relations is, therefore, the management of an organisation's reputation with its publics
and this management involves a close consideration of the relationships involved. The organisation can
be either reactive or proactive in its management of these relationships.
(a) Reactive PR is primarily concerned with the communication of what has happened and
responding to factors affecting the organisation. It is primarily defensive, with little or no
responsibility for influencing policies.
(b) In contrast, proactive public relations practitioners have a much wider role and thus have a
far greater influence on overall organisational strategy.
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5.2 Publics
In the context of public relations a public is a group of people united by a common interest that is
specific to them or their situation. Such groups are often known as stakeholders. An organisation may
have a wide range of publics with whom it wishes to communicate.
(a) Customers – existing, past and potential

(b) Members of the public in general
(c) The trade and distributors
(d) Financial public: shareholders, the City, banks, institutions and stockbrokers
(e) Pressure groups
(f) Opinion leaders
(g) The media as a special type of public as well as a channel of communication
(h) Overseas governments, EU bodies and international bodies
(i) Central and local government bodies, MPs and Members of the House of Lords
(j) Research bodies and policy-forming units
(k) The local community
(l) Trade Unions
(m) Employees
By thorough research the PR practitioner can identify those groups which will be involved and concerned
with the policies and actions of the organisation, and therefore, whether those groups are likely to be
particularly influential.
5.3 Public opinion

Once the relevant publics have been identified, the aim of public relations practitioners will be to
influence the opinions of those publics.
Public opinion: 'a consensus, which emerges over time, from all the expressed views that cluster
around an issue in debate, so that this consensus exercises power.'
With regard to public opinion the role of public relations, and indeed of persuasive communication as a
whole, is to:
Reinforce favourable opinions

Transform latent attitudes into positive beliefs
Modify and neutralise hostile or critical opinions
An important aspect of public opinion is the influence of opinion leaders.
(a) Formal opinion leaders are opinion leaders by virtue of their rank or position, such as Members
of Parliament, newspaper editors, teachers or the clergy.
(b) Informal opinion leaders are opinion leaders by virtue of charisma, personality or background
and exert a strong influence on their peers, friends or acquaintances.
In attempting to modify public opinion it seems sensible to concentrate on trying to influence opinion
leaders who, in turn, are likely to spread understanding to ever widening circles of the general public.
5.4 Public relations techniques

Public relations programmes may be subdivided into 'contact' and 'convince' programmes. Two
sequential steps frame the implementation of virtually any public relations programme.
(a) First, it is necessary to identify and contact the relevant target public.
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(b) Then PR must satisfy that public of the merit of particular arguments, persuade them to support
specific ideas or causes, convince them to accept an organisation's proposals, or to behave in a
particular manner.
The resulting communication process may be broken down into a number of stages.
People are made aware of an idea or argument

Their interest in it is aroused
They are persuaded of its merits (and the potential benefits for themselves)
They are shown how to respond and are encouraged to do so
You will note that these stages correspond with the AIDA model.
5.5 The range of PR techniques

PR employs a wide range of techniques, sometimes called a media menu. Inevitably, some techniques
will be more appropriate than others. It is possible, therefore, to classify the different types of techniques
or media according to the type of project areas in which they appear to be most effective.
(a) Consumer marketing support area techniques
(i) Consumer and trade press releases

(ii) Product/service literature
(iii) Special events (in-store competitions, celebrity store openings, product launch events,
celebrity endorsements)
(iv) Sport and, to a lesser extent, arts sponsorships
(b) Business-to-business communication area techniques
(i) Corporate identity design

(ii) Corporate literature
(iii) Trade and general press relations, both national and international
(iv) Corporate and product videos
(v) Trade exhibitions
(c) Corporate, external and public affairs area techniques
(i) Corporate literature

(ii) Corporate social responsibility programmes and community involvement programmes
(iii) Local or central government lobbying
(iv) Industrial lobbying
(v) Local/national sponsorships
5.6 Sponsorship
Sponsorship stands alongside other forms of promotion as a method by which companies can
communicate with potential customers. There are many other influences on sales, and it is extremely
difficult to isolate the effects of specific marketing activity on them. There are, however, several potential
advantages of sponsorship.
(a) Improved distributor and customer relations
(b) The impact of sponsoring 'worthy' events can have a wide positive effect on the attitude of
potential customers toward the company's services.
(c) Sponsorship has wider implications in public relations terms. It demonstrates good corporate
citizenship and it may also have a positive impact on the company's employees.
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E X A M P L E
Sponsorship of television programmes has grown from nothing five years ago to being a hugely popular
medium since Cadbury first sponsored Coronation Street. The practice has been popular in the US for
decades.
Sports sponsorship was worth £460 million in the UK at the end of 2002. This figure is still a long way
from that spent on conventional advertising, but it is a sign of a resilient sector. It is no longer the poor
relation of other marketing initiatives, nor is it necessarily the first activity to be axed in an economic
downturn.
The public has a high level of acceptance of sponsorship, with many recognising that if there is no
sponsorship, there will be no event at all. Spiralling costs have meant that sponsors are increasingly
prepared to consider involvement at the grass roots level rather than more glamorous but higher cost
events. This appeals to today’s socially responsible consumer who is looking for genuine involvement to
overcome his cynicism about corporate motives.
Adapted from What’s New in Marketing, online, 2003
6 Direct marketing
The aims of direct marketing are to acquire and retain customers.
The Institute of Direct Marketing in the UK defines direct marketing as 'The planned recording,
analysis and tracking of customer behaviour to develop relational marketing strategies'.
Direct marketing helps create and develop direct relationships between the consumer and the company
on an individual basis. It is a form of direct supply, embracing both a variety of alternative media
channels (such as direct mail), and a choice of distribution channels (such as mail order). Direct
marketing removes all channel intermediaries apart from the advertising medium and the delivery
medium, thus maximising control and revenue.
6.1 Direct marketing media

Direct marketing encompasses a wide range of media and distribution opportunities.
Television
Radio
Direct mail
Door-to-door
Mail order
Telemarketing
Computerised home shopping
Home shopping catalogues
In developing a comprehensive direct marketing strategy, organisations will often utilise a range of
different yet complementary techniques.
Direct mail tends to be the main medium of direct response advertising. Newspaper ads can
include coupons to fill out and return, and radio and TV can give a phone number to ring, but direct mail
has particular strengths as a direct response medium.
(a) The advertiser can target down to individual level.
(b) The communication can be personalised. Known data about the individual can be used, while
modern printing techniques mean that parts of a letter can be altered to accommodate this.
(c) The medium is good for reinforcing interest stimulated by other media such as TV. It can
supply the response mechanism (a coupon) which is not yet available in that medium.
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(d) The opportunity to use different creative formats is almost unlimited.
(e) Testing potential is sophisticated: a limited number of items can be sent out to a test panel
and the results can be evaluated. As success is achieved, so the mailing campaign can be rolled
out.
The cornerstone upon which the direct mailing is based, however, is the mailing list. It is far and away
the most important element in the list of variables, which also include the offer and timing and creative
content. Mailing lists are a kind of database; which have already been discussed in this Work Book.
6.2 Telemarketing
Telemarketing is the planned and controlled use of the telephone for sales and marketing
opportunities. Unlike all other forms of direct marketing it allows for immediate two-way communication.
Telemarketing can be used for a wide variety of purposes.
(a) Building, maintaining, cleaning and updating databases. The telephone allows for accurate
data-gathering by compiling relevant information on customers and prospects, and selecting
appropriate target groups for specific product offerings.
(b) Market evaluation and test marketing. Almost any feature of a market can be measured and
tested by telephone. Feedback is immediate so response can be targeted quickly to exploit market
knowledge.
(c) Dealer support. Leads can be passed on to the nearest dealer who is provided with full details.
(d) Traffic generation. The telephone, combined with postal invitations, is the most cost effective
way of screening leads and encouraging attendance at promotional events.
(e) Direct sales and account servicing. The telephone can be used at all stages of the
relationship with the prospects and customers. This includes lead generation, establishing buying
potential for appropriate follow-up and defining the decision-making process.
(f) Customer care and loyalty building. Every telephone contact opportunity can demonstrate to
customers that they are valued.
(g) Crisis management. If, for example, there is a consumer scare, immediate action is essential to
minimise commercial damage. A dedicated hotline number can be advertised to provide
information and advice.
7 Internet marketing
Access to the Internet is becoming easier and easier: most new PCs now come pre-loaded with the
necessary software and developments in telecommunications networks will eventually render modems
unnecessary. The decision to use the Internet and related digital technologies for either the whole
or as a part of the business operations is a strategically significant decision.
The Internet can be used by organisations for business-to-consumer and/or business-to-business
purposes. In the UK some 80% of Internet activity is business-to-business related, although as more
members of the public get on-line and telephone and access costs reduce, so this divide should narrow.
The Internet offers two main marketing opportunities, namely distribution and communication. The
ability to reach customers directly and so avoid many channel intermediaries reduces transaction costs
and is a prime goal for most organisations.
The use of the Internet as a communications medium is equally attractive. It is more than a medium as it
facilitates interactivity and a two-way dialogue that no other method of communication can
support. Unlike other forms of communication, dialogue is induced by the customer, the speed and
duration of the communication is customer controlled and the intensity of the relationship (with the
online brand), is again customer managed. All the traditional tools of the promotional mix can be
deployed over the Internet, with varying degrees of success, but it appears that offline marketing
communications are required to support the online communications and facilities.
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7.1 Web sites

Most companies of any size now have a web site. Individual company web sites are used for providing
general information, for advertising and for interactive shopping. Portal web sites such as Yahoo! make
money by selling advertising space. For instance if you type in 'beer' as a search term on Yahoo! an
advertisement for Miller Genuine Draft will appear as well as your list of beer-related sites. If you click on
the advertisement you are taken to the advertiser's web site.
7.2 E-mail as a promotional tool

There are various uses of e-mail.
To advertise a product/service, usually with a link to a web site

To update a subscriber to a product/service with useful information
To confirm an order
To invite users to write in or to respond to a helpline
Unsolicited e-mail is probably more intrusive than traditional 'junk mail', though less so than the
telephone. However, bad use of e-mail can have the habit of upsetting large numbers of people, to the
extent that in Europe regulation is felt to be needed.
7.3 Web site management

Management need to attend to three main decisions concerning their Internet and digital-related
facilities. These are their development, maintenance and promotion. All of these use resources and
management need to be clear about the level of support that is appropriate. One of the key concerns is
the web site itself. To be successful the web site should do the following.
(a) Attract visitors – with online and offline methods
(b) Enable participation – interactive content, and suitable facilities to allow for transactions
(c) Encourage return visits – design targeted at needs of particular segments, free services and
added value facilities
(d) Allow for two-way information sharing – personalisation reflecting visitor preferences, direct
marketing and information retrieval provide visitors with the information they are seeking
7.4 Business-to-business e-commerce

Many observers are taking the view that the future of Internet marketing lies in the business-to-
business (B2B) sector. The belief is based on the premises that:
(a) Selling low value items to consumers requires significant spending on advertising and promotion
and costly back-up systems.
(b) Consumers expect free content
(c) Businesses which look for quotes can massively increase their source of suppliers, nationally and
globally
(d) Suppliers have a wider market to appeal to.
B2B is therefore expected to break down barriers and enhance supply chain management.
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SUMMARY
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SELF-TEST QUESTIONS
1 What communication techniques might you expect to be used as part of the promotional mix?
2 What are push and pull strategies?
3 Distinguish between advertising and sales promotion.
4 What does AIDA stand for?
5 List three main types of advertising.
6 Give examples of sales promotion activities aimed at:
(i) the retailer

(ii) the sales force
7 What is merchandising?
8 What is the role of public relations?
9 What is a public?
10 Give reasons for engaging in sponsorship.
11 To what extent can creative forms be used in direct mail?
12 What is unique about the Internet as a promotional tool involving two-way communication between
supplier and consumer?
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SELF-TEST ANSWERS
1 Direct marketing, sales promotion, sales literature, personal selling, exhibitions, public relations,
advertising, branding, sponsorship, packaging.
2 Pull: get the customer to buy
Push: encourage sales people or stockists
3 Advertising is a general term for any paid form of non-personal presentation by an identifiable sponsor.
Sales promotion is a specific range of tactical marketing techniques.
4 Awareness
Interest
Desire
Action
5 Informative
Persuasive
Reminding
6 (i) Discounts or special terms

(ii) Incentives and competitions
7 Merchandising is a method by which the principal ensures that the retailer sells as many of his products
as quickly as possible, for example, by using posters, giving advice, selecting appropriate display points.
8 Management of the company's image in the view of its relevant public.
9 Any group of people who are united by a common interest.
10 Improving customer relations, impressing potential customers, demonstrating corporate citizenship.
11 To an almost unlimited extent
12 The dialogue can be initiated by the consumer.
1 This will depend on your own research.
2 Large amounts of data about purchasing patterns can be accumulated and associated with individual
customers and groups of customers whose geodemographic details are known.
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CHAPTER 10
DIRECT SELLING
Chapter objectives
The nature of personal selling
The role of the sales force in hospitality marketing
How selling effort is organised
How sales staff are motivated
How sales staff are trained
Topic list
Personal selling
Supporting the sales force
Organising sales activity
Sales force training
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1 Personal selling
'If only the salesmen would leave me alone, I would probably buy more.'
1.1 Personal selling and its role in the marketing communications mix
Personal selling is a direct and face-to-face form of communication which uses demonstration of the
product, persuasion and negotiation to make the sale.
Personal selling is important because it is both personal and interactive. All organisations have
employees with responsibility for contacting and dealing directly with customers and potential customers
with a view to informing the public about the company's products. These employees provide a vital
function to the organisation as they form a direct link to the buyers. When these employees have the
specialist function of informing, convincing and persuading to buy, they are known collectively as the
sales force.
The reasons why an organisation might decide that a personal sales element in the communication mix is
worthwhile are likewise diverse. They include the following.
(a) The need to demonstrate a technical product (especially in the sale of industrial goods).
Retailers may employ store assistants with some technical knowledge of the products on sale, but
a manufacturer's own sales force is likely to be given specialised product training.
(b) The need to explain a complex product or service.
(c) A lack of active selling by intermediaries and the desire to improve sales. Wholesalers
and retailers will try to sell all the products they handle, and will not favour one manufacturer's
products. Even dealers are sometimes lethargic in trying to sell their products.
(d) An inability to persuade intermediaries to accept products (there is often resistance by

wholesalers and retailers to new products).
(e) High intermediary profit margins affecting the final sale price to customers. These costs of
intermediate stages in the distribution channel mean that direct selling in some cases will be
cheaper.
(f) A small market with only a few target customers may make direct selling cheap (and a dealer
network impracticable).
E X A M P L E
Business-to-business marketers in technical markets, such as computers or specialist machinery, will take
the time to explain the product benefits or be involved in the design of the product (or service, such as
computer software) with the client.
(g) As a means of maintaining good relations with end customers, and obtaining feedback (ie
market research information) about what the customer likes and does not like about the current
products, or what new product developments the customer would wish to see happening.
Selling an intangible service such as travel is difficult, as the benefits of the service are difficult to
communicate.
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Irrespective of the type of salesforce a company may use, the salesforce needs the support of other
groups within the organisation if it is to operate efficiently and effectively. We can identify the following
groups whose activities impact upon the effectiveness of the salesforce.
(a) Top management who can be increasingly involved in the selling process, particularly with big
orders or key accounts.
(b) Technical sales personnel who supply technical information and service to the customer
before, during or after the sale of the product.
(c) Customer service representatives who provide installation, maintenance and other services to
the customer.
(d) Office staff including sales analysts, administrators and secretarial staff.
1.2 The tasks in the selling process

Personal selling is probably the area of the promotional mix that has the most stereotypes attached to it.
The image of the 'travelling salesman' is an enduring one. However, this masks the reality that the term
sales representative covers a broad range of positions, which vary tremendously in terms of tasks and
responsibilities. These positions may be classified as:
(a) Deliverer, where the salesperson's job is predominantly to deliver the product.
(b) Order taker, where the salesperson passively takes orders from the customer.
(c) Missionary, where the salesperson is not expected or permitted to take an order but is expected
to build goodwill or educate the customer in the use of the product. Medical representatives from
pharmaceutical companies may fall into this category. Increasingly, their commercial effectiveness
is monitored.
(d) Technician, where the salesperson's main skill is the application of his technical knowledge
relating to the product. The salesperson acts primarily as a consultant to the customer.
(e) Demand creator, where the salesperson has to stimulate demand and creatively sell tangible or
intangible products.
1.3 The characteristics of a salesperson

The qualities and characteristics which make up a good salesperson are many and varied. Their role is
not a particularly easy one. Often working alone, it is easy to become isolated and the need to be a self-
motivator is essential. Contact with clients requires patience and tenacity and a sense of humour is
likely to be a valuable commodity too. Although it is possible to develop some of the skills with training
and good management: support can reduce the impact of working alone, providing motivation.
Enthusiasm Enthusiasm for the product and the company is likely to mean the person will
be a good ambassador. Enthusiasm for the job will help provide the energy
necessary for the self-motivator.
Intelligence The salesperson is to be a credible troubleshooter for the company and

problem-solver for the client. This intelligence does not necessarily need to
be certificated by academic qualifications. It is more a natural wit and
commonsense which enables the individual to assess new people and
situations, and react positively. Being able to communicate at different levels
of seniority and modify the message according to the audience is also a
reflection of a level of intelligence.
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Reliability Salespeople often work alone and are unsupervised. They have to be relied
on to undertake their functions thoroughly and as briefed. Equally important
is the client's perception of the company – late arrival for meetings and
agreements which are broken, generate the image of an unreliable company
as well as an unreliable salesperson.
Commitment Commitment ensures that sales targets are pursued with determination,
while commitment to the customer ensures their needs and problems are
dealt with diligently. Commitment also encompasses a sense of loyalty to the
firm. It is easy for a salesperson to fall into the trap of 'blaming head office'.
A sense of loyalty and dedication to the rest of the team is an important
anchor for the salesperson working alone.
Initiative and A salesperson will seldom be in the same situation twice. As the needs of the
creativity customer and market place vary, so there are new opportunities which need
to be recognised and developed. This requires both initiative and creativity.
Developing new contacts and new avenues for business will be unlikely if the
sales approach is routine and limited.
Self-confidence Constantly meeting new people and travelling to new places requires a
confidence in oneself and also in the company and the products being
represented. Not all potential buyers are pleasant and morale can take a
considerable hammering if the individual is not of a resilient and confident
nature.
Courtesy 'The customer is always right', is an easier philosophy to preach than it is to

always follow. As sales staff are likely to be at the front line of dealing with
customer complaints, their tact, integrity and customer care training will
determine whether or not the customer remains loyal to the company,
despite the lapse in product or service quality.
Sensitive In order to pick up the behavioural signals and messages and interpret them
effectively, the sales person needs a degree of sensitivity.
An order taker is not a salesperson.
1.4 The advantages and disadvantages of personal selling
Advantages
A number of advantages can accrue from using personal selling compared with other promotional tools.
(a) Personal selling contributes to a relatively high level of customer attention since, in face-to-
face situations, it is difficult for a potential buyer to avoid a salesperson's message.
(b) Personal selling enables the salesperson to customise the message to the customer's specific
interests and needs.
(c) The two-way communication nature of personal selling allows immediate feedback from the
customer so that the effectiveness of the message can be ascertained.
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(d) Personal selling allows a larger amount of technical and complex information than could
be communicated using other promotional methods.
(e) In personal selling there is a greater ability to demonstrate a product's functioning and
performance characteristics.
(f) Frequent interaction with the customer gives great scope for the development of long-term
relations between buyer and seller, making the process of purchase more of a team effort.
If the marketing is good, you don’t need salespeople.
Disadvantages
The primary disadvantage of personal selling is, of course, the cost inherent in maintaining a sales
force. In addition, a salesperson can only interact with one buyer at a time. However, the message is
generally communicated more effectively in the one-to-one sales interview, so the organisation must
make a value judgement between the effectiveness of getting the message across against the relative
inefficiency of personal selling in cost terms.
1.5 Personal selling in the hospitality and travel sector

Personal selling is inappropriate for many hospitality and travel products, since they are relatively simple
and cheap from the customer’s point of view. Budget hotel accommodation and air travel would fall into
this category. On the other hand, personal selling is an important part of the promotion mix for more
expensive and complex products. Bowie and Buttle (2004) say that 'face-to-face' selling is appropriate
when:
(a) The product is complex or risky and needs detailed explanation

(b) The product specification can be adapted to suit the needs of the client
(c) The potential value of the sale is relatively high
(d) The price is negotiable
(e) The prospective client, or intermediaries, can influence or make the decision to book business
(f) The prospective clients expect a sales visit
(g) Competitors are likely to pitch for the business
Sales activities
Sales representatives will carry out a wide range of activities.
(a) Prospecting: gathering additional prospective customers in addition to sales leads generated by
the company on his behalf.
(b) Communicating: communicating information to existing and potential customers about the
company's products and services can take up a major proportion of the salesperson's time.
(c) Selling, in other words, 'the art of salesmanship', encompassing approaching the customer,
presenting, answering objections and closing the sale.
(d) Servicing. A salesperson may provide various services to the customer, such as consulting about
their problems, rendering technical assistance, arranging finance and expediting delivery.
(e) Information gathering. The salesperson can be a very useful source of marketing intelligence
due to the links with the end customer. Many salespeople are responsible for supplying regular
reports on competitive activity within their particular sales area.
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E X A M P L E
Many holiday companies will send or give a customer a questionnaire after the holiday. This can be used
to assess customer satisfaction and to gather important market research information that can be used by
sales staff.
(f) Allocating. The salesperson may assist in evaluating customer profitability and creditworthiness,
and may also have to control the allocation of products to customers in times of product
shortages.
While a salesperson may engage in all these tasks from time-to-time, the mix of tasks will vary according
to the purchase decision process, company marketing strategy and the overall economic conditions of
the time. For example, with regard to the influence that the buying decision process may have on the
salesperson's mix of tasks, the skills needed for a straight rebuy situation (where the customer has
bought the same product under the same conditions of sale in the past) will be totally different from
those required to develop a new account.
Sales campaigns
Sometimes, sales staff will be concentrated in a particular geographic area in order to carry out a major
campaign combining prospecting, telesales, cold calling and pre-booked meetings. This kind of ‘blitz’ can
be very effective both in raising customer awareness and in increasing actual sales, but it requires major
organisational effort.
E X A M P L E
From Pacific Business News (Honolulu)
The state's tourism marketers will launch the year's biggest sales blitz this month to try to attract more
meetings to Hawaii.
The Hawaii Visitors and Convention Bureau, its island affiliates and the Hawaii Convention Center will
showcase Hawaii's food, music and hula Sept. 26-28 at an industry trade show in Chicago.
More than 100 salespeople from Hawaii and 47 travel industry representatives also are part of the
statewide sales program.
www.bizjournals.com/pacific 21 September 2006
2 Supporting the salesforce
A C T I V I T Y 1 5 m i n u t e s
Professional services such as medical services can also be marketed. What characteristics would a
salesperson in this market need?
For the most effective use of the sales resource, it has to be supported by other activities in the
organisation, particularly marketing.
Support provided from the centre not only makes the salesperson's task easier, it makes the whole team
effort more effective.
The role of the sales support activities should be to:
(a) Maximise the proportion of sales time spent in face-to-face client contact
(b) Provide direction, and to ensure sales resources are targeted at the market segments and leads
offering the greatest potential
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(c) Provide the necessary back-up to help the sales person ensure a continuing relationship with a
satisfied customer
2.1 Converting awareness to action

Sales and marketing have to be co-ordinated in the joint objective of easing customers through the
decision-making process from awareness to action.
One role of marketing is to provide sales with a flow of qualified leads. These should represent
potential customers who are aware of the company and/or product, are already interested in it and who
have or begun to have a positive attitude to its purchase.
(a) The conversion rate of contacts already this far down the decision-making process is likely to be
higher than if the buyer has to be introduced to the product or company by the salesperson.
(b) The salesperson can concentrate on the action stage of selling, where it is particularly effective.
This reduces the amount of non-selling time spent generating leads and so on.
2.2 Promotional tools

Each of the promotional tools of marketing have their own particular strengths and weaknesses.
(a) Advertising and public relations are good at generating awareness and interest, but poor at
action.
(b) Personal selling on the other hand is too labour intensive and expensive to be very good at
generating awareness and interest, but it is very good at building desire, changing attitudes
and converting this to sales.
Used in combination, the promotional tools ensure the maximum number of customers are moved
through the decision-making process at the minimum cost.
Communication objectives should therefore be written and results measured, in specific terms.
Advertising should not be judged in terms of actual sales, but in terms of awareness or attitude. The
advertising may be working, generating awareness and interest but if they are not being converted to
sales by the sales team, then this is the element of the communication mix which needs reviewing.
The precise combination of marketing activities used to generate quality sales leads will vary from
industry to industry. In consumer markets, media advertising, offering brochures may be a means of
identifying precisely those who are interested. In industrial markets the exhibition may be a more
appropriate means of generating qualified leads. Direct mail and telephone selling are also likely to be
used to provide the sales team with qualified sales leads.
Whatever combination of communication tools is used, the contribution of each to achieving eventual
sales must be quantified and evaluated. Marketing managers need to recognise that it is often more cost
effective to increase the conversion rate of interested contacts into sales, than to increase the numbers
of people who are aware of the product. Getting the balance right between the selling effort and other
promotional support is critical to the effectiveness and efficiency of the overall marketing effort.
E X A M P L E
From an interview with Ashok Anantram, vice-president (sales & marketing) ITC hotels
We also have an extremely focused field sales force supported by a highly creative corporate marketing
set-up. This has resulted in our brand management team delivering products tailor-made for finely
defined target segments. We believe the ability to maintain and reinforce close interaction with the
customer is the best form of differentiation. We also have a very strong data management and direct
marketing cell.
http://timesofindia.indiatimes.com 13 Nov 2001
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3 Organising sales activity

3.1 Sales people
Kotler, Bowen and Makens describe two main divisions of the hospitality and tourism sales force: inside
and field.
(a) The inside sales force falls into three categories.
(i) Technical support staff deal with technical queries from customers.
(ii) Sales assistants support the field sales team by performing such activities as credit checks
and making appointments.
(iii) Telemarketers perform a wide range of duties using the telephone, including prospecting
for leads, upgrading orders and following-up direct mail leads.
Hotel reservations staff are not accounted as sales staff, but as they have contact with most
customers, they can make a major contribution to the sales effort.
(b) The field sales force falls into two main categories.
(i) Salaried representatives are used where there is considerable sales potential. Salaried staff
may also receive an element of commission.
(ii) Commission-only representatives are used to cover markets with lower or intermittent sales
potential. These will usually be foreign and more distant domestic markets.
3.2 Organising the sales effort

Eventually, all large sales organisations involve a territorial breakdown. Where there is no specialisation,
the sales organisation may be based entirely on geographical divisions.
The purpose of a territorial sales force
(a) Reduce travelling time and costs.

(b) Enable the salespeople to get to know their customers and sales areas.
(c) Motivate salespeople by giving them autonomy over their area.
(d) Give salespeople an equal workload or equal sales potential.
(e) Keep the organisation and administration simple.
3.3 Specialised selling organisation structures

Specialisation may be introduced into a sales organisation, and may take any of the following forms (or
combination of several).
(a) Specialisation by the nature of product. The greater complexity of the goods to be sold and
the more knowledgeable the customer, the greater the necessity to employ salespeople with a
skilled knowledge of the product.
(b) Specialisation by the range of products. If a company provides a range of products, its
salespeople may specialise in a part of the range. For example, in a travel company, some
salespeople may specialise in package tours and others in corporate travel.
(c) Specialisation by distribution channel. Intermediaries, such as travel agents, tour operators
and wholesalers may be so important as to warrant dedicated sales teams.
(d) Specialisation by market segments. Examples of specialisation by market segment are as

follows.
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(i) Home and overseas sales

(ii) Business and non-business sales
(iii) Male and female markets
The advantage of market specialisation is that salespeople get to know the needs of a particular
market segment.
A combination of these different types of sales force designs can be used. Salespeople might specialise in
a type of customer or type of product within a sales area or they might specialise in a type of product for
a restricted number of potential customers and so on.
3.4 Role of management

The role of management in maintaining not just routine communication, but informative, supportive,
persuasive and effective communication, is key to successful sales operation.
(a) The reality is that weaknesses in this area of management activity will show up more quickly and
visibly in a sales team than anywhere else.
(b) The sales job is peculiar: it is often isolated and difficult, yet performance can be measured and
monitored by the success or not of yesterday's sales calls.
(c) The communication task facing the sales manager is made more difficult by another characteristic
of the sales team. They are trained communicators and so likely to see through any insincere
messages. If the manager does not believe targets are really achievable, however he or she
dresses it up, the sales team is likely to recognise the lack of confidence.
(d) Their performance will reflect the expectation to fail. Attitude affects results and performance and
positive communication can change both.
E-mail, mobile phones and video conferencing all have improved day-to-day communications between
head office, clients and the sales force.
3.5 Motivating the sales team

Motivation is simply reasons for behaviour. People at work display varying degrees of motivation to
achieve the goals set by management. It is an important task of managers at all levels to enhance the
individual's motivation to work effectively.
Managers can provide the team with the opportunity and resources to work, but without motivation, little
effective work will result. Motivation is the magic ingredient or catalyst which the manager has to add to
the work situation to generate results. It is suggested that if individuals can be motivated, by one means
or another, they will produce a better quality of work. Sales personnel, in particular, need to be
motivated.
3.6 Motivators and motivation

We discussed motivation when we dealt with customer buying behaviour. The same principles apply to
behaviour in other contexts. In the most basic terms, an individual has needs which he or she wishes to
satisfy. The means of satisfying the needs are wants. For example, an individual might feel the need for
power, and to fulfil this need, might want money and a position of authority. Depending on the strength
of these needs and wants, she/he may take action to achieve them. If successful in achieving them,
she/he will be satisfied. This can be shown in a simple diagram.
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Needs are Action is If achieved,

Individual
crystallised taken to individual
has needs
as wants achieve wants is satisfied
Management has the problem of creating or manipulating motivators which will actually motivate
employees to perform in a desired way.
3.7 Methods of improving motivation and job satisfaction

There are various ways in which managers can attempt to increase the motivation of their subordinates.
(a) Herzberg and others recommended better job design, in terms of content, and extent methods
(b) Various writers have suggested that subordinates' participation in decision-making will
improve motivation through self-realisation and empowerment.
(c) Pay and incentive schemes are frequently regarded as powerful motivators.
Schemes of job design and participation are matters for higher management policy. Here we will confine
ourselves to a brief examination of pay and incentive schemes as motivators for sales staff.
3.8 Pay and incentive schemes
Pay as a motivator
Employees need income to live. The size of that income will affect the standard of living, and although
they would obviously like to earn more, they are probably more concerned about two other aspects of
pay.
(a) That they should earn enough.
(b) That pay should be fair in comparison with the pay of others both inside and outside the
organisation.
Limitations to the use of money as a form of motivation

Rates of pay are perhaps more useful as a means of keeping an organisation adequately staffed by
competent, qualified people, rather than as a means of getting them to work harder.
In most large companies, salary levels and pay levels are usually structured carefully so as to be
'equitable' or fair. Managers and workers will compare each other's pay and will be dissatisfied if the
comparison is unfavourable. Pay is, therefore, more likely to be a hygiene factor than a motivator.
When employees expect a regular annual review of salary, increases in pay will not motivate them to
work harder. Indeed, if the increase is not high enough, it may be a source of dissatisfaction.
3.9 Incentive schemes

Pay as a motivator is commonly associated with commission or incentive schemes, where a salesperson's
pay depend on sales targets. If pay increases do not immediately follow improved performance, or
completed tasks, they lose their 'connection' with results.
All incentive schemes are based on the principle that people are willing to work harder to obtain more
money. However, the work of Mayo has shown that there are several constraints which can nullify this
basic principle.
(a) The average employee is generally capable of influencing the timings and control systems used by
management.
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(b) Employees remain suspicious that if they achieve high levels of output and earnings then
management would alter the basis of the incentive rates to reduce future earnings.
(c) Often, employees conform to a group output norm. The need to have the approval of their fellow
workers by conforming is more important than the money urge.
(d) High taxation rates would mean that workers do not believe that extra effort produces an
adequate increase in pay.
A short-term incentive scheme involves a direct observable link between personal or team efforts and the
reward gained. However a long-term scheme such as a profit-sharing scheme, has a less personal
relevance and a slower pay-back.
Common types of short-term incentive schemes

Individual payment by results, such as a sales bonus over and above a basic wage ('day rate') for
achieving set standards of sales over a prescribed period. There is thus a direct link between
performance and earnings for each individual so the motivating effect is strong. However, it has its
disadvantages.
(a) The system is complex and expensive to administer.
(b) If quantity of sales is the relevant index, margins may suffer as sales staff negotiate lower prices
to make sales.
(c) Employees may manipulate sales, because of fears that high sales will become a new 'norm', with
a reduction in the pay incentive.
(d) Employees outside the scheme may resent the wage levels of those inside: pay differentials may
be eroded. It has been known for top sales people to earn more than the Managing Director.
(e) Employees may worry about losing pay because of illness, holidays and so on.
E X A M P L E
Brassington and Pettitt note different schemes for remuneration.
(a) Rentokil Initial offers a package of financial and non-financial benefits to attract and retain staff.
These include mobile phone, pension scheme, car, regular training and promotion prospects. The
culture of the firm values the salesforce, and strongly equates motivated sales representatives
with additional sales.
(b) For an Avon representative, remuneration is based largely on commission, with commission rates
increasing with larger customer orders.
4 Sales force training

4.1 The contribution of training
The increasingly dynamic nature of modern business (changes in technology, products, processes and
control techniques) and the need for planned growth mean that a working organisation's competitiveness
depends more and more on the continuous reassessment of training needs and the provision of planned
training to meet those needs.
Training can certainly contribute, given the following provisos:
(a) It must be the correct tool for the need: it cannot solve problems caused by faulty organisation,
equipment or employee selection.
(b) Reasons for neglecting training must be overcome: these include cost, inconvenience, apathy and
an unrealistic expectation of training in the past.
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(c) Limitations imposed by intelligence, motivation and the psychological restrictions of the learning
process must be understood.
Make a list of the training you have received (if any) in your current post. Do you still have some training
needs?
4.2 Training requirements

Kotler, Bowen and Makens (2005) say that a sales team requires training in three areas.
(a) Products and services. This will cover changes to product style, standard and provision.
(b) Policies and procedures. This will include both the procedures that affect customers and those
that define the ways in which the sales people themselves are required to work.
(c) Sales techniques. Success in selling techniques depends as much on personality as on learned
technique, but, generally, effectiveness in selling can be enhanced by training in sales techniques.
4.3 Training methods
Formal training
Introductory and update training will probably be provided by the relevant sales manager, though larger
organisations may provide centralised classroom-based courses. Self-study using manuals and videos is
also very common. Some training may be outsourced to consultants or colleges.
E X A M P L E
Coastal Vacations has announced the dates and location for their fall membership conference, and
teaching sales techniques to members is the dominant theme. The final membership conference this year
will be in Orlando Florida September 1st, 2nd and 3rd. The Gaylord Palms Resort will host the conference
which will feature three well known sales trainers.
www.prweb.com/ 18 April 2006
On-the-job training (OJT)

OJT is very common, especially when the work involved is not complex. For example, a new recruit can
accompany a senior sales executive to the customer.
Coaching
Coaching is a common method of OJT; the trainee is put under the guidance of an experienced
employee who demonstrates how to do the job and helps refine the trainee's technique.
All forms of training require the commitment of the organisation to the learning programme. It must
believe in training and developing employees, and be prepared to devote both the money and the time.
The manager will largely dictate the department's attitude to these things.
What are the problems of relying on ‘on the job’ training?
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SUMMARY
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SELF-TEST QUESTIONS
1 Personal selling is important because it is both personal and interactive. True or False?
2 Why might an organisation decide to incorporate personal selling in its communications mix?
3 What are the major roles of the salesperson?
4 What are the main advantages of personal selling?
5 List three characteristics of a good sales person.
6 What four categories of staff should be included in the inside sales force?
7 Is pay a good motivator?
8 In what three areas do sales people require training?
SELF-TEST ANSWERS
1 True.
2 To demonstrate a technical product, explain a complex product, improve sales, to persuade wholesalers
and retailers to stock products, if it is a small market or if direct selling may be cheaper.
3 Deliverer; order taker; missionary; technician; demand creator.
4 Customers' attention; customised messages; immediate feedback; handling large amount of complex
information.
5 Could include three of enthusiasm, intelligence, reliability, commitment, initiative, creativity, self-
confidence, courtesy or sensitivity.
6 Sales assistants, technical support staff, telemarketers and reception staff
7 It can be, but there are some problems
8 Products and services; policies and procedures; and sales techniques
1 Knowledge and understanding of the profession
Professionalism
An 'unpushy' approach
Technical excellence
Good communication skills
2 There is no specific answer to this activity. It depends upon your own experience.
184
This is a real past CTH examination. Once you have completed your studies, you should attempt this
under exam conditions. That means allowing yourself the full time available of 2½ hours. Do not look
at the suggested answers until you have finished.
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PRACTICE EXAM
QUESTION PRACTICE
CTH diploma courses are all assessed by examination. This method of assessment is used as it is
considered to be the fairest method to ensure that students have learnt the things they have been
taught.
On the following pages you will find a practice exam for this subject. When you have worked through
this study guide and answered the self-test questions you should make a full attempt at the practice
exam, preferably under exam conditions. This will give you the opportunity to practise questions in the
CTH exam format.
The exam questions in this paper are examples of this subject’s questions. The answers provided are
notes used by the examiners when marking the exam papers. They are not complete specimen answers
but are of the type and style expected. In some cases there is a list of bullet points and in others more
text or essay style, however they are representative of the content expected in your responses.
Information given contains the main points required by the Chief Examiner.
SECTION 1 – A1 - A10 (2 mark questions)

These questions are looking for factual information and test concise and logical thinking. As a general
rule, for a two mark question CTH is looking for one or two word answers or maybe a short sentence.
Therefore either text or bullet points will be accepted. If two points are asked for, marks will be allocated
for each point. If only one answer is asked for we would expect a short sentence.
Here we are trying to assess your knowledge of the subject and to identify if you can recall the basic
principles, methods, techniques and terminology linked to the subject.
SECTION 2 – A11-A15 (4 mark questions)

These questions are looking for factual information and test concise and logical thinking. As a general
rule, CTH is looking for bullet points or a short paragraph for the answer to a four mark question. If two
or four points are asked for, marks will be allocated for each point. If only one answer is asked for we
would expect a few sentences or a short paragraph.
Here we are trying to assess your knowledge of the subject and to identify if you understand and can
demonstrate how principles, methods and techniques can be used.
SECTION 3 – B1 (20 mark questions)

These 20 mark questions are looking for factual information and how those facts can be applied to both
the subject and the hospitality industry. We expect to see essay style answers to show your knowledge
of the subject and its application.
From this section you need to select three questions from a choice of five. Do not answer more than
three as only the first three answers will be marked. These are essay style questions so you
should select the three that you feel you are the most prepared for. No matter how good the answer is,
if it does not answer the question you will not be given any marks – marks are only allocated when the
answer matches the question.
If you run out of time in the exam jot down the essential points that you intended to include; the
examiner will allocate marks for any correct information given.
It is difficult to assess how much you are required to write for a 20 mark question – some people can
answer in a page, other people need several pages. What is important is that you answer the question
asked – it is about the quality of the answer not the quantity written.
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20 mark questions
The following descriptors give you information on the CTH marking scheme and what you need to aim
for at each level.
Grade Explanation
Level 4 Demonstrates knowledge of analysis and evaluation of the subject
(15-20)
Level 3 Demonstrates knowledge of application of the subject
(11-15)
Level 2 Demonstrates knowledge and comprehension of the subject
(6-10)
Level 1 Does not demonstrate knowledge and understanding of the subject
(1-5)
Level descriptors
The following level descriptors give you information on what you need to aim for at each grade.
Grade Explanation
Distinction Demonstrates knowledge of analysis and evaluation of the subject
Merit Demonstrates knowledge of application of the subject
Pass Demonstrates knowledge and comprehension of the subject
Fail Does not demonstrate knowledge and understanding of the subject
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PRACTICE EXAM
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190
PRACTICE EXAM
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MARKETING
192
ANSWERS
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PRACTICE EXAM – ANSWERS
Section A
A1 a & b) Government statistics and customer questionnaires.
A2 b) Political economic social technological
A3 Advantages Disadvantages
Already targeted at particular market segments The cost per client reached is relatively high
Larger reading audience Infrequency of publication
Longer shelf life The evaluation of the response is difficult
A4 Advertising is information presented by and paid for by the business, whilst editorial content is
news stories about the business written by journalists.
A5 Something that encourages you to do something because you know that you will benefit from it.
For example buy one get one free (BOGOF); three for the price of two; book now and save 20%.
A6 A general statement about the main objectives of the firm and its customers. It is a brief
statement of the purpose of a company or other organisation. Companies sometimes use their
mission statement as an advertising slogan, but the intention of a genuine mission statement is to
keep members and users aware of the organisation's purpose.
A7 Public relations is:
Building the corporate image of the organisation and its products with deliberate publicity
material
Sport sponsorship events, teams or individuals
Sponsorship of public events
Medical sponsorship educational sponsorship of schools or programmes
Charity sponsorship
Sponsorship of an award
Publicity is the planned attempt to manage the public's perception of a subject. The subjects of
publicity include people, goods and services, organisations of all kinds, and works of art or
entertainment. Can also be defined as information which makes people notice a person or
product.
A8 The amount of money which an individual has available to spend on inessential items after
essential bills have been met. Money available to spend on leisure and personal interests eg
hotels and holiday travel.
A9 Directional selling - Booking with suppliers with whom the agency has a preferred supplier
relationship.
The practice by a travel agent of influencing consumers to buy a particular tour operator's
products rather than those of other operators.
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A10 An analysis of strengths, weaknesses, opportunities, threats. It is used to develop the marketing
strategy based upon an assessment of the strengths and weaknesses of the company.
A11 May be gauged through changes in the level of sales and profitability, consumer awareness,
recognition, brand image or attitudes towards a product.
A12 In-house selling is an effective part of revenue management. This occurs through training of sales
and reservations employees to continuously offer a higher priced product rather than settling for
the lowest price. One proponent of in-house selling believes that any hotel can increase its
revenue by 15% through in house selling.
A13 Product, Price, Place, Promotion
Product – Anything that satisfies a need or want. From the customer's point of view it is a solution
to a problem or a package of benefits. The term 'product' refers to tangible, physical products as
well as services. Here are some examples of the product decisions to be made:
Brand name
Functionality
Styling
Quality
Safety
Packaging
Repairs and support
Warranty
Accessories and services
Price – The price is the amount a customer pays for a product. It is determined by a number of
factors including market share, competition, material costs, product identity and the customer's
perceived value of the product. The business may increase or decrease the price of product if
other organisations have the same product.
Place – Place deals with how the product is distributed, and how it reaches its customers. Place
represents the location where a product is located or can be purchased. It is often referred to as
the distribution channel. It can include any physical store as well as virtual stores on the Internet.
Promotion – Promotion represents all of the communications that a marketer may use in the
marketplace. Promotion has four distinct elements – advertising, public relations, word of mouth
and point of sale.
A14 An analysis of alternative actions and their predictable short-term and long-term environmental
effects, incorporating physical, biological, economic, and social considerations.
A15 Membership enables the organisation to keep their independence and to:
link to global computerised systems
buy into an international or domestic brand
participate in the consortium’s national and international marketing communication
campaigns
extend their distribution channels
enjoy discounted prices when purchasing – due to bulk purchasing power
belong to a group of similar businesses, share management and marketing information
196
Section B
B1
a) Product life cycle
Introduction and launch: the product is introduced to the market – for example opening a
new restaurant.
Growth: the period when the new product becomes widely accepted by consumers and
sales grow as the concept becomes better established.
Maturity: demand becomes stable because of increased competition and saturated market,
the product has reached its potential and growth slows.
If nothing is done to reinvent the product the last stage of the product life cycle happens.
Decline: Sales decreases due to launch of new products and customers trend, taste, economic
implication and technology, eventually the product no longer satisfies the needs of the market.
b) The actions that could be done to increase sales are
Keep reinventing the product each time it reaches the decline stage.
Using one of the marketing mix Ps: Promotion.
Advertising: informing and persuading customers to buy a product through television,

radio, newspaper, transport adverts, billboards etc.
Sales promotion: increase sales, short term tactical to reinforce the advertising.
Special offer e.g. buy one get one free , three for the price of one.
Market research to identify new tastes.
The majority of products or concepts operate in the mature stage of the life cycle which can last
for a very long period of time. The market for the product is well established and the product
itself is clearly positioned against its competitors. Managers who are aware of the product life
cycle will take action to avoid the product entering the decline stage prematurely. Mature
strategies include:
Relationship marketing to nurture and sustain loyal customer segments.
Continued investment in product quality to maintain and enhance service.
Product modifications – for example, introducing new menus/new recipes or a new

destination which can revitalise a tired product.
Re-formulation of the product concept and/or refurbishment of premises to re-launch the

product.
Adaptation of other marketing mix elements – for example, lower prices, increased
promotional activity – and targeting new intermediaries to generate additional sales.
197
MARKETING
B2 Six stages of a market research study
1 Define the problem or opportunity and decide what information is required, what questions
need asking. There should be a mention of some or all of the Ps.
2 Establish the objectives of the research. Who is going to be asked the questions, what
questions are going to be asked, what size sample will be needed and how will the
questionnaire be compiled?
3 Draw up the research plan to obtain the information. Decide the sample size, location and
the survey method which will acquire the information. Prepare the questionnaire.
4 Carry out the research. Send the interviewers out into the field, post the questionnaires,
make the phone calls, hold the meetings.
5 Collect and analyse data. All the information in the world is no good unless it is analysed.
Disorganised data is simply useless. Examples of the kind of organisation used depend on
the research being carried out. This normally means entering the data collected into a
computer, sorted into sections for cross-referencing and analysis. Age ranges, average
spending, length of stay are all possible classifications.
6 Interpret the information and produce a plan of action. This report should include a
summary of the methods used and the findings. The report should also identify the various
possible solutions and normally make recommendations as to the best action to take in the
light of the findings. Without action the whole process has been a waste of time and
money. Care must be taken in the interpretation put upon the data collected as it is easy
to use data to reinforce old prejudices and to ignore new trends coming through.
B3
a) Advantages
It helps to identify a particular product thus distinguishing it from its competitors.
It becomes associated with the benefits offered by the product acting as a ‘cue’ to
purchasers in the decision making process and enabling the company to target specific
markets.
Where the product is intangible, as is the case with tourism products, the purchase of a
branded product helps the consumer to avoid risk.
Consumers who are happy with the brand purchase are likely to repeat the purchase and
over time become regular purchasers of the brand.
Branding becomes a key tool in market segmentation strategy. Associating a brand with a
particular segment of the market can help to expand a company’s market share at a time
when the total market for a product is saturated.
Use of a brand name enables companies to employ a technique known as brand stretching
– the introduction of new products into an existing range under the same brand name.
It eases the task of personal selling.
b) Disadvantages
Consistency in delivering service is the principal problem. Customers develop quality

expectations based on previous experience and the brand's reputation regardless of where
the outlet is in the world.
Delivering brand conformance in service operations and marketing programmes requires

costly administration procedures, quality assurance programs and inspection.
198
The cost of maintaining and further developing a brand is high when introducing a new
corporate identity with the design costs, exterior and interior brand signage and publicity
material. There are also costs involved with the creating of a brand image or logo (paying
for a designer, printing new letterheads/business cards etc.), and although most of these
are only one off costs, they are still relatively large for most small businesses.
Branded businesses can lose their personal image. Every brand has a certain image to
potential customers, and part of that image is about what products or services you sell. If
you are known for selling just one product, and you want to sell another product, will you
be able to do so effectively?
The process of creating a brand will usually take a long period of time. As well as creating
a brand and updating your signs and equipment (for example, stationery, vehicles etc.),
you need to expose it to your potential customers.
Having to follow the standards set by others.
If you wish to create and maintain a strong brand presence, it can involve a lot of design
and marketing costs. A strong brand is memorable, but people still need to be exposed to
it. This often requires a lot of advertising and PR over a long period of time, which can be
very costly.
B4
a) Direct selling means the ‘selling of goods and services, which invokes direct communication
between the producer and customers, without the use of retail outlets, distributors, wholesalers
or any other type of middleman' (Medlik, 1993)
It is a form of selling which by-passes traditional retail outlets by dealing with consumers through
telemarketing, direct mail or other such measures.
Advantages to organisation
Reaches its defined target market

Salesperson able to build personal relationship with customer
Offers a wide variety of styles and formats
Can be personalised and customised to what the customer wants
Often will be received and read alone, not in competition with other promotions from other
products and services
Can hit targets otherwise inaccessible to promotional activity
Any enquiries which arise can be answered immediately
Salesperson can explain and even demonstrate the complex product
Salesperson can use upselling skills to persuade customer to purchase
Salesperson can know more about customer, their wants and needs and preferences
Can reduce selling costs
Reduces advertising costs
Reduced distribution costs
199
MARKETING
Advantages to consumer
Can see product itself

Can try and even test the product
Anything they don’t understand can be answered immediately
Can negotiate with the salesperson – even get a bargain
Can compare and contrast products within product class
Other people needed to be involved can be brought in
It is convenient for the customer and easy to bring in other individuals who need to be
involved
b) Disadvantages to organisation
Cost inherent in maintaining a sales force

Expensive start up costs re promotion
Incurs new costs in the production of mailing material
Requires the creation and maintenance of a database which takes time and money to
create, update and maintain
It is the most expensive sales channel as it demands higher staff and premises costs.
Travel time and costs can be significant. A travelling salesperson might spend a whole day
on the road for just one meeting.
Disadvantages to consumer
If you are looking for one online it is sometimes hard to find a business that is legitimate
Direct sell products are not always the cheapest, some products are similar to products
you can find in the store but for a much higher price
Can be inconvenient
Poor product quality
After sales service
Pushy, untrustworthy salespeople
Poor product descriptions
Poor guarantees
Sales people do not always respond when expected.
Poor service
B5 The Consumer Buying Process
Personal and Psychological Personal Social Cultural environmental factors
Evaluation Post
Stages of Problem Information of the Purchase purchase
the recognition seeking alternatives decision evaluation
consumer Need a Look for Which one Rational or Did I like it?
buying holiday resort hotels looks best? emotional Will I go
process Which one can again?
I afford?
200
Marketing factors
People
Product
Place
Price
Positioning Promotion
The Consumer Buying Process
Problem/need recognition. When a person starts to realise that they want something that they are
going to have to buy, such as a holiday.
Information seeking
This may be a long exhaustive process, or it may be very simple. Use of travel agents, internet,
hotel companies.
Having found out information customers will think about it and decide which they can afford to
buy, and which gives them the best value for money.
Purchase decision
Rational – reasons for purchasing a product that are based on a logical evaluation of the product
Emotional – reasons for purchasing a product that are based on non-objective factors.
Post purchase evaluation
What happens after the sale? Is the customer happy with their purchase?
Dissatisfied customers will complain, demand refunds, sue for compensation, complain to
newspapers and generally bring adverse publicity. Satisfied customers will remain loyal, as it is
easy to stay with a purchasing decision you have already made rather than start again with new
research.
There are FOUR major influences on consumers purchasing behaviour:
1 Psychological influences
An individual’s own motivations, perceptions, ability to learn and attitudes
2 Personal influences
Which will include personality, life style and economic status.
3 Social influences
Which includes family, friends, opinion leaders, co-workers, and professional associates.
4 Cultural influences
Includes culture, the way of living that distinguishes one large group from another,
subcultures, and social class. This links to demography, and includes occupation, income,
wealth and education.
201
MARKETING
202
BIBLIOGRAPHY
203
MARKETING
204
BIBLIOGRAPHY
BIBLIOGRAPHY
The following key text books have been consulted in the preparation of this study guide, and referred to (where
relevant) in the text.
Dibb, S; Simkin, L; Pride, W; and Farrell, O (2000), Marketing Concepts and Strategies, Houghton Mifflin.
Bowie, D & Buttle, F (2004), Hospitality Marketing, Butterworth Heinneman, Oxford.
BPP Learning Media, Business Essentials Marketing (2007).
Brassington, F & Pettit, S (2005), Essentials of Marketing, Pearson Education, Harlow, Essex.
Horner, S & Swarbrooke, J (1996), Marketing Tourism, Hospitality and Leisure in Europe International,
International Thomson Business Press.
Kotler, P & Keller, K (2008), Marketing Management, Prentice-Hall.
Kotler, P; Bowen, J & Makens, J (2005), Marketing for Hospitality and Tourism, Prentice Hall.
Lovelock, CH & Wright L (2001), Principles of Service Marketing and Management, Prentice Hall.
Medlik, S (2003), Dictionary of Travel, Tourism and Hospitality, 3rd edition, Butterworth-Heinemann, Oxford.
Nishikawa, T, New Product Planning at Hitachi, Long Range Planning Vol. 22, No. 4, August 1989. pp 20-24.
Raza, I (2004), Heads in Beds, Butterworth Heinneman, Oxford.
Wilson, A (2003), Marketing Research: an integrated approach, Pearson Education, Harlow, Essex.
205
MARKETING
206
INDEX
207
MARKETING
208
INDEX
Above-the-line, 156 Corporate strategy, 7

Cost-plus pricing, 130
ACORN, 102
Cross-brand promotions, 161
Adobe Acrobat, 68
Customer, 36
Advertising, 155
Customer service, 173
Age, 22
Customer value, 106
AIDA, 108
Customers, 25
AIDA model, 155
Aimless, 97
Allocating, 176
Data protection, 65
Data Protection Act 1998, 65
Approvers, 49
Data protection principles, 66
Articles, 68
Data subjects, 65
Ashridge College model of mission, 2
Database marketing, 146
Augmented product, 107
Database systems, 24
Beliefs, 47 Deciders, 49
Decision making unit, 49
Beliefs and values, 40
Deliverer, 173
Belongers, 97
Demand, 127
Below-the-line, 156
Demand creator, 173
Books, 68
Demographic factors, 21
Brand image, 120
Depth, 107
Brand names, 21, 120
Descriptive information, 57
Branding, 120
Descriptive research, 62
Brands, 120
Diagnostic information, 57
Brassington and Pettitt, 67
Diaries, 84
Bundle of attributes, 38
Dibb, 37
Business interviews, 84
Differentiated marketing, 105
Business strategy, 7
Direct marketing, 165
Buyers, 49
Distribution research, 59
Cartoon tests, 81 Doorstep interviews, 83
Causal research, 62
Cinema, 157, 159 Early cash recovery objective, 130
Cinema Advertising Association, 159 E-commerce, 166
Codes of practice, 67 Economic change, 20
Communication, 152 Economic trends, 20
Communication process, 152 Economy, 20
Comparative information, 57 Electronic scanners, 84
Competition, 127 Environment, 7
Competitors' actions and reactions, 128 Esteem or ego needs, 45
Computer assisted telephone interviewing (CATI), Ethical and social responsibilities, 65
85 Ethnicity, 41
Computers, 24 EU directives, 19
Concentrated marketing, 105 Evaluation of alternatives, 38
Conspicuous consumers, 97 Experimentalists, 98
Consumer buying behaviour, 37 Expert judgement, 87
Consumer sales promotion, 161 Exploratory research, 61
Consumers, 36 Extended marketing mix, 108
Core product, 107 External secondary data, 68
Corporate strategic plans, 12 Eye cameras, 86
209
MARKETING
Family, 22, 43 Interviews

Family branding, 122 depth, 79
Family life cycle (FLC), 22, 99 semi-structured, 79
Finance, 8 Intuitive approach, 87
Financial resources, 33
Five competitive forces, 24 JICNAR, 100
Fixed assets, 33 Job satisfaction, 180
Focus group, 79 Journals, 68
Four Ps, 106
Kotler, 38, 94
Gatekeepers, 49
Generic advertising, 156 Labour force, 32
Geography, 41 Laggards, 116
Gift purchases, 130 Language, 40
Global brand, 124 Language differences, 21
Goal, 6 Learning, 47
Going rate pricing, 130 Lifestyle, 23, 43
Government ministries and agencies, 68 Lifestyle classifications, 43
Green Movement, 23 Location of demand, 22
Group discussions, 79 Long-term direction, 2
Loss leaders, 129
Hall tests, 84
Heterogeneity, 109, 136, 137 Magazines, 157
Hierarchy of effects, 155 Mall intercept, 83
Home audits, 84 Management by objectives, 6
Hoover, 162 Management team, 33
Human resource management, 8 Market penetration objective, 129
Market research, 59
Imitative product, 120 Market research process, 60
Incentive schemes, 180 Market segmentation, 94
Income effects, 129 Market skimming objective, 129
Inflation, 128 Marketing, 8
Influencers, 49 Marketing communications, 11
Information gathering, 175 Marketing mix, 106
Information requirements, 56 Marketing research, 58
Information search, 38 definition, 58
Information systems, 8 types of, 58
Informative advertising, 156 Maslow's hierarchy of needs, 45
In-house interviews, 83 McCann-Erikson, 43
Inner directed group, 98 Media, 157
Inseparability, 109, 136, 137 Micro-culture, 41
In-store surveys, 84 Missionary, 173
Intangibility, 136 Motivation, 44
Intermediate customers, 130 Multi-branding, 123
Internal sources of secondary data, 67 Multiple products, 129
Internet, 68, 166 Mystery shoppers, 161
210
INDEX
Need recognition, 37 Price promotions, 161

Needs, 36 Price research, 59
New product pricing, 128 Price setting in practice, 126
Nielsen Retail Audit, 69 Pricing, 125
Nishikawa, 88 Primary data, 63
Processes, 109
Objective, 6 Product, 106, 114
Occupation, 23 Product life cycle, 117
Odd number pricing, 130 Product line promotion objective, 130
Omnibus survey, 69 Product offer, 125
One coin purchase, 130 Product positioning, 105
On-the-job training (OJT), 182 Product range, 107
Operational marketing, 11 Product Research, 59
Operational strategies, 8 Production, 8
Opinion leaders, 42, 163 Projective techniques, 80
Order taker, 173 Promotion, 108
Organisational buying behaviour, 48 Promotional strategy, 154
Organisational marketing information Prospecting, 175
requirements, 56 Psychogalvanometers, 86
Outdoor, 159 Psychological factors, 44
Outer directed group, 97 Public opinion, 163
Ownership, 138 Public relations techniques, 163
Public relations(PR), 162
Pareto principle, 138 Pull effect, 153
Pay and incentive schemes, 180 Pupilometric cameras, 86
Payment by results, 181 Purchase decision, 38
PDF (portable document file) format, 68 Purpose, 3
People, 109 Push effect, 153
Percentage fill, 33
Perception, 47 Qualitative research, 64
Perishability, 136, 138 Quality connotations, 128
Personal data, 65 Quantitative research, 64
Personal factors, 43 Quantum price, 130
Personal selling, 172, 174, 175 Questioning approach, 87
PESTEL, 18 Questionnaire design, 76
Physical evidence, 109, 140
Physiological needs, 45 Radio, 157, 159
Place, 107 Recommended retail price, 130
Place of availability, 139 Recruitment, 22
Policies and standards of behaviour, 3 Reference groups, 42
Porter, 24 Registrar General's Social Classes, 101
Post purchase evaluation, 38 Relaunched product, 120
Postal surveys, 82 Religion, 41
Posters, 157 Reminding advertising, 156
Predictive information, 57 Replacement product, 120
Press, 157 Research and development, 8
Pressure groups, 21 Resources, 7
Price, 108, 125 Rituals, 40
Price discrimination (or differential pricing), 130 Roles of information, 57
211
MARKETING
Safety and security needs, 45 Strategic position, 8

Strategy, 2, 3
Sales force promotion, 161
Strategy into action, 10
Sales promotion objectives, 160
Suppliers, 26, 128
Sales promotion research, 59
Survivors, 97
Sales pull, 160
Syndicated services, 69
Sales push, 160
Sales support, 11
Satellite TV, 24
Target marketing, 105
Target pricing, 130
Search engine, 68
Taylor Nelson, 97
Secondary data, 63, 67, 68, 69
Technical sales, 173
Segmentation, 94
Technician, 173
Segmentation of the industrial market, 103
Technological and media products, 98
Segmentation variables, 95
Technological environment, 24
Self-actualisation needs, 46
Technology, 41
Self-explorers, 98
Telemarketing, 166
Selling, 175
Telephone research, 85, 86
Selling process, 173
Television, 157, 158
Semi-structured interviews, 79
Television Ratings (TVRs), 158
Sensitivity, 129
Third person techniques, 81
Sentence and story completion, 81
Trade associations, 68
Servicing, 175
SLEPT, 18
Social and cultural environment, 20
Undifferentiated marketing, 105
Unstructured interviews, 79
Social needs, 45
Use of the product, 104
Social resistors, 98
User specifications for information, 58
Socio-economic classification, 22
Users, 49
Specialised selling organisation structures, 178
Sponsorship, 164
Sports sponsorship, 165
Values, 3
STEEPLE, 18
Store intercept surveys, 83
Wants, 36
Websites, 167
Strategic choices, 8
Width, 107
Strategic implications of the product life cycle, 117
Wilson, Alan, 61
Strategic intent, 6
Word-association, 81
Strategic marketing, 11
Strategic planning process, 5
212

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CONFEDERATION OF TOURISM AND

First edition July 2009 A note about copyright

 Scanning, ripcasting or conversion of our digital

CHAPTER 1 Marketing and strategy 1

CHAPTER 2 Strategic analysis 17

CHAPTER 3 Customers, buyers, clients and consumers 35

CHAPTER 4 Marketing research 55

CHAPTER 5 Marketing research techniques 75

CHAPTER 6 Segmentation and positioning 93

CHAPTER 7 Product and price 113

CHAPTER 8 The extended marketing mix 135

CHAPTER 9 Promotion 151

CHAPTER 10 Direct selling 171

How to use this Study Guide

Help yourself study for your CTH exams

The right approach

Remember why you're doing it

2 The right focus

Read through the Syllabus and the chapter objectives

Study the Exam Paper section

3 The right method

The whole picture

 The syllabus content shows you what you need to grasp.

In your own words

 Try 'teaching' a subject to a colleague or friend.

Give yourself cues to jog your memory

 Try colour coding with a highlighter pen.

4 The right review

Review, review, review

Developing your personal Study Plan

There are four steps you should work through.

STEP 1 How do you learn?

STEP 2 How much time do you have?

 The standard you have set yourself

Note your time available each week in box A. A

STEP 3 Allocate your time

 Divide the figure in box B by the number of chapters in this

BPP Learning Media’s Learning to Learn Accountancy gives further guidance on

Suggested study sequence

Key study steps Activity

Step 5 Follow each through to its solution very carefully.

Step 7 Make a very good attempt at each one.

DIPLOMA PROGRAMMES MODULE SYLLABUS

Summary of Learning Outcomes

On completion of this module students will be able to;

 Understand and explain the basic concepts of marketing

Introduction to Definition of marketing. The role of marketing within the business. 1

The vision, mission statement and corporate, strategic and

The analysis of a business’s strengths, weaknesses, opportunities 2

The marketing environment and political economic social and

Marketing planning and Market segmentation by purchase motivations and segmentation

The marketing mix, including the P’s of people, product, place, 7, 8, 9

People strategies including types of customers and the use of 3

Place concepts including the importance of systems used to bring 6

Pricing concepts including contribution pricing, discounting, price 7

Positioning of a business and the value and importance of images 6, 7

Identifying customer Understanding customer relationships, needs and expectations. 3, 7, 8

The need for market research, primary and secondary research. 4

The stages of a market research study 4

Market research techniques and tools, their advantages and 5

Sales and marketing department roles and responsibilities. 10

The roles and function of public relations. 9

The development of long-term relationships and loyalty. 8

Scanning, ripcasting or conversion of our digital

The syllabus content shows you what you need to grasp.

Try 'teaching' a subject to a colleague or friend.

Try colour coding with a highlighter pen.

The standard you have set yourself

Divide the figure in box B by the number of chapters in this

Understand and explain the basic concepts of marketing

Raza, I, (2004), Heads in Beds, Butterworth Heinneman, ISBN 0131101005

The Caterer and Hotelkeeper (Reed Business Information)

To refresh the world...

To inspire moments of optimism and happiness...

To create value and make a difference.

Productivity: Be a highly effective, lean and fast-moving organization.

Collaboration: Leverage collective genius

Accountability: If it is to be, it's up to me

Passion: Committed in heart and mind

Diversity: As inclusive as our brands

Quality: What we do, we do well

Possess a world view

Focus on execution in the marketplace every day

Remain responsive to change

Have the courage to change course when needed

Remain constructively discontent

Steward system assets and focus on building value

Learn from our outcomes – what worked and what didn’t

The analysis of strategic position