Bachelor of Commerce

Bcom Marketing (Honours)

Marketing Management

Draft Module

BMKT 406
Compiled by: Tawanda Dzama
MBA (MSU)
BCom, Marketing (MSU)

Cornelius W. Namusi
MPA (UZ)
BAdmin (UZ)
Cert. in O & M (UNISA)
Cert. Community Capacity Building (UNISA)
Published by: The Zimbabwe Open University

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Year: February 2014

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TABLE OF CONTENTS
Unit One Marketing and Its Core Concepts ........................................................ 9
1.0 Introduction........................................................................................ 9
1.1 Unit Objectives .................................................................................... 9
1.3 Definitions of Marketing ........................................................................ 10
1.4 Customer needs, choices, wants and demands ............................................. 10
1.4 Strategic Importance of Marketing Orientation ............................................. 13
1.4.1 The Marketing Functions .................................................................. 13
1.5 Management of functions ................................................................... 14
1.5.1 ..................................................................................................... 14
1.5.2 The Analysis Functions..................................................................... 14
1.5.5 The Control Function ...................................................................... 15
1.6 Marketing Management Orientation .......................................................... 16
1.6.1 Product Orientation ........................................................................ 16
1.6.2 Product Orientation ........................................................................ 16
1.6.3 Sales Orientation ........................................................................... 16
1.6.4 Marketing Orientation ..................................................................... 16
1.6.5 Societal Marketing Orientation ........................................................... 17
1.7 The Market Mix Variables ....................................................................... 17
1.7.1 Marketing Mix ............................................................................... 17
1.7.2 Basic Marketing Mix Variables ............................................................ 17
1.7.3 Expanded Marketing Mix ................................................................... 18
1.8 The Seven Ps and their relationship to the Seven Cs ...................................... 18

Unit Two Marketing Environment ..................................................................20

2.0 Introduction .......................................................................................... 20
2.1 Objectives ............................................................................................ 20
2.2 General Environment ............................................................................... 20
2.2.1 Political environment .......................................................................... 21
2.2.2 Economic environment ........................................................................ 21
2.2.3 Socio-cultural environment ................................................................... 22
2.2.4 Technological environment ................................................................... 23
2.2.5 Legal environment ............................................................................. 23

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 2.2.6 Ecology environment .......................................................................... 24
2.3 Task Environment ................................................................................... 24
2.3.1 Customers ....................................................................................... 25
2.3.2 Competitors ..................................................................................... 25
2.3.3 Suppliers ......................................................................................... 25
2.3.4 Publics ........................................................................................... 25
2.4 International Environment ......................................................................... 26
2.4.1 Political differences ........................................................................... 26
2.4.2 Cultural differences............................................................................ 26
2.5 Summary .......................................................................................... 27
References ................................................................................................ 28
Unit Three: Consumer and Organisational Buyer Behaviour .....................................29
3.0 Introduction .......................................................................................... 29
3.1 Unit Objectives ................................................................................... 29
3.2 Customers and Consumers ......................................................................... 29
3.3 Consumer Decision Making Process ............................................................... 30
3.3.1 Need Recognition/ problem awareness ..................................................... 31
3.3.2 Information Search ............................................................................. 31
3.3.3 Evaluation of Alternatives .................................................................... 31
3.3.4 Purchase ......................................................................................... 31
3.3.5 Post-purchase Evaluation ..................................................................... 31
3.4.1 Motivation ....................................................................................... 32
3.5 Consumer Roles ...................................................................................... 32
3.6 Consumers and Adoption of New Product ....................................................... 33
3.6.1 Stages in the Adoption Process .............................................................. 33
3.6.2 The Adoption Categories ...................................................................... 33
3.8 Participants in Business Buying Process .......................................................... 37
3.9 Classification of Business Markets ................................................................ 38
3.10 Stages in The Organisational Buying Process .................................................. 40
3.10.1 Problem Recognition ......................................................................... 40
3.10.2 General Need Description ................................................................... 40
3.10.3 Product Specification ........................................................................ 40
3.10.4 Supplier Search................................................................................ 40

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 3.10.5 Proposal Solicitation ......................................................................... 40
3.10.6 Supplier Selection ............................................................................ 40
3.10.7 Order-Routine Specification ................................................................ 41
3.10.8 Performance Review ......................................................................... 41
3.11 Influences in Business Buying Process ........................................................ 41
3.11.2 Environmental, personal, product and organisational factors ......................... 42
3.12 Summary............................................................................................. 42
References ................................................................................................ 43
Unit Four: Segmentation, Targeting and Positioning ............................................44
4.0 Introduction .......................................................................................... 44
4.1. Unit Objectives ..................................................................................... 44
4.2. Market Segmentation .............................................................................. 44
4.2.1 Benefits of Segmentation ..................................................................... 44
4.2.2 Segmentation Criteria ......................................................................... 46
4.2.3 Bases for Segmenting Consumer Markets ................................................... 46
4.2.4 Bases for Segmenting Business Markets ..................................................... 48
4.3 Market Targeting .................................................................................... 49
4.3.1 MARKET ATTRACTIVENESS .................................................................... 49
4.3.3 Capability ........................................................................................ 50
4.4 Target marketing strategies ....................................................................... 51
4.4.1 Undifferentiated Marketing ................................................................... 51
4.4.2 Differentiated Marketing ...................................................................... 51
4.4.3 Focused Marketing ............................................................................. 51
4.4.4 Customised Marketing ......................................................................... 51
4.5 Positioning ............................................................................................ 51
4.5.1 Positioning strategy ............................................................................ 52
4.5.3 Positioning Mapping or Perceptual positioning ............................................ 55
4.6 Summary .............................................................................................. 56
Reference ................................................................................................. 57
Unit 5: Strategic Marketing Management Planning ...........................................58
5.0 Introduction .......................................................................................... 58
5.1. Objectives ........................................................................................... 58
5.2. What is a strategy? ................................................................................. 58

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 5.3 Hierarchical Levels of Strategy.................................................................... 59
5.3.1 Corporate Level Strategy ..................................................................... 59
5.3.2 Business unit level strategy ................................................................... 60
5.3.3 Functional level strategy...................................................................... 60
5.4 Difference between Strategy and Tactic ........................................................ 61
5.5. Strategic Planning Steps ........................................................................... 61
5.6 Strategic Marketing Management Planning Process ............................................ 62
5.7 Implementing the Marketing Plan ................................................................ 68
5.7.1 Barriers to Implementation ................................................................... 68
5.7.2 Successful Implementation ................................................................... 68
5.7.3 The Value Chain ................................................................................ 69
5.7.4 The Service Value Chain ...................................................................... 71
5.7.5 Relationship marketing ........................................................................ 71
5.7.6 Internal Marketing ............................................................................. 72
5.8 Control and Evaluation ............................................................................. 73
5.8.2 Evaluation Marketing Performance .......................................................... 74
5.9 Summary .............................................................................................. 74
References ................................................................................................ 76
Unit 6: Marketing Management Planning Tools ...............................................77
6.0. Introduction ......................................................................................... 77
6.2 Objectives ............................................................................................ 77
6.1 Organisational Stance and Positioning Model ................................................... 77
6.1.1Types of Organisational Stance ............................................................... 78
6.2 Ansoff Growth Matrix ............................................................................... 79
6.2.1 Market Penetration ............................................................................ 80
6.2.2 Market Development ........................................................................... 80
6.2.3 Product Development.......................................................................... 81
6.2.4 Diversification .................................................................................. 81
Vertical integration ...................................................................................... 81
6.3 Porter’s Generic Strategy Model .................................................................. 82
6.3.1 Cost Leadership ................................................................................. 82
6.3.2 Differentiation .................................................................................. 83
6.3.1 Focus ............................................................................................. 83

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 6.4 Profit Impact On Market Strategy (PIMS) ....................................................... 83
6.5 Boston Consultancy Group Matrix (BCG) ......................................................... 84
6.5.1 BCG Matrix ...................................................................................... 87
6.5.2 Portfolio Strategies ............................................................................ 88
6.5.3 Limitations of BCG Matrix ..................................................................... 89
6.6 General Electric Matrix ............................................................................. 89
6.6.1 Managing GE Matrix ............................................................................ 91
6.7 Shell Directional Policy Matrix .................................................................... 92
6.8 Arthur D. Little Strategic Condition Matrix...................................................... 93
6.9 Summary .............................................................................................. 95
References ................................................................................................ 96
Unit 7: New Product Development ..............................................................97
7.0 Introduction .......................................................................................... 97
7.1 Objectives ............................................................................................ 97
7.2 What is New Product Development? .............................................................. 97
7.2.1 Reasons for New Product Development .................................................... 99
7.3 Phases of New Product Development .......................................................... 101
7.4 Reasons for Product Failure ..................................................................... 105
7.5 Adoption of the New Product by Consumers .................................................. 105
7.6 Summary ............................................................................................ 107
Unit 8: Marketing Mix ............................................................................ 109
8.0 Introduction..................................................................................... 109
8.1 Objectives ....................................................................................... 109
8.2 Product .............................................................................................. 109
8.2.1 Consumer Products........................................................................... 110
8.2.2 Industrial Goods .............................................................................. 111
8.2.3 Product life-cycle (PLC) ..................................................................... 113
8.2.4 Benefits of PLC ............................................................................... 115
8.2.5 Limitations of the Product Life Cycle ................................................. 116
8.2.5 Branding ....................................................................................... 117
8.3 Pricing ............................................................................................... 119
8.3.2 Pricing approaches and strategies ......................................................... 120
8.4 Integrated Marketing Communications (IMC) – Promotion .................................. 123

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 8.4.1 Advertising .................................................................................... 123
8.4.2 Deciding on the advertising budget ................................................... 124
8.4.3 Direct marketing ............................................................................. 127
8.4.4 Internet Marketing ........................................................................... 128
8.4.5 Sales Promotion .............................................................................. 129
8.4.6 Public Relations (PR) and Publicity ........................................................ 129
8.4.7 Personal selling ............................................................................... 130
8.5 Reasons for IMC .................................................................................... 131
8.6 Distribution ..................................................................................... 131
8.6.1 The Importance of distribution ............................................................ 132
8.6.2 Functions of distribution channels ........................................................ 132
8.6.3 Channel Participants ......................................................................... 133
8.6.4 Channel Strategy: ............................................................................ 134
8.6.5 Marketing Channel Conflicts ............................................................ 135
8.7 Summary ........................................................................................ 137
References .............................................................................................. 139
Unit 9: Marketing Information Systems ............................................................. 140
9.0 Introduction ........................................................................................ 140
9.1 Objectives .......................................................................................... 140
9.2 Marketing Information System (MKIS) .......................................................... 140
9.3 Characteristics of MkIS ........................................................................... 141
9.4 Features of MKIS ................................................................................... 141
9.5 Importance of Marketing Information System ................................................ 142
9.7 Components of MKIS .............................................................................. 143
9.7.1 Internal record system ...................................................................... 143
9.7.2 Marketing intelligence system ............................................................. 144
9.7.3 Marketing Decision Support System (MDSS) .............................................. 144
9.7.4 Marketing research ........................................................................... 146
9.8 Summary ............................................................................................ 148
Unit 10: Environmental and Ethical Issues in Marketing ................................... 150
10.0 Introduction ....................................................................................... 150
10.1 Objective .......................................................................................... 150
10.2 Current environment issues in marketing .................................................... 150

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10.3 Green Marketing ................................................................................. 152
10.4 Green marketing basics ......................................................................... 152
10.4 Ethics in marketing .............................................................................. 153
10.5 Argument for ethical behaviour in marketing ............................................... 154
10.6 Advantages of ethical marketing ............................................................ 154
10.7 Unethical Marketing Practices ................................................................. 155
10.7.1 Unfair or deceptive marketing practices .................................................. 155
10.7.2 Offensive materials and objectionable marketing practices ........................ 155
10.7.3 Direct marketing excesses................................................................. 156
10.7.4 Unethical issues in marketing to children .............................................. 156
10.7.5 Unethical issues in marketing to minorities ............................................ 156
10.7.6 Unethical issues surrounding the portrayal of women in marketing efforts....... 157
10.7.7 Unethical product and distribution practices .......................................... 157
10.7.8 Unethical conduct in research ............................................................ 158
10.8 Does marketing over-focus on materialism? ................................................. 158
10.9 Summary........................................................................................... 159

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 Unit One

Marketing and Its Core Concepts

1.0 Introduction

The simple barter transaction between two or more persons where for example, a two kilogram
bag of sugar is exchanged for a chicken or an ox cart is exchanged for an ox is a very common
marketing practice especially in Zimbabwe`s rural areas where money to buy goods or to pay for
services is not readily available. The barter transaction form of marketing goods and services that
has practiced over centuries has evolved, through time, into an elaborate process. By this
process, the products and services of society are transferred to consumers as well as to enterprises
for proposes o satisfying their needs, preferences and objectives.

You experience facets of this process every day. You visit a supermarket, and from among
thousands of products you select the few that you need and can afford. You visit a restaurant, a
theatre, a museum or even a church to enjoy the services they offer. You also use the services of
a bank, doctor, lawyer, municipality, travel agent, library, stockbroker and an employment agent.
Each of these everyday incidents illustrates and contributes to our standard of living. The process
that develops and transfers these products and services to the consumers is called marketing.

This unit, therefore, introduces the topic of marketing which involves the exchange process
between the enterprise and the consumer.

1.1 Unit Objectives

In this unit you will see what marketing is all about and why it is important to you as a consumer.
We will also explore why it is so crucial to the success of individual firms and the impact that it
has on the quality of life in different societies.

When you have read this unit, you should be able to:

• Define marketing
• Identify the key characteristics of marketing led organizations
• Explain the difference between the marketing concept and the societal
marketing concept
• Understand why marketing has grown in importance
• Debate the advantages of marketing over other business approaches
• List the tasks for which marketers are responsible
• Illustrate the relevance of marketing to different types of organizations

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1.3 Definitions of Marketing

From what we have already pointed out, it should be very clear to you that marketing
involves an exchange process and this is control to the whole activity of transferring
goods and services from one person to another or from the seller to the buyer for
purposes of satisfying his needs, wants or demands.

We think that the following two definitions that we have chosen from several definitions
are clear and easy given the marketing literature for you to understand. Michael J. Baker
(1982) defines marketing as “consisting of the activities of buying, selling, transporting
and storing goods”.

Another and more contemporary by Armstrong and Kotler goes like this; “Marketing
develops products and services that provide superior customer value; and prices,
distributes and promotes them. After going through these processes, the product or
service is exchanged between the producer and customer for satisfying customer needs.

Activity 1.1

1. Differentiate between barter and the modern marketing

activities.
2. Why do people exchange goods or services by bartering?
3. Barter as a form of exchange is not as primitive as some people
believe. Discuss.

1.4 Customer needs, choices, wants and demands

Human needs

Marketing activities in the main, respond to human needs which are states or conditions
of human felt deprivation. Human needs are things which are fundamental to the
maintenance of life, such as food, drink, shelter and clothing. These things are basic to
life without which people die. These needs are largely physiological in the sense that they
are basic and instinctive drives with which we are born. Interestingly, however, a need
can be satisfied by any one of a number of alternatives. For example thrusts which is
normally satisfied by water can be satisfied by the following alternatives; tea, coffee,
beer, wine, beverages, mahewu etc. The aspect of availability of alternatives forms the
central philosophy to the practice of marketing. In the absence of substitute or alternative
goods there can be no choice and needs and wants become synonymous.

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Social Needs

Human also have social needs for belonging to a group, club, tribe, church or
organization. This belongingness has affection attached to it. People form groups to
which they will belong because some things the group is interested in e.g. a team of
footballers have the same interest and behave in the same way and have affection of one
another. The spirit of oneness or togetherness prevails in the team.

Individual needs

Humans have individual needs for knowledge and self expression. Think of Maslow`s
self actualization that expresses achievement e.g. achievement in passing the final
examinations of the programme you are pursuing. Passing the examination is a good
example of satisfying an individual need. There are so many individual needs that need
satisfying.

Customer wants

Wants are the form which human needs take as they are shaped by culture and individual
personality. Every Zimbabwean needs food to sustain life but may want a mango,
banana, rice, beans if these are available as dictated by culture of the area where the
person lives. Wants are shaped by society and are described in terms of objects that will
satisfy human needs. One can live without a want but cant without a need.

Customer Demands

When wants are backed by buying power, they become demands. A motor vehicle is a
want and given the resources to buy vehicles, they then move from being a want to a
demand. People always demand products e.g. vehicles, televisions etc that give them
benefits that add up to the most value and satisfaction.

Customer value and satisfaction

Customers, as buyers and consumers of goods and services, usually face a broad array of
products and services that might satisfy given needs. Before customer choose a given
product or service, they first of all form expectations in their minds about the value and
expectation that various market offerings will deliver and buy accordingly. We want to
impress upon you that value is an addition to the product that raises its worth and
influences the seller to raise the price of the product. It is important to note that the more
the value, the higher the price and the less the value, the lower the price. If the customers
are satisfied by the higher value of the product they will buy again and go to tell others
about their good experiences. Dissatisfied customers will go away and buy from
competing firms.

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Activity 1.2

1. Define marketing and outline the steps in the marketing process.

2. Explain with clear examples, customer needs, customer choices,
customer wants and customer demands.

Customer satisfaction in marketing has to do with the quality of the product or service
meeting the customers expectation in terms of value and all other things that the buyer
experts the product to have. If the product is defective the product will be rejected
because it does not satisfy the customer.

Customer value and customer satisfaction are the key building blocks for developing and
managing customer relationships.

Marketing transaction, exchange and relationship

In the introductory section of this unit we alluded to the fact in simple barter type of
transferring goods from the seller to the consumer, transaction takes place between two or
more people who exchange a good for another good instead of exchanging a good for
money. Marketing transaction on the contrary, points to some activity of exchange of
goods without money. Without transaction in the exchange process, there is no
marketing.

Marketing also consists of actions taken to build and maintain desirable exchange
relationships with the target customers involving a product, service, idea or other object.
We emphasize that beyond simply attracting new customers and grow their business with
the company. Marketers must build strong relationships by consistently delivering
superior customer value.

The role of Marketing in Society and Business

As we have pointed out before, the key objectives of an organization marketing efforts is
to develop satisfying relationships with customers that benefit both the customer and the
organization. These efforts lead marketing to serve an important role within most
organizations and within a society.

The role of marketing in society

At societal level marketing plays an important role because it educates the society about
what the organization or business produces and sells to satisfy their needs. For example
customer i.e. the public or society are made to believe that a company is dynamic and
creative based on its advertising message.

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 At the societal level marketing offers its benefits by:

• Developing products that satisfy customer needs including products that enhance
society`s quality of life
• Creating a competitive enrolment that helps to lower product prices
• Developing product distribution systems that offer access to products to a large
number of customers and many geographic regions
• Building demand for products that require organizations to expand their labour
force
• Offering techniques that have the ability to convey messages that change societal
behavior in a positive way(e.g. anti smoking advertising)

The role of Marketing to Business

At the business level, marketing has an important role to play whether the business is for
profit like Greatermans or not for profit like ZESA. For the- for- profit organization,
marketing is responsible for most tasks that bring revenue and profits to an organization.
For the not – for-profit organization, marketing is responsible for attracting customers
needed to support the not for profit`s mission, e.g. raising donations for building or
bridge or pre-school.

Activity 1.3

Identify five needs and five wants and explain, giving examples, the difference
between needs and wants.

1.4 Strategic Importance of Marketing Orientation

1.4.1 The Marketing Functions

Perreault et al (2009) identify and explain the following eight universal functions which it
performs so that marketing achieves the objectives of an organisation or enterprise. These are:-

i. The buying function which looks for and evaluates goods and services to ensure that they
satisfy human needs and wants. For example when a hungry person looks at a place of
rice in a hotel satisfies their needs for food. If it is too little then the hungry person can
chose sadza for an alternative.

ii. The selling function involves promoting the product including using personal selling
techniques, advertising and other direct and mars selling methods. This function is the
most visible method of selling in marketing.

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 iii. Transporting function means the movements of goods from one place to another like the
transporting of bread from Lobels Bakery to shops all over Zimbabwe. Think of other
goods which are transported in the like manner.

iv. Storing involves holding goods say in a warehouse until customers need them.

v. Standardizing and grading is the function of sorting products according to size and
quality. Imagine the grading of potatoes according to size or quality before putting them
into pockets and then sell them.

vi. Financing is a function that provides cash and credit to produce. Clothes can be similarly
graded according to size or quality hence the occurrence of rejects.

vii. Risk taking function involves bearing the uncertainties that are part of the marketing
process. A firm can never be 100% sure that the customers will want to buy its products
because some can be damaged, stolen or out dated fashion.

viii. Marketing information function

This is the collection, analysis and distribution of all the information needed to plan,
carry out and control marketing activities whether in the firm’s neighborhood in a market
overseas.

1.5 Management Functions

Managing the marketing process requires the four marketing management functions of analysis,
planning, implementation and control.

1.5.1 The analysis functions

Marketing analysis, as a management function begins with a complete analysis of the company’s
situation by conducting a SWOT analysis by which it evaluates its overall strengths (S) weakness
(W), opportunities (O) and threats (T). Strengths are the internal capabilities, resources and other
factors that might help the company to serve its customers and achieve its objectives.
Opportunities are external factors which demand the company products. A ready market is an
opportunity. And weaknesses are internal limitations that may interfere with company’s
performance e.g. resignations of the trained sales force and so on.

1.5.2 The Analysis Functions

Analysis of the four factors (SWOT) provides an opportunity for the company to identify its
strengths, its opportunities, and the opportunity to eliminate its weaknesses and threats so that it is
able to achieve its objectives.

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1.5.3 The Planning Function
The planning function is a process by which the company decides what it want to do with each
business unit e.g. the advertising unit, the sales unit the research and development unit etc. A
detailed marketing plan is needed for each business unit, product or brand

SWOT ANALYSIS
Internal Strengths Weaknesses
- Internal capabilities that may help the - Internal limitations that may
company to reach its objectives interfere with a company’s ability
to achieve its objectives
External Opportunities Threats
- External factors that the company - current and emerging external
may be able to exploit to its advantage factors that may challenge the
company’s performance
Positive Negative

Adapted from Kotler 2006:54

1.5.4 Implementation Functions

Marketing implementation is the process of turning marketing plans into actions in order to
accomplish strategic marketing objectives. A school furniture manufacturing company can plan to
manufacture to make and sell more comfortable desks and chairs for the disabled students at
college and then purchases the wood and all the other materials required for making this special
type desks and chairs. The next step is to actually make the desk and chairs and then sell them to
colleges. In this example a plan has been made, followed by manufacturing the desk then
implemented it by selling the desks to colleges.

1.5.5 The Control Function

Marketing control involves evaluating the results of the marketing strategies and plans and taking
corrective action to ensure that objectives are attained. This function involves four steps which
are:
• Setting marketing goals
• Measuring its performance in the market place
• Evaluating the causes of differences between expected and actual performance.
• Taking corrective action for any diversions from the original plan e.g. the plan was to
manufacture tables and chairs for the disabled but instead the product becomes ordinary
tables and chairs for the able bodied students. Corrective action involves identifying the
diversion from the original plans and then makes the necessary corrections that result in
producing the original planned tables and chairs for the disabled.

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1.6 Marketing Management Orientation
1.6.1 Product Orientation

Production orientation was an idea that management adopted as a result of the technological
improvement that occurred in the eighteenth century Industrial Revolution and Developments in
the field of scientific management which made production of goods and services more efficient.
The two developments, therefore, caused an explosion of the number of goods to be produced and
supplied to the market. Selling of goods did not present problems because customers’ needs could
not be satisfied, hence, managers became production oriented or focused.

1.6.2 Product Orientation

Organizations that are product oriented define their businesses in terms of products they sell
rather than the needs of the customers. As such these organisations are pre-occupied with adding
more intricate features, improving product quality or enhancing product performance or
appearance, often misunderstanding the core benefits that customers are seeking from their
products.

Another symptom of product orientation is the failure to recognize that there is becoming
obsolete. By defining their markets and customers in terms of their product they may fall into the
trap of “marketing myopia” (Levitt 1960) and fail to see the threat posed by product
developments in their other industries.

1.6.3 Sales Orientation

Sales orientation dictates that a business must aggressively promote its products. As the products
exist, sales staff is made responsible for identifying every potential customer. This does not mean
that sales representatives are customer oriented, as that would involve starting with customer
needs and not the product. Sales orientation pushes the product hard on the market to achieve the
sales goals.

1.6.4 Marketing Orientation

Marketing orientation emphasizes the interdependence of the enterprise and the consumer. Sales
orientation does not recognise this because it believes that the enterprise can exist as a separate
entity as long as it can persuade customers to buy what it produces or limit the range of selection.

Marketing orientation recognises that the enterprise must continuously communicate with the
customer throughout the marketing process and thereafter. In this way the enterprise keeps
abreast with the needs and preferences’ of the customer and can plan and act accordingly and
timeously. Sales orientation on the other hand, limit communication with the consumer to the
point of purchase, for example a supermarket.

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1.6.5 Societal Marketing Orientation
Societal marketing orientation deals with issues that have to do with the welfare of individuals or
society as a whole. Most of the efforts in social marketing orientation in the form of campaigns,
about health hazards like smoking, air pollution, global warming, drug abuse, alcoholism,
environmental protection, family planning, human rights etc.

Activity 1.4
1. Explain the difference between
2. Product and production orientation
3. Sales orientation and product selling
4. Social marketing orientation and societal marketing orientation

1.7 The Market Mix Variables

1.7.1 Marketing Mix

The marketing mix is one way to consider the elements of a business marketing activities. These
variables consist of what are called the (Four Ps) – product, price, promotion and placement or
place. Each one of these may be altered to meet the needs of the products’ group of intended
customers, also known as the target market. In some marketing systems, the marketers’s Four Ps
correspond to what is referred to as the customer’s “Four Cs” which detail the buyer’s objective.

1.7.2 Basic Marketing Mix Variables

Each of the four Ps can be designed to deliver a customer benefit described by one of the Four Cs.
Product corresponds to Customer solution Price is tied to Customer Cost. Place matches with
Customer Convenience, and Promotion with Communication.

Marketing mix variables for products may be designed to deliver solutions to customer problems
or satisfy customer desires. Components of a product include quality, design, features, packaging
and sizes. A product’s brand name, related services, and any warranties are factors influencing
both the product and the consumer.

Price is closely tied to the needs of the product’s target market. For example, if the product is
made for the high-end consumers, produced for lower income consumers. The price of a product
may be thought of as the cost to the consumer and consumer are often looking for the lowest cost
for the highest value. Other potential elements of pricing include discount discounts, lines of
credit, and payment of schedules.

Promotion encompasses the marketing mix variables associated with advertising and
communicating product value to target market members. This includes advertisements on
television, radio, magazines, and on line. Communicating product value also involves sales
promotions, public relations and direct marketing. Sales force member, such as customer service
representatives and sales associates are responsible for personally communicating product value
to potential customers.

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 The place is where the customer goes to buy the product and how the product gets from the
manufacturer to the customer. In a conventional system, goods are shipped to retail stores where
consumers eventually buy them.

1.7.3 Expanded Marketing Mix

The expanded marketing mix consists of three variables which are added to the four basis
elements of marketing which are product, price, place and promotion. The additional 3 Ps are
People, Process and Physical evidence shown in the form of a diagram below with detailed
explanation in the following section

Product Price People = Expanded

M Marketing
Mix

+
Place Promotion Process Principle
Evidence

1.8 The Seven Ps and their relationship to the Seven Cs

In marketing, the seven Ps which are concerned with the organisation are closely related to the
seven Cs which are concerned with the customer. This relationship is shown in the table below

RELATIONSHIP BETWEEN THE 7PS AND THE 7CS IN MARKETING

The 7 Ps The 7Cs
Organisation facing = Customer facing
Product = Customer/consumer
Price = Cost
Place = Convenience
Promotion = Communication
People = Caring
Processes = Co-ordinated
Physical evidence = Confirmation
Source: Drummond, et al (2001)

P number 1 represents the product is taking to the market the C which represents the customer
who consumes the product.

P number 2 represents the price which is related to C number 2 being the cost of the product
where it is convenient for its customers to buy the product at the right place and time. Place,
therefore, relates to a location store e.g. store for the convenience of buying the product.

18
P number 4 means promotion which focuses on how the marketer gains the attention of his
customers by providing an appealing and compelling reason for them to purchase his products
over a competing product or service. Thus promotion relates to C and number 4 which is the
communication of messages to customers about the product being offered or about to be offered
to the market.

P number 5 means the people who are the guardians of the company whose business, among
many others, is to help customers to distinguish between products and services. People are,
therefore related to the care which is related to the C number 5.

P number 6 which means process is one of the Ps that is most commonly overlooked. Although
customers are not concerned with how a company works, they want to be assured that there is a
system that works in a co-ordinated way. Thus processes are related to C number 6 representing
coordination

P number 7 representing Physical evidence means that many customers find purchasing services
risky because the customer cant experience that is intangible before it is delivered. Providing
physical evidence such as case studies or testimonials will help the customers visualize what the
marketer can deliver reinforcing his promise to deliver whilst providing viral credibility. That
evidence from other customers in the form of written testimonies helps to confirm both the
existence and quality of the product or service. Thus conformation (C number &) is related to P
number 7 for Physical evidence.

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 Unit Two

Marketing Environment

2.0 Introduction

In this unit we look at how the actors and forces of the marketing environment affect a
company's capability to operate effectively in providing products and services to its
customers. Companies must constantly watch and adapt to the changing environment.
Marketers must be environmental trend trackers and opportunity seekers, so that they can
adapt their strategies to meet new market pace challenges and opportunities. Marketing
research and marketing intelligence are the two aptitudes that marketers can use to be in
line with the changing environment. The marketing environment consists of a micro or
task environment which is made up of elements such as customers, competitors,
suppliers, financial institutions, community, government and other stakeholders. Also
there is the macro or general environment in the marketing environment which consists
of political, economic, social, technological, legal, and ecological (PESTLE). Marketing
does not only operate within its boundaries, it operates internationally, so there was need
to look at the international market and its obstacles.

2.1 Objectives
By the end of this unit, you should be able to:

¾ understand the concept of the marketing environment

¾ explore forces of the general marketing environment

¾ examine company task environment

¾ explain what comprises the international environment and the obstacles

2.2 General Environment

The general environment consists of uncontrollable variables that affect not only the
company but also the other actors in the task environment. Since the company has no
control over the environment, it needs to monitor the nature and extent of developments
and prepare plans to respond positively to the inevitable of changes. There are at least six

20
 variables namely; political, economic, socio-cultural, technology, legal and ecology and
these have the mnemonic PESTLE.

2.2.1 Political environment

The political, legal and regulatory forces of the marketing environment are closely
interrelated (Dibb et al, 2001).Though political and legal forces are linked but they would
be explained separately. Political and legal forces can influence marketing decisions by
determining the rules by which business can be conducted (Jobber,2001).Political
factors consists of laws, government agencies and pressure groups that influence or limit
various organisations and individuals in a given society. The national government
determines and maintains the legislative framework within which organisation do
business and the local government implements and enforces laws made at national level.
For example the local government has responsibility for granting planning permission to
build a factory or supermarket, or change the usage of a commercial building.

Legislation and regulations reflect the current political outlook and this has the potential
to influence marketing decisions and strategies. Marketers need to maintain good
relations with elected political officials for several reasons (Dibb et al, 2001). Political
officials play key roles in helping organisations secure foreign markets, so it is important
to sponsor events of political parties.

2.2.2 Economic environment

The economic environment looks at the business cycle of a particular country that would
affect consumer purchasing power, consumer willingness to spend and consumer
spending patterns. The overall state of economy fluctuates in all countries, for example in
Zimbabwe the economy once reached the depression stage, during the 2007-2009 (Zim
dollar era) where the production concept was being practised. The demand was high
whilst supply was low, the supplier had the upper hand. Nations vary greatly in their
levels and distribution of income. Some countries are industrial economies, subsistence
and developing economies (Kotler and Armstrong, 2012). Marketers need to take this
into consideration. Consumer demand and spending behaviour is determined, firstly by
the buying power. In accordance to (Dibb et al, 2001), buying power is determined by
income and wealth. There is the disposable income and discretionary income. Disposable
income is found after taxation, and is used for spending and saving. Discretionary income
is available for spending and saving after purchasing of basic needs.

Secondly is the consumers' willingness to spend or ability to buy. The factors that
determine are product's absolute price and its relative price to the price of substitutes and
complementary products. Psychological and social forces are also a determination.
Almost everyone has a phone that has Android application of "whatsapp", a social
network. Expectations of family size, that is likely to increase due to an event, general
economic conditions like rising short term interest rates cool consumers' willingness to

21
spend and perceptions of future economic conditions, prices have been reduced or likely
to increase and income levels likely to rise or incentives like bonuses.

Thirdly consumer spending patterns must be studied by marketers because annual family
expenditures can be derived from the study and strategies can be drawn. However,
spending patterns reflect only general trends and thus should not be used as the sole
basis for making specific decisions (Dibb et al, 2001).

2.2.3 Socio-cultural environment

Four key social forces that have implications for marketing are the changes in the
demographic profile of the population, cultural differences, social responsibility and
marketing ethics, and the influence of the consumer movement (Jobber, 2001). The first
force being demography is the study of human populations in terms of size, density,
location, age, gender, race, occupation, and other statistics (Kotler and Armstrong,
2012).Age distribution will continue to affect the demand for products and services."Born
frees", tastes and likes differ from those born before the independence of Zimbabwe. A
better educated, more white-collar and more professional population will increase the
demand for quality products. Zimbabwe has the highest literacy rate in Africa it means
more consumers would understand consumer rights, so marketers need to be aware of the
market they would be serving. The family status is changing people are marrying later
and having few children, thus a shift in the demography. Secondly, culture force consits
of institutions and other forces that affect a society's basic values, perceptions,
preferences, and behaviours (Kotler and Armstrong, 2012). Marketers must be aware of
these cultural influences and how they might vary across societies within the markets
served by the firm (Kotler et al, 2005). Thirdly is social responsibility which refers to the
accountability of that person or an organisation for how its acts might affect the physical
environment and general public (Jobber, 2001), thus it is known as green marketing.
(Brassington and Pettitt, 2000), highlights that there are three categories that show the
impact of societal attitudes on marketing strategy, which are environmental issues,
animal welfare and health and safety. Environmental issues would include; product
origins, product content, product effects in use and product disposal. This would be
covered in detail when looking at the ecological force. The Consumer Council of
Zimbabwe (CCZ) comes into play to protect consumers. Animal Welfare would include;
product testing and farming methods. Lastly healthy and safety would include;
ingredients, new product standards and production methods. Enlightened companies
encourage their managers to exercise their social responsibility and build more positive
images, many companies are now linking themselves to worthwhile causes. These days,
every product seems to be tied to some cause. Buy a pink mixer from Kitchen Aid and
support breast cancer research. Purchase a special edition bottle of Dawn dishwashing
detergent, and P&G will donate a dollar to help rescue and rehabilitate wildlife affected
by oil spills. Go to Staples Do Something 101 Web site or Facebook page and fill a
virtual backpack with essential school supplies needed by school children living in
poverty. Pay for these purchases with the right charge card and you can support a local
cultural arts group or help fight heart disease.

Look beyond what the regulatory system allows and simply “do the right thing” (Kotler

22
and Armstrong, 2012). Companies are becoming more proactive in this acceptance of
social responsibility through the practice of cause-related marketing
(Jobber,2001).Cause related marketing is a commercial activity by which businesses
and charities or causes form a partnership with each other to market an image, good or
service for mutual benefit. For example, These days, every product seems to be tied to
some cause. Buy a pink mixer from Kitchen Aid and support breast cancer
research. Lastly is marketing ethics, are the moral principles and values that govern the
actions and decisions of an individual or group(Jobber,2001).Business ethics are profit
seeking, chosen suppliers, chosen markets, community service and labour prices and
personal ethics are participation in unethical practices and bribery (Brassington and
Pettitt,2000).Ethical principles reflect cultural values and norms of society.

2.2.4 Technological environment

Technology has been defined as the knowledge of how to accomplish tasks and goals
(Dibb et al, 2001). Technology can be generated from two main sources; external to the
market, thus technology developed for other purposes, academic, medical or military, for
example may have spin-off commercial benefits. Secondly is Research and Development
(R&D) taken in-house. This involves the new product development, thus the
development of unleaded petrol. It was pressure from environmentalists who were
concerned about health effects of motor exhaust fumes. Technology has released such
wonders as antiviral drug for HIV and AIDS, smart phones and the internet.
Zimbabweans are able to order online Japanese cars and smart phones have navigations,
problem of directions was eradicated. Ecocash performing wonders with its technology of
keeping money in the electronic wallet and performing transactions whist in your comfort
zone, without having to visit the physical sites. Technological environment is shaping
people's destiny. Monitoring the technological environment may result in spotting of
opportunities and major investments into the new technological areas. However
technological change can also pose threats to companies which gradually find that they
cannot compete effectively with their advanced rivals. Telecel and Netone are failing to
keep pace with Econet. Marketers must be aware of new developments in technology and
their possible effects because technology does affect marketing activities in many
different ways (Dibb et al, 2001).

2.2.5 Legal environment

This involves rules and regulations that govern and influence marketing decisions and
activities. This force is also linked to the political force, thus it is from political force that
rules and regulations are made and they encourage competition and also ensure fair
markets for goods and services. Almost every marketing activity is subject to a wide
range of laws and regulations (Kotler and Armstrong, 2012). Marketing can be grouped
into the following four categories; monetary and fiscal policies, social legislation and
regulations, governmental relationships with industries, and legislation related
specifically to marketing (Etzel et al, 2004). The first category; monetary and fiscal
policies, marketing efforts are affected by the level of government spending, the money
supply and tax legislation. Secondly, the social legislation and regulations is legislation
affecting the environment, thus Environmental Management Agency (EMA)

23
 involvement. Thirdly is the governmental relationships with industries, it involves issues
of tariffs, import quotas, deregulations and subsidies. Netone was removed the status of
being a monopoly of telecommunications. Lastly is the legislation related specifically to
marketing. These are laws related to children's television act, children protection act, food
and drug act, consumer product safety and other laws related to marketing.

2.2.6 Ecology environment

Ecological environment can be also called physical or the natural, which calls concern for
the environment and the green movement is increasing general awareness of natural
environment and is altering product design, manufacture, packaging and use. This
environment is interlinked with the technological, legal and socio-cultural forces, ended
up stumbling about the ecological environment earlier on in the mentioned environments.
There are three trends in the natural environment (Kotler and Armstrong, 2012).The first
trend involves growing shortages of raw materials. Air may seem to be infinite resources,
but some groups see long run dangers because air pollution chokes many of world's large
cities. Water shortages are already a big problem especially in Harare. Renewable
resources such as forests and food also have to be used wisely, that is why some furniture
are no more made of natural wood to cut down on deforestation. Non renewable
resources such as oil, coal, gold, copper and diamonds pose a serious problem, and is the
reason why there we have unleaded petrol. The second trend is increased pollution.
Industries are pouring wastes into Mukuvisi river, littering the environment with plastics
and other packaging materials. Lastly is increased government intervention, EMA has the
authority to protect the environment, looks at those taking pit sand, river sand, brick
moulding and tree cutting. Anyone caught without relevant license is made to pay a find.
Other companies are producing recyclables and are energy conservation. Pepsi company
markets hundreds of products that are grown, produced and consumed worldwide.
Making these products requires water, electricity and fuel. To save energy Pepsi
Company in California uses solar panels for generators instead of electricity and in India
wind turbines are used. Twenty percent less plastic is used for packaging. A company
must be environmentally sensitive in its marketing activities, especially product
development.

Activity 2.1
1. Define and explain what constitutes the general environment.
2. Why is it necessary to look at the political and legal forces when planning.
3. Using examples, explain how a firm’s marketing can be influenced by the
environmental factor of technology.
4. List some of the demographic trends of interest to marketers in Zimbabwe and discuss
whether these trends pose opportunities or threats for marketers.

2.3 Task Environment

Task environment is also known as the external microenvironment and it is also not
24
within the control of the company. Managers' success will depend on other actors in the
company’s microenvironment other company departments, suppliers, marketing
intermediaries, customers, competitors and various publics, which combine to make up
the company’s value delivery network (Kotlet et al, 2004).Michael Porter's Five Forces
can be used as a model in this environment.

2.3.1 Customers
Customers are central to the marketing concept (Dibb et al, 2001).They are often fickle
and have ever changing requirements, needs and perceptions which marketers must
understand, anticipate and satisfy. The aim of the entire value delivery network is to serve
target customers and create strong relationships with them (Kotler et al, 2004).There are
five types of customers a company can target; consumer markets, business markets,
reseller markets, institutional and government markets and international markets.

2.3.2 Competitors

The marketing concept states that, to be successful a company must provide greater
customer value and satisfaction than its competitors (Kotler and Armstrong, 2012).
Michael Porter's Five Forces model can be applied to audit the influence of competition
in the market, thus National Foods and the new entrant Pro-Brand. Marketers must be
aware of direct, substitute and new entrant competitor activity but also should gauge the
likely impact of competition on their own business in the context of a sound
understanding of their own capabilities and understandings (Dibb et al, 2001).

2.3.3 Suppliers
Suppliers are an important link in the company's overall customer value delivery system
(Kotler, 2004).Marketers must be aware that suppliers need to be evaluated because
they affect the way in which their business functions in satisfying its customers. Michael
Porter's Five Forces Model comes in handy where marketers look at whether they one
or numerous suppliers. The merits and demerits of having single or multiple
suppliers should be looked into and the need to evaluate the suppliers. Supplier forces
could include supplier innovations, deals with rivals, supply shortages, delays or quality
concerns, legal actions or warranty disputes (Dibb et al, 2001).

2.3.4 Publics
A public is any group that has an actual or potential interest in or impact on an
organisation's ability to achieve its objective. These include; financial bodies,
newspaper, magazines, radio, television, or internet media, government bodies,
community and many other groups (Dibb et al, 2001).

Financial Institutions
This group influences the company's ability to obtain funds. It consists of banks,
investment analysts and stake holders. For any marketing operations to take place, there

25
 is need for funds, that is why the concept of finance clashes with the marketing
department because marketing goals are in the long run, whilst the finance department's
are in the short run.

Community

This is the general public in a society that marketing would be serving. A company needs
to be concerned about the general public's attitude towards its products and activities
(Kotler and Armstrong, 2012).The public's image of the company affects its buying.

Government

Government is a regulator in any country and sets policies or laws that affect the
operations of organisations. Marketers need to consult company lawyers on issues of
product safety, truth in advertising and other matters (Kotler and Armstrong, 2012).

2.4 International Environment

International marketing is concerned with marketing across national boundaries
(Brassingtonand Pettitt, 2000).

2.4.1 Political differences

Political differences can be in terms of trade barriers; which looks at tariffs, import quota,
local content law, local operating laws and standards and certification. Trade agreements
looks at world trade organisation (WTO). A company's political system, national system,
national law regulatory bodies, national pressure groups and courts all have great impact
on global marketing (Dibb etl, 2001). The Japanese have established many barriers to
imports into their country. Differences in political and governmental ethical standards are
enormous. The use of pay-offs and bribes is deeply entrenched in many governments,
while in others such involvement is prohibited Some business that refuse to make pay-
offs are forced to hire local consultants, public relations firms or advertising agencies
resulting in indirect pay-off. The ultimate decision about whether to give small tips or
gifts where they are customary must be based on a company’s code of ethics.

2.4.2 Cultural differences

Cultural differences that can influence a company’s marketing program are; family, and
behaviour, education and language. An international marketer must also know a
country’s customs regarding male-female social interaction. In Italy it is unacceptable for
a salesman to call on a woman if husband is not at home. It is important for marketers to
tune into changes into culture. British expect foreigners to speak and negotiate in English
(Brassington and Pettitt, 2000).

26
 Activity 2.2

1. Define task environment and explain how it affects the company’s ability to serve its
customers.
2. Explain what constitutes the public.
3. Discuss the obstacles likely to be faced by a marketer who wants to go globally.

2.5 Summary
In this unit we examined how various environmental forces influence an organisation’s
marketing activities. Some are external to the firm and are largely uncontrollable and
these include the political, economic, socio-cultural, technological, legal and ecological
forces. We also looked at how task environment affects marketing operations. The
elements include; customers, competitors, suppliers, financial institutions, community,
government. Michael Porter’s Five Forces Model was used as a general tool to cross-
examine the task environment. Lastly the international environment was looked at in
terms of cultural differences and political differences.

27
References

Brassington, F. and Pettitt, S. (2000). Principles of Marketing. (3rd Edition).

England: Pearson Education.

Dibb, S., Simkin, L., Pride, W.M. and Ferrel, O.C. (2001). Marketing Concepts. New
York: Houghton Mifflin Company.

Etzel, M.J., Walker, B.J. and Stanton, W.J. (2004). Marketing. (13th Edition). USA:
McGraw-Hill.

Jobber, D. (2001). Principles and Practice of Marketing. (3rd Edition). USA. McGraw-
Hill.

Kotler, P., Armstrong, G., Saunders, J. and Wong, V. (2005). Principles of Marketing.
(4th Edition). Essex, England: Pearson Education.

Kotler, P. and Armstrong, G. (2012). Principles of Marketing. New Jersey: Prentice

Hall.

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 Unit Three

Consumer and Organisational Buyer Behaviour

3.0 Introduction

Marketing management starts with understanding consumers and organizational buyers.

In this unit, a definition of consumer and industrial buyers, consumer decision making
process, consumer purchase roles and consumer adoption of new products were
discussed. Consumer purchasing on the internet, participants in industrial purchasing
behavior, classification of business markets, stages in business buying process are
covered.

3.1 Unit Objectives

After reading this unit, you should be able to:

• differentiate between a customer and a consumer
• describe the differences between consumer and organizational buyer behavior
• explain consumer psychology that influences buying
• describe the stage of product adoption by consumers
• identify the participants in the organisational buying decision unit

3.2 Customers and Consumers

Customer. A customer is anybody who do business with the organization. A person or

organization starts as a suspect, becomes a prospect and then become a customer. The customer
enters into an exchange relationship with the organization and interact for a longer time. The
word customers refers to a broader definition of people or organizations that purchase from a
supplier. The customer also include consumers.

Consumers. Consumers are individuals and households who buy products or services for
personal consumption. Many consumers purchase as individuals, or by in groups like families
and other user groups. Consumers are end-users of goods and service who buy goods and
services for their own benefit and enjoyment.

Differences between Consumer and Organisational Buyer Behvaiour

29
Table 3.X Differences between Business-to-business and consumer buyer bahaviour
CHARACTERISTIC BUSINESS-TO-BUSINESS CONSUMER
Demand Organizational Individual
Volume Larger Smaller
No of customers Fewer Many
Location Concentrated Dispersed
Distribution More direct More indirect
Nature of buy More professional More personal
Buying influence Multiple Single
Negotiations More complex Simpler
Reciprocity Yes No
Leasing Greater Lesser
Promotion Personal selling Advertising
Dibb et al, (2001)

The table above is a concise summary of the possible differences between organizational buying
characteristics and household buying characteristics. The major characteristics are nature of
demand, volume of purchases, quantity of customers, location, distribution logistics, nature of
the buy, buying influence, nature of negotiations carried out and dominant promotion strategies.

ACTIVITY 3.1
Outline the key differences between marketing to households and marketing to organizations.

3.3 Consumer Decision Making Process

Need Recognition or Problem awareness

Information Search

Evaluation of
alternatives

PURCHASE

Post-purchase
evaluation of decision

Source: Jobber (2010:112)

30
3.3.1 Need Recognition/ problem awareness
The buying process starts when the buyer recognizes a problem or need triggered by
internal or external stimuli. With an internal stimulus, one of the person’s normal needs
(hunger, thirst, sex) rises to a threshold level and becomes a drive. Such a need can also
be externally stimulated such as a person admiring a friend’s car and thinks of buying a
similar model.

3.3.2 Information Search

At this stage, a person may enter into an active information search about the product. The
person looks for reading material, call friends, search on the internet, visit stores and
exhibitions about the product they want to buy. The major information sources to which
consumers get information may be classified into three groups, personal and public.
Personal sources include family, friends, neighbours and workmates. Others include
commercial advertising, websites, salespersons, dealers, packaging, and displays. Public
sources include mass media and consumer rating organisations. Experiential include
handling, examining, using the product and service trials. The most effective information
often comes from personal or experiential sources or public authorities such as Consumer
Council of Zimbabwe. Kotler and Keller (2013) say personal sources are powerful for
legitimizing information.

3.3.3 Evaluation of Alternatives

Consumers use a variety of models and criteria for evaluation process among alternative
products. Since the consumer will be looking for certain benefits from a product or
service, the consumer pays more attention to attributes that bring those benefits. Beliefs
and Attitudes in evaluation: the buying behavior is greatly affected by consumers’ beliefs
and attitudes towards a product. A belief is a descriptive thought that a person holds
about something. Attitudes are a person’s enduring favourable or unfavourable
evaluations, emotional feelings and action tendencies toward some object or idea. A
company should then fit its product offering into existing attitudes.

3.3.4 Purchase
Purchase decision
In executing a purchase intention, the consumer may make up to five sub-decisions:
brand, dealer, quantity, timing and payment method. Purchase process is the actual
effecting of a transaction in a shop. The person collects the products from the shelves or
maybe assisted and make payment of the product.

3.3.5 Post-purchase Evaluation

It is common for customers to experience some post-purchase concerns. This is called
cognitive dissonance. These concerns arise because of uncertainty about making the right
decision. Dissonance is likely to increase as a result of expense of purchase, difficulty of
decision, irrevocable decisions, and when the purchaser tends to experience anxiety.
Consumers evaluate using personal criteria, how the product or service relates to the

31
 individual psychologically.

Activity 3.2
Explain the following terms:
1. Need recognition
2. Post purchase evaluation

Consumer Psychology and Influence on Consumer Behaviour

Four key psychological processes- motivation, perception, learning and memory-
fundamentally influence consumer responses.

3.4.1 Motivation
Consumer have needs at any time with some needs arising from physiological states of
tension such as hunger, thirst or discomfort. These are labeled biogenic needs. Other
needs are psychogenic, arising from psychological states of tension such as need for
recognition, esteem or belonging. The major motivation models that can explain
motivation are Freud’s theory, Maslow’ theory and Herzberg’s theory.

Perception
Perception is the process by which we select, organize and interpret information inputs to
create a meaningful picture of the world. A motivated person is influenced by his or her
perception of the situation. Jobber (2010) says in marketing perceptions are more
important than reality. Perception affect a consumer’s actual behavior.

Attitudes
A brand or product may make a consumer feel proud, excited or confident. The attitude
of a customer to a product is a factor of the long held feelings towards the brand.

Personality
Personality has been defined as the consistent and enduring characteristics of a human
being. Personality reflects individual differences as characteristics of each individual are
unique.

Learning
Learning is produced through interplay of drives, stimuli, cues, responses and
reinforcement. Learning induces changes in our behavior arising from experience.

3.5 Consumer Roles

In a typical family set up, a wife initiates a purchase by requesting a new kitchen set for
her birthday present. The responsible husband will seek information from many sources
including his friend who has also bought her wife something similar to that and is a key
influencer in where and what type of set to buy. After presenting alternatives to her wife,
he purchases the wife’s preferred model which ends up being used by the entire family.
One person in a household or family may assume multiple roles in the buying group.

32
 1. Initiator: The person who begins the process of considering a purchase. Information
may be gathered by this person to help the decision
2. Influencer: The person who attempts to persuade others in the group concerning the
outcome of the decision. Influencer typically gathers information and attempt to impose
their choice criteria on the decision.
3. Decider: The individual with the power and or financial authority to make ultimate
choice regarding which product to buy.
4 Buyer: The person who conducts the transaction. The buyer calls the supplier, visits the
store, makes the payment and effects delivery.
5. User: The actual consumer/user of the product.

Activity 3.3
Discuss the major influences of consumer behavior in the Zimbabwean context.

3.6 Consumers and Adoption of New Product

3.6.1 Stages in the Adoption Process
An innovation is any good, service, idea or perspective that someone perceives as new,
without regard how long it has been used by other. Consumer adoption process is the
mental steps through which an individual passes from first hearing about an innovation to
final adoption. The new product marketer should facilitate movement through these
stages. Some segments may be stuck at just being interested in a new service, the
marketing processes must enable segments to evaluate and start to trial the new service.
The stages are:

Awareness. The consumer becomes aware of the innovation but sometimes lacks
information about it.

Interest. The consumer is stimulated to seek information about the innovation.

Evaluation. The consumer considers whether to try the new product or service.
Trial. The consumer tries the innovation to improve his or her estimate of its value.
Adoption. The consumer decides to make full and regular use of innovation.

3.6.2 The Adoption Categories

The adopter categories show the innovators, early adopter, early majority. Late majority
and laggards. These are discussed one by one as displayed on Figure 3.2.

33
Percentage adopting

2.5%

Innovators

13.3% 34% 34% 16%

Early Early Late majority Laggards

adopters majority

Time

Figure 3.2 New Brand Diffusion Process Source: Jobber 2010:403

Innovators
Innovators are technology enthusiasts; they are venturesome and enjoy tinkering with
new products and mastering their intricacies. In return for low prices, they are happy to
conduct alpha and beta testing and report on early weaknesses. They are willing and
prepared to take chance with very new untried products (Kotler and Keller, 2013).

Early adopters
These are opinion leaders who carefully search for new products that might be of help to
the community. These filter the product bought by innovators and popularize them,
leading to acceptance by the majority of buyers in the market. They are less price
sensitive and willing to adopt the product if given personalised solutions and good
service support.

Early Majority
The consumers are pragmatists who accept a new product when its benefits and good
effects are proven and a lot of adoption has taken place. These are very deliberate and
cautious when buying goods and services. Early majority make up the mainstream
market.

Late Majority
These consumers are willing to adopt only after the majority of people have tried the
products. Such customers are skeptical of new brands, risk averse and price sensitive.
Late majority are sceptical conservatives who are risk averse, technology shy, and price
sensitive.

34
 Laggards
Kotler (2003) said laggards are the customer who are tradition bound and resist the
innovation until the status quo is no longer defensible. Each group requires a different
type of marketing if the firm wants a brand to move through the full product life cycle.
The categories provide a basis for segmenting the market for a new brand.

Activity 3.4
What are the major differences between “stages of adoption process” and “adopter
categories”.

3.6.3 Factors Favouring Adoption of New Products

Compatibility
Differential
Advantage
Rate of Adoption Communicability
of an Innovation
Complexity
Divisibility

Figure 3.3 Factors Favouring Adoption of New Products Source: Jobber, (2010:405)

Differential Advantage
A product’s differential advantage compared to existing products affect the speed of
adoption (Jobber, 2010: 404). Kotler and Keller (2013) defined this as the degree to
which an innovation appears superior to existing products. Adding more customer
benefits to a product result in more customers willing to buy.

Compatibility
The compatibility of a new brand with consumer’s values, experiences, lifestyles and
behaviours is a powerful factor in its adoption. The congruence and resonance between
mobile phones and lifestyle of young people has helped faster adoption of such products
and services. A new product must be compatible with consumer’s behavior, but if change
of behavior can be facilitated, various rates of adoption might be predicted.

Complexity
Jobber (2010) identifies other factor determining favouribility of adoption as complexity
of the product. Products that are difficult to understand or use may take longer to be
adopted. Apple was able to make its products get adopted faster by making their models
more user friendly than other complex computing machines.

Divisibility
An innovation’s divisibility also affects its speed of diffusion. Divisibility refers to the
degree to which the product can be tried on a limited basis. Less expensive products can

35
 be tried without risk of losses on both the consumer and the business. Some internet
services were being given for free to speed up rate of adoption.

Communicability
Adoption is more likely to be faster when the benefits and applications can be easily
observed or described to target customers. Communicability of product benefits to target
customers is becoming very critical in services oriented businesses. Kotler and Keller
(2013) see other factors affecting adoption as cost, risk and uncertainty, scientific
credibility and social approval.

Kotler and Keller (2013) also mention that the adoption process is affected by some
factors which determine how new products are adopted. These factors are:

Differences in individual readiness to try new products;

The effect of personal influence;
Differing rates of adoption;
Differences in organization’s readiness to try new products. For example, the creator on a
new innovative teaching software may want to identify innovative schools.

3.7 Consumer Purchases on the Internet

While many people relate the internet to consumer online shopping, business-to-business
e-procurement is of much greater size. Many companies have developed websites and
intranets to assist purchasing over the internet. Purchasing on the internet can be
enhanced by the following resources:

Catalogue sites. Companies can order items through electronic catalogues.

Vertical markets. Companies buying industrial products such as steel, chemicals or
plastics or buying services such as logistics can use specialized websites.

Auction sites. Suppliers can place industrial products on auction sites where purchasers
can bid for them. Exchange markets. Many commodities are sold on electronic exchange
markets where prices can change by the minute

Buying alliances. Companies in the same market for products join together to gain
bigger discounts on high volumes. The main benefits of online purchasing are reduced
buying costs, more rapid supply, the identification of new suppliers, the ability to share
information between buyers and sellers, reduced paperwork and closer working
relationships between suppliers and customers (Jobber, 2010).

Website and e-marketing

The website gives a mechanism for interaction between the direct marketer and the
customer including organizations with established mature mail order business has a
distinct advantage in online sales given their existing payment processing, inventory
management and order fulfillment operations.

36
 By using the internet, producer can sell directly to customers and provide customer
support online. In this instance, traditional intermediaries are removed from the channel.
These are organizations that sell directly to consumers over the internet without
maintaining a physical sales channel. Pure-play e-tailers have the advantage of low
overhead costs and streamlined processes.

Activity 3.5
Explain how the internet is influencing consumer purchases in Zimbabwe

3.8 Participants in Business Buying Process

Webster and Wind (1972) in Kotler and Keller (2013) call the decision making unit of a
buying organization the buying centre. It is made up of all individuals or groups who
participate in the purchasing decision-making process, who share some common goals
and the risks arising from the decisions. Purchasing agents are influential in straight re-
buy and modified re-buy situations, whereas other department personnel are more
influential in new-buy situations. Webster and Bonoma (1981) identified six roles or
functions of the DMU when purchasing. These are the: Initiators, Users, Influencers,
Deciders, Approvers, Buyers and Gatekeepers.

Initiators:
These are users or others in the organization who request that something be purchased.
Initiators objectives in the buying process are:
They want to earn respect.
They seek recognition
They want promotion

Users
Those who will use the product or service are called users. In many cases, the users
initiate the buying proposal and help define the product requirements. The user
objectives:
They want efficiency to make life easy at work with use of a good product.
They seek prestige through the purchase of the best product.
They want an up to date product.
A sales person should make an effort to identify the user so as to persuade the user to like
the product by stimulating the interest pertaining to the product.

Influencers
People who influence the buying decision, often by helping define specifications and
providing information for evaluating alternatives. Technical personnel are particularly
important influencers. Influencers objectives are: They want to be recognized.
Gain prestige and economize the resources of the organization.
A sales person is expected to respect and give more information about the product to the
influencers.

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 Deciders
These are organizational people who decide on product requirements or on suppliers. The
decider’s main objectives are:
They want to use the organizations resources more effectively and efficiently.
Those products only meeting the standard and quality are purchased.
They want to do business with respectable suppliers in order to maintain the image of the
organization.
They want to come up with the best buying arrangements with the seller.
A sales person has to identify the deciders and persuade them. He needs to convince them
on matters pertaining to the product, the organizations, and accompanying services.

Approvers
People who authorize the proposed actions of deciders or buyers.

The Buyers
These are organizational people who have formal authority to select the supplier and
arrange the purchase terms. Buyers may help shape product specifications, but they play
their major role in selecting vendors and negotiating (Kotler and Keller, 2013).

The Buyers want recognition and respect, they want to purchase the best quality from the
best source and strictly follow purchasing policies and procedures of the organization.
The task of a salesperson is not only to convince him/her but to respect them.

Gatekeepers
These are people who have power to prevent sellers or information from reaching
members of the buying centre. For example, purchasing agents, receptionists and
telephone operators may prevent salespersons from contacting users or deciders.
Gatekeepers want to be recognized, they do not want their bases to be interrupted and
they want a smooth flow of information to the respective persons or departments. It must
be appreciated that several people can occupy a given role such as user or influencer and
one person may play multiple roles.

Activity 3.7
1. Using an organization of your choice, discuss how the roles or participants in the
buying process have been constructed and how they are influence organisational
buying.

3.9 Classification of Business Markets

Industrial customers fall into three categories namely:
Commercial enterprises
Government agencies, and
Institution

Commercial institutions
Examples are Willowvale Motor Industries, farm equipment manufacturers, ICL

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computer manufacturers. These companies purchase industrial goods and services for
purposes other than selling directly to ultimate customers. It is important from a
marketing view point to understand what motivates them to purchase; what influences
their purchasing decisions and how marketing strategy might be crafted to meet their
needs.

Commercial enterprises fall into three main type:

Industrial distributors or dealers
Original equipment manufacturers, and
Users

Industrial distribution and dealers

Industrial distributors and dealers purchase industrial goods and resell them in basically
the same form to commercial, government and institutional markets. They are the
industrial market’s intermediaries acting in a similar way wholesalers and retailers act in
a consumer market.

Original Equipment Manufacturers

When enterprises goods to incorporate into products, which they produce, such
enterprises are classified as original equipment manufacturers (OEMs). Thus Mutasa
Conductors Manufacturers sell thee conductors to WRS Radio manufacturers. To Mutasa
WRS is an OEM.
The important point is this type of customer (OEM), the product of the industrial
marketer becomes part of the customer’s product.

Commercial Enterprise
When a commercial enterprise purchase industrial products to support its own
manufacturing process or for consumption during that process it is referred to as user
organisation. Such products may be lathes, drilling machines, grinding wheels. Products
purchased by users are not incorporated into the customer’s production, as is case with
OEMs. Categories may overlap. For example, a manufacturer of forklifts can be a user
purchasing metal cutting tools to support the manufacturing process or an OEM
purchasing drives and transmissions to incorporate into the forklift being manufactured.
The important issue is that OEM purchasers will be concerned with impact that products
have on quality and dependability of the end products they produce.

Users
Users’ concern will centre on prompt, predictable delivery and maintenance service.
Industrial distributors will be more concerned on how product matches the needs of their
customers.
All these purchases must enhance the profit making capability of the firm.

Government agencies
The government through its various agencies e.g. CMED, DDF, Central Stores,
parastatals, is the biggest purchaser of industrial goods and services. Because of this level
of volume purchases, procurement and administration and practices are highly

39
 specialized e.g. the role procurement department vs. role of the Tender Board;
adjudication processes. All these tend to be perceived as confusing.

Institutions (private and public)

This category refers to such institutions as universities, hospitals, churches. Some of
these institutions may follow very rigid rules and purchasing procedures while others
may be casual.

3.10 Stages in The Organisational Buying Process

3.10.1 Problem Recognition
The buying process begins with recognition of a problem in the company or a need that
can be met by acquiring a good or service. Problem recognition is a result of numerous
processes and activities such as dissatisfaction with current supplier, need to develop new
products, recommendation from business partners or ideas from advertisement and
marketing efforts.

3.10.2 General Need Description

The next stage is for the buyer to establish the needed item’s characteristics and
quantities. For example, decision makers might decide that five lathes are required to
meet certain specification.

3.10.3 Product Specification

The buying organization now develops the wanted item’s specifications. These
specifications are written down. This writing down allows the buyer to refuse
components that are too expensive or parts which do not meet specifications.

3.10.4 Supplier Search

The buyer then tries to identify the most appropriate suppliers. This should be a thorough
process that involves search of reputable and authentic suppliers. Such information might
be obtained from the internet, trade fairs, advertisements and trade directories.

3.10.5 Proposal Solicitation

The buyer next calls for qualified suppliers to submit proposals. Having found a number
of companies that are considered to be qualified to supply the product, proposals will be
called for and analysis of them done. Evaluation of such suppliers is carried out, with
better suited suppliers being called to come and make presentations.

3.10.6 Supplier Selection

The buying centre will specify and rank desired supplier attributes such as price,
reputation, product reliability, service reliability, supplier flexibility and location.

40
3.10.7 Order-Routine Specification
After selecting suppliers, the buyer negotiates for the final order, listing technical
specifications, the quantity needed, expected time of delivery, return policies and
warranties. This marks the beginning of a business relationship with the supplier.
Inventory issues and how to control supply are often critical negotiations to be done.

3.10.8 Performance Review

The buyer from time to time reviews the behavior and performance of the chosen
supplier. This can be accomplished by involving end-users in evaluating supplier using
some set criteria. The results of such evaluations might signal to the buyer to continue,
modify or end a supplier relationship (Kotler and Keller, 2013).

3.10.3 Buy Grid Framework

BUYCLASSES
BUY PHASES NEW TASK MODIFIED STRAIGHT
REBUY REBUY
1Problem Recognition YES MAYBE NO
2.General need description YES MAYBE NO
3.Product specification YES YES YES
4.Supplier search YES MAYBE NO
5.Proposal solicitation YES MAYBE NO
6.Supplier selection YES MAYBE NO
7.Order-routine specification YES MAYBE NO
8.Performance review YES YES YES
Source: Kotler and Keller (2013:217)

3.11 Influences in Business Buying Process

3.11.1 Buying Situations/Buyer Class

There are three major buying situations in industrial buying namely: Straight re-buy,
modified, and new task.

Straight Re-buy
A straight re-buy may be defined as a business-buying situation in which the buyer
routinely reorders something without any modification. This is the most common
situation in industrial purchasing e.g. service oils, brake parts for forklifts.

Modified Re-buy
This may be defined as a business buying situation in which buyer wants to modify
product specifications, prices, terms or suppliers. A modified re-buy usually involves
more decision participants than the straight re-buy. The existing current supplier may
become nervous; feel pressured to put their best foot forward to protect a key account.
The new supplier may see the modified re-buy situations as an opportunity to make a
better offer and gain new business.

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 The New Task
New task is a business buying situation in which the buyer purchases a product or service
for the first time. The problem or need is considerably different from past experiences.
Purchasing decisions become more complex and involved. The new need or problem may
be triggered by internal or external factors e.g. addition of new product line may require
the purchase of new equipment or a change in customer requirements may force the firm
to purchase new equipment.

3.11.2 Environmental, personal, product and organisational factors

Products Type
Products can be classified according to four types:
Materials to be used in the production process
Components to be incorporated in the finished product
Plant and equipment for example bulldozer
Maintenance repair and operation for example lubricants, welding equipment and
spanners.

The Importance of the Purchase

Some purchases involve large sums of money and as such the cost of making wrong
decision is considerably high. In such situation, many people in organization is consulted,
and the process is likely to be long, with extensive search of information.

Activity 3.9
Discuss the major influences of industrial purchasing behavior.

3.12 Summary

The unit looked at the behavior of household buyers and organisational buyers. The
difference between consumer and organisational buying was described. The consumer
decision making process, adoption categories, participants in organisational buying
process and business markets were discussed. It was seen that consumer purchases on the
internet is on the increase, necessitating more discussions on internet buying.

42
References

Jobber, D. (2010) Principles and Practice of Marketing. 6th Edition, McGraw-Hill

Publishers, London.

Kotler, P. and Keller, K.L (2013) Marketing Management. 14th Edition, Pearson
Education Limited, Boston.

Webster, F.E. and Wind, Y (1972) Organisational Buying Behaviour. Saddle River, New
Jersey Prentice-Hall.

Crowley, A.E and Hoyer, W.D. (1994) “An Integrative Framework for Understanding
Two-sided Persuasion” Journal of Consumer Research Vol. 20 pp 561-574.

43
 Unit 4

Segmentation, Targeting and Positioning

4.0 Introduction
A company cannot serve everyone in a broad market because the customers are too many
and diverse in their consumption patterns. The organisations in order to effectively and
efficiently serve their customer, they need choose specific market segment(s). The
marketers choose the segments that they are able to serve well and give them better
rewards. Therefore segmentation is a basic marketing strategy.

4.1. Unit Objectives

By the end of the unit you will be able to:

• define segmentation, targeting and positioning
• illustrate the link between these three concepts
• compare and contrast consumer and industrial segmentation basis
• evaluate main targeting strategies
• position a product through perceptual mapping

4.2. Market Segmentation

Market segmentation consists of dividing a diverse market into a number of smaller,
more similar submarkets. Jobber (1995: 200) defined Market Segmentation as the
identification of groups of individuals or organizations with characteristics in common
that have a significant implication for the determination of marketing strategy.
4.2.1 Benefits of Segmentation
Segmentation has got various benefits to you as marketer. Mains are illustrated in Figure
4.1 below

44
 Target
Market
Selection

Market Tailored
Differentiation Segmentation Marketing
Mix

Opportunities
and Threats

Figure 4.1 The Benefits of Segmentation (Adopted from Jobber, 1995:201)

Target Market selection

Market Segmentation provides the basis for selection of target markets. A target market is
a selected segment which an organization has decided to serve. A target market to be
selected should have similar characteristics which enable one marketing strategy to be
developed to match customer requirements.

Tailor marketing mix

Market segmentation leads to the identification of a market with similar needs which
enable a company to tailor a marketing mix package that meets customer needs.

Differentiation
Market segmentation allows the development of different strategies. Through breaking a
market into different subgroups make it possible for a company to differentiate its
offering between the groups.

45
 Opportunities and Threats
Market segmentation is useful when attempting to spot opportunities and threats. Market
segmentation makes a marketer have more insights on what is happening in the market.
Nowadays the market is very dynamic with customers more affluent, who seek new
experiences. A company that quickly identify a new underserved market segment and
meets its needs better than competitors can find itself on a sales and profit trajectory.

4.2.2 Segmentation Criteria

A pivotal question is deciding it is worthwhile to segment a market. While in many
instances segmentation is a sound strategy, its feasibility and value need to be evaluated.
The following criteria are important for this purpose.

Substantiality
The target market must be financially attractive in terms of revenue generated and costs
incurred. Being large enough to provide a worthwhile target, though not necessarily that
the target market should large, but profitable enough to have distinct mix aimed at it.

Measurability
It must be possible to identify the customer groups that exhibit response differences and
finding the correct groups may be difficult. It must also be possible to understand what it
is that makes a segment a segment in the buying sense.

Actionability
A business must be able to aim a marketing program/strategy at each segment as a market
target. Marketing effort should focus on the segment of interest and not e wasted on non-
segment buyers.

Stability
The selected segments must show adequate stability over time so that a company’s
marketing efforts will have enough time to produce favourable results. If the customers’
needs change too fast, a group with similar response patterns at one point may display
quite different patterns several months later. The time period may be short to justify using
a segmentation strategy.

4.2.3 Bases for Segmenting Consumer Markets

Different variables are used to segment consumer markets. Commonly marketers use
geographic, demographic, psychographic, and behavioral variables as shown in Table 4.1

46
 Table 4.1 Common Bases for Segmenting Consumer Markets
BASE VARIABLE EXAMPLE
GEOGRAPHIC Region Pacific, Midlands, SADC, South
West Africa
Density Urban, Rural, Suburban
Climate Mountainous, humid, torrential
DEMOGRAPHIC Age Under 10, 10-20, 10-35, 35-45, 45-
60, 60-70, 70+
Gender Male, Female, Bisexual
Family Size 1-2, 3-4, 5+
Family Cycle Young single, young couples, young
parents, middle-aged empty nesters
Income Under 100, 100-200, 200-500, 500-
800, 800-1000, 1000-1500, 1500-
2000, 2000+
Education Grade 7, ZJC, O’Level, A’Level,
Bachelor, Masters, PhD
Occupation Managers, Professionals,
Technicians, supervisors, self-
employed, farmers, teachers, soldiers,
policemen, retired.
Religion Christian, Muslim, Hindu,
traditionalist, Satanist
Race White, Black, Asian
Nationality Zimbabwean, Zambian, Russian,
Chinese, British, American
BEHAVIOURAL Occasions Regular Occasion(Christmas),
Special Occasion (Wedding)
Benefits Quality, service, economy, speed
User Status Non-user, ex-user, potential user, first
time user, regular user
Usage Rate Light user, medium user, heavy user
Loyalty Status None, medium, strong, absolute
Readiness Stage Unaware, aware, indifferent,
negative, hostile.
PSYCHOGRAPHIC Personality Compulsive, authoritarian, ambitious,
gregarious
Lifestyle Extroverts, introverts, aggressive,
submissive
Social class Lower, middle, upper middle, skilled
working, unemployed
Source: Kotler, (2011)

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4.2.4 Bases for Segmenting Business Markets
Business markets can be segmented using many of the same variables used in consumer
segmentation, for example benefits sought, and usage rate. There are other variables
different. Bonoma and Shapiro proposed segmenting variables for business markets as
highlighted in Table 4.2

Table 4.2 Bases for segmenting Business markets

BASE VARIABLE EXAMPLE
DEMOGRAPHIC Industry Mining, agriculture,
manufacturing, banking
Company Size Sole Trader, National company,
multi-national
Location Urban, rural, Africa, Europe,
America
OPERATING VARIABLES Technology Customer technology,
manufacturing technology
User/Non User Status Heavy, medium, light or non-
users.
Customer Capabilities Low, medium and high
capabilities
PURCHASING Purchasing-function Centralized, decentralised
APPROACHES organization
Power structure Is it engineering dominated,
accounting dominated, marketing
dominated.
Nature of existing Transactional, long term
relationship relationship, vertical marketing
system
General purchase Sealed bidding, leasing, service
policies contracts
Purchasing criteria Does the firm seek quality,
service or price?
SITUATIONAL FACTORS Urgency Sudden or quick deliveries,
periodic deliveries.
Specific applications
Size of order Firm should choose markets
according size-small, medium,
large.
PERSONAL Buyer-Seller Customs, norms, values
CHARACTERISTICS relationship
Attitudes towards Risk Risk taking customers, risk
avoiding customers
Loyalty Should the firm focus on
companies that show high loyalty.
Source: Kotler, (2011)

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 Activity 4.1

1. Segmentation is a cornerstone of the marketing strategy. Using an organization

which you are familiar with show how the organization has grouped its target
markets.
2. Is it possible to segment industrial products using consumer segmentation
variables?

4.3 Market Targeting

Jobber (1995) says that market segmentation is a means to the end: Target marketing.
This is the selecting of specific segments to serve. A firm needs to evaluate the segments
and decide which one(s) to serve. Two broad issues are used to evaluate market
segments: Market attractiveness and the firm’s capability of competing in the segment.

4.3.1 MARKET ATTRACTIVENESS

Market attractiveness can be assessed by looking at market factors, competitive factors

and political, social and environmental factors.

Market Factors

Segment Size: Generally large-sized segments are more attractive than small ones since
the sale potential and the chances of achieving economies of scale are high. However this
is true, if the firm has enough resources to support the big market segment.

Segment Growth Rate: Growing segments are usually regarded as more attractive than
stagnant or declining segments as new business opportunities will be greater. These types
of segments are highly competitive, therefore growth rate should be analysed against the
state of competition.

Price sensitivity- price sensitive customers are grouped together and there is a danger of
profit margins being eroded by price competition. Low price sensitive segments are
usually more attractive since margins can be maintained.

Bargaining Power of customers- customers, both end and intermediate customers

(distributors) can reduce the attractiveness of a market if they exert high bargaining
power on suppliers. Profits margins are reduced as customers negotiate for lower prices
for placing large orders.

Bargaining Power of Suppliers- when supply is in the hands of few dominant

companies the segment will be less attractive than when served by a large number of
competing suppliers.

49
 Barriers to market segment entry- companies considering entering a new segment may
be prevented by some entry barriers which may include high marketing expenditure,
patents or high switching costs for customers.

Barriers to market segment exit- segment may be less attractive if there are high
barriers exit. This may take the form of specialized production facilities than can be
easily liquidated.

Competitive Factors

Nature of completion: Segments that are characterized by strong aggressive competition

are less attractive than where competition is weak.

New Entrants- a segment may look attractive because of lack of competitors. When new
firms enter the market possibly with new technology this might change the completion
game.

Competitive differentiation-segments will be more attractive if there is real probability

of creating a differential offering that customer value.

Political, Social and Environmental Factors

Political Issues- political forces can open up new market segments eg the Indigenous
empowerment campaign in Zimbabwe.

Social trends- changes in society may add subtract opportunities in a segment in the
process affecting its attractiveness.

Environment Issues- campaigns towards more environmentally friendly products has

affected market segments both positively and negatively.

4.3.3 Capability
Market attractiveness factors must be placed on the firm’s capability to serve the market
segment. Capability is assessed by analyzing exploitable assets, cost advantages,
technological edge and managerial capabilities and commitment.

• Exploitable marketing assets-e.g. image of its brands, its distribution synergies.

• Cost Advantages- for example company accessibility to cheaper materials, labour

or technological cost advantages

• Technological Advantage-this can be superior technology which can a source of

differential advantage, and patent protection which can form the basis of a strong
defensible position.

50
 • Managerial capabilities and commitment-technical and judgmental skills of
management may be insufficient to compete against strong competitors.

4.4 Target marketing strategies

The aim of evaluating market segments is to select one or more segments to compete.
There are four generic target marketing strategies from which to choose: undifferentiated
marketing, differentiated, focused marketing, and customized marketing.

4.4.1 Undifferentiated Marketing

Company uses a single marketing mix for the whole market. There is absence of
segmentation. Companies that lack a marketing orientation practice undifferentiated
marketing.

4.4.2 Differentiated Marketing

Used when segmentation reveals several potential targets which makes possible for the
development for specifics marketing mixes to appeal to all or some of the segments. A
differentiated target marketing strategy exploits the differences between market segments
by designing specific marketing mix for each segment.

4.4.3 Focused Marketing

The identification of several segments in the market does not imply that a company
should serve all of them. Some may be unattractive or out of line with business strengths.
The company may select one of the segments. The company develops a single marketing
mix aimed at one target market (niche market). This strategy is usually used by
companies with limited resources. Small companies may stretch their limited resources if
they compete in more than one segment.

4.4.4 Customised Marketing

In some markets the requirement of individual customers are unique and their purchasing
power is sufficient to make a separate marketing mix for each customer variable.

Activity 4.2
1. Market segmentation is a means to the end: Target marketing. What do you
understand with this statement?
2. Discuss the advantages of using each target marketing strategy.

4.5 Positioning

According to Kotler (2002) positioning is the space that a firm or product stand in the
mind of the market. A good position answers the following 3 questions:

51
 • Whom do firm serve?
• What do firm do for the customers?
• How do the firm’s products differ from other choices?
• What do the firm good at?

However it must be noted that the question is not whether the firm have a position in the
minds of your target market. The question is whether it is the right position. Usually
when people know about the firm’s products, they place it at some spot on their
perceptual map in relation to competitors. People tend to form their opinions early and
hold them for a long time, so it plays to clearly establish the best position early in the
introduction of the firm’s products or early in the introduction of the firm itself. First
impressions are lasting impressions.

It is not the first company with the product that gets to be the market leader; it is the first
company that is perceived by most people to be the market leader. This is the reason for
“first mover” advantage.

4.5.1 Positioning strategy

It is complex and difficult to identify and select a positioning strategy. Firstly let me
discuss the steps involved in positioning strategy. There are basically six steps that can be
adopted. In each of the steps marketing research techniques can be employed to get
necessary information. The steps are outlined below.

Step 1 – Identify the competitors

It is not simple to identify the competitors e.g. coke-cola might define its competitors as:
other cola drinks, not diet soft drinks, all soft drinks, non-alcoholic beverages, and all
beverages except water.

There are two types of competitors

i. Primary Competitors- companies belonging to the same product class.

ii. Secondary Competitors – those belonging to other product category.

In the above example cola drinks are primary competitors and other drinks/beverages are
secondary competitors.

Step 2 – Determining how the competitors are perceived and evaluated

This step involves determining the product positioning which is basically done when the
competitors are purchased by the consumers. It is to see a comparative view. An
appropriate set of attributes should be chosen. The term ‘attribute’ include not only
characteristics and consumer benefits, but also product associations such as product use
or product users. In any product category, there are usually a host of attribute
possibilities.

52
Step 3 – Determining the competitors’ positions
In this step, it should be determined how different brands (including own brands) are
positioned with respect to the relevant attributes selected under the previous step. At this
point it should be clear about what is the image that the consumer has about the various
products brands. It should be established how the products are positioned in respect of
each other. Also which competitors are perceived as similar and which ones are different?
This judgment can be made subjectively.

Step 4 – Analysing the customer

Now you need to analyse the customer’s habits and behavior in a particular segment
market. The following questions need attention while understanding the customer and
market segment-
i) How is market segmented?
ii) What roles does the product class play in the customer’s lifestyle?
iii) What habits and behavior patterns are relevant?
The segmentation question is critical. Segmentation helps to grade the product benefits or
attributes accordingly. Not all product attributes are important.

Step 5 – Making the positioning Decision

Step 4 provide a useful background and is necessary to be conducted before taking any
decision about positioning. The following guidelines can be offered to reach a positioning
decision.
i) Economic analysis should guide the decision.
ii) Positioning usually implies a segmentation commitment.
iii) Do not try to be something you are not.
Making a decision on position strategy symbols or set of symbols must be considered.

Step 6 – Monitoring the position

An image objective like advertising should be measurable. It is necessary to monitor the
position over time. For that you have variety of techniques that can be employed. It can
be on the basis of some tests and interviews which will help to monitor any kind of
change in the image.

4.3.2 Positioning types.

Positioning as earlier explained is the space that your products or service occupy in the
minds of your target market. Positioning permeates virtually everything we do. It is the
foundation to all communications and brand strategy. It is a disciplined thinking that
guides the basis for building relationships between products and customers. Once you
determined the way in which you can reach your market, the next thing is to look at is
how you are going to lure customers to try your products. There are eight common
positioning types which a firm may consider before deciding on which one to attach to
the product.

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 1. Quality positioning
Quality, or the perception of quality, lies in the mind of the buyer. Build a powerful
perception of quality, and you will succeed in creating a powerful brand.
Another way to build the perception of high quality is to simply attach a higher price tag
to your brand. Most people think that they know a high quality product from another, but
in reality, things are not always as they seem. Believe it or not, high price is a benefit to
some customers. It allows the affluent consumer to obtain psychological satisfaction from
the public purchase and consumption of a high end product. Of course, the product or
service does need to have some perk or difference to justify the higher price.

2. Value positioning
Today, brands that are considered a value are rising in popularity amongst consumers.
Southwest Airlines is probably the best example of how a company has been able to offer
discount prices and still keep a strong brand identity. In fact, most of the other major
airlines have followed Southwest’s lead by rolling out value-priced flights under new, co-
branded names.

3. Feature-driven positioning
More marketers rely on product/service features to differentiate their brands than any
other method. The advantage is that the message is clear, and the positioning will be
credible if you stick to the facts about the product. Unfortunately, feature-orientated
stances are often rendered useless if the competition comes out with a faster or more
advanced model.

4. Relational positioning
One of the most effective ways to create interest in a brand is to send out a positioning
prompt that resonates well with potential buyers.

5. Aspiration positioning
These are positioning prompts that offer prospects a place they might like to go, or a
person they might like to be, or a state of mind they might like to achieve.

6. Problem/solution positioning
As the name implies, problem/solution prompts show the consumer how a sticky
situation can be relieved quickly and easily with the brand or service. What
problem/solution campaigns lack in imagination, they usually make up for in directness
and credibility. For example, frozen meals cut meal preparation time to minutes.
Detergents and cleansers also make good use of these prompts.

7. Rivalry-based positioning
By definition, positioning deals with how one brand is thought of compared to its obvious
competitors. Therefore, the idea of a rivalry-based position might seem redundant but
many campaigns take this approach. Laundry detergents, for one, are constantly going
head-to-head to prove which one has the most power to lift stains.

54
 8. Benefit-driven positioning
Other brands base their entire positioning on the fact that they give back to the consumer.
Discover credit card, for instance tells customers that “It Pays to Discover.” Use the card
and get money back. Discover was among the first major credit cards companies to
provide its users with a financial incentive for using their card (Kotler, 2011).

4.5.3 Positioning Mapping or Perceptual positioning

In helping you develop a market positioning strategy for your product or service,
perceptual maps or positioning maps as they are sometimes referred to, are often used to
help the organisation identify a positioning strategy. The maps are based on the
perception of the buyer hence the name perceptual maps.

When plotting a perceptual map any criteria can be used to plot the x and y axis. In the
example below the two dimensions that are used are price and quality. Below is a very
basic perceptual map. In our basic map, you can see there is not much competition in
Low Price-Low Quality Quadrant.

We must remember that perceptual maps are plotted on the basis of the buyers’
perception and what maybe a quality product to one buyer may not be perceived as
quality to another.

High Quality

Jade
Geisha Lux
Protex

Pearls Dettol
Vaseline

Low Price High Price

Charm
Sona Lifeboy

Sunlight

Low Quality

Figure 4.3 Perceptual Map for Bathing Soaps: Adopted from Kotler, (2002)

To summarise the benefits of perceptual mapping are:

55
 1. The organisation plots the perception of the product or service offered from the point
of view of the buyer, therefore assisting the company in helping them understand what
their customers views are on their products.
2. The map may help the organisation identify a gap in the market.

Activity 4.3
1. What do you think are the positioning strategies being used by companies in the
industry you are familiar with?
2. What you think companies can do to improve their positioning?
3. What do relate positioning to segmentation and market targeting?

4.6 Summary

Market segmentation is process of dividing the total market into several sub-markets, or
segments, each of which tends to be homogeneous. There are important principles
applied for market segmentation: measurability of segments, accessibility of the
segments, and represent ability of the segments. In market targeting, we evaluate each
market segment and finally select the appropriate segment company finds worth entering.
A criterion is developed on how to evaluate a market. The criteria may include, market
factors, competitive factors and political, social and environmental factors. After
targeting, marketers attempt to develop a special image for its products in consumer mind
relative to competitive products; this is known as market positioning. Positioning is the
space that a firm or product stand in the mind of the market. A good position answers the
following 3 questions:
• Whom do firm serve?
• What do firm do for the customers?
• How do the firm’s products differ from other choices?
• What do the firm good at?

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Reference

Donnelly, J.H. and Peter, P.J. (2009) Marketing Management Knowledge and Skills,
London: McGraw-Hill.

Jobber, D. (1995) Principles and Practice of Marketing. London: McGraw Book

Company.
Kotler, P. (2002) Marketing Management, 13th Edition Prentice Hall Inc USA

Kotler, P. and Keller, K. (2011) Marketing Management, 14th Edition Prentice Hall,
USA.

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 Unit 5

Strategic Marketing Management Planning

5.0 Introduction

The unit examines the nature, purpose and importance of the planning process. In
particular, it shall concentrate on the contents of plans – including the criteria for
objectives and the nature of strategies and controls, together with the reasons why
planning sometimes fails – and the various types of plans which are to be found in any
type of business planning. It will also examine some of the contemporary issues that
impinge on business planning. The unit will also consider the beginning of the strategic
planning process, incorporating the mission statement, corporate level objectives and
strategies, and see how these objectives and strategies cascade down through the
organisation to the functional, or SBU, levels. We shall examine how the lines of
communication throughout the organisation ensure that, as information is passed down
the chain, objectives and strategies can be converted to suit each relevant section but they
will still be governed, and guided, by the corporate level decisions.

5.1. Objectives

By end of the unit you be able to:

• discuss what is a strategy and its elements
• examine the components of the strategic marketing management
• develop a practical marketing plan

5.2. What is a strategy?

Strategy is the direction and scope of an organisation over the long-term: which achieves
advantage for the organisation through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfill stakeholder expectations"
(Drummond et al, 2001).

In other words strategy involves:

o Where is the business trying to get to in the long-term (direction)

o Which markets should a business compete in and what kind of activities is

involved in such markets? (markets; scope)

o How can the business perform better than the competition in those markets?
(advantage)?

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 o What resources (skills, assets, finance, relationships, technical competence, and
facilities) are required in order to be able to compete? (resources)

o What external, environmental factors affect the businesses' ability to compete?

(environment)

o What are the values and expectations of those who have power in and around the
business? (stakeholders)

A Plan is written account of intended future course of action (scheme) aimed at

achieving specific goal(s) or objective(s) within a specific timeframe. It explains in detail
what needs to be done, when, how, and by whom, and often includes best case, expected
case, and worst case scenarios.

A tactic is a specific action taken to address a specific situation. A tactic is part of a

specific plan or strategy.

The word strategy is derived from the Greek word strategies which translates to the art of
the general. This is often confused with tactics, from the Greek taktike. Taktike translates
as organizing the army. In modern usage, strategy and tactics might refer not only to
warfare, but to a variety of business practices.

5.3 Hierarchical Levels of Strategy

According to Baker, (2008) strategy can be formulated on three different levels:

• Corporate level
• Business unit level
• Functional or departmental level.

While strategy may be about competing and surviving as a firm, one can argue that
products, not corporations compete, and products are developed by business units. The
role of the corporation then is to manage its business units and products so that each is
competitive and so that each contributes to corporate purposes.

While the corporation must manage its portfolio of businesses to grow and survive, the
success of a diversified firm depends upon its ability to manage each of its product lines.

5.3.1 Corporate Level Strategy

Corporate level strategy fundamentally is concerned with the selection of businesses in
which the company should compete and with the development and coordination of that
portfolio of businesses.

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 Corporate level strategy is concerned with:
• Reach - defining the issues that are corporate responsibilities; these might include
identifying the overall goals of the corporation, the types of businesses in which
the corporation should be involved, and the way in which businesses will be
integrated and managed.
• Competitive Contact - defining where in the corporation competition is to be
localized.
• Managing Activities and Business Interrelationships - Corporate strategy
seeks to develop synergies by sharing and coordinating staff and other resources
across business units, investing financial resources across business units, and
using business units to complement other corporate business activities
• Management Practices - Corporations decide how business units are to be
governed: through direct corporate intervention (centralization) or through more
or less autonomous government (decentralization) that relies on persuasion and
rewards.

5.3.2 Business unit level strategy

A strategic business unit may be a division, product line, or other profit center that can be
planned independently from the other business units of the firm. At the business unit
level, the strategic issues are less about the coordination of operating units and more
about developing and sustaining a competitive advantage for the goods and services that
are produced. At the business level, the strategy formulation phase deals with:
• Positioning the business against rivals

• Anticipating changes in demand and technologies and adjusting the strategy to

accommodate them

• Influencing the nature of competition through strategic actions such as vertical

integration and through political actions such as lobbying.

Michael Porter identified three generic strategies (cost leadership, differentiation, and
focus) that can be implemented at the business unit level to create a competitive
advantage and defend against the adverse effects of the five forces (Porter Five Forces of
competition).

5.3.3 Functional level strategy

The functional level of the organization is the level of the operating divisions and
departments. The strategic issues at the functional level are related to business processes
and the value chain. Functional level strategies in marketing, finance, operations, human
resources, and R&D involve the development and coordination of resources through
which business unit level strategies can be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providing

input into the business unit level and corporate level strategy, such as providing

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 information on resources and capabilities on which the higher level strategies can be
based. Once the higher-level strategy is developed, the functional units translate it into
discrete action-plans that each department or division must accomplish for the strategy to
succeed.

5.4 Difference between Strategy and Tactic

Drummond et al, (2001) posits that most authors have used strategy and tactics
interchangeably to mean the same but they are difference. Essentially, strategy is the
thinking aspect of planning a change, organizing something, or planning a war. Strategy
lays out the goals that need to be accomplished and the ideas for achieving those goals.
Strategy can be complex multi-layered plans for accomplishing objectives and may give
consideration to tactics.

Tactics are the meat and bread of the strategy. They are the “doing” aspect that follows
the planning. Tactics refer specifically to action. In the strategy phase of a plan, the
thinkers decide how to achieve their goals. In other words they think about how people
will act, i.e., tactics. They decide on what tactics will be employed to fulfill the strategy.
The tactics themselves are the things that get the job done. Strategies can comprise
numerous tactics, with many people involved in attempting to reach an overall goal.
While strategy tends to involve the higher ups of an organization, tactics tend to involve
all members of the organization.

Another term related to strategy and tactics in military operations is logistics. Logistics
refers to how an army will be supported so they can employ tactics. Logistics form a part
of strategy, for example, when one looks at providing a military force with weapons, food
and lodging.

Peter Drucker says: "Strategy is doing the right things, tactics is doing things right." Also,
when you next hire a new employee, decide whether that employee would do a strategic
or a tactical job.

Activities 5.1

1. What is a strategy scope?

2. Explain various levels of a strategy?
3. What is the role of Marketing in the three levels of a strategy?
4. What is the difference between a tactic and a strategy? Give practical examples

5.5. Strategic Planning Steps

Drummond et al, (2001) identified the following as steps in strategic planning:

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 1. An internal -encompasses assessing company strengths and weaknesses, financial
performance, people, operational limitations, corporate culture, current
positioning in the market(s), the overall characterization of the condition of the
company and critical issues facing the organization.

2. An external analysis- focuses on analyzing competitors, assessing market

opportunities and threats, evaluating changing technology that could impact the
organization, analyzing regulatory or legislative concerns, changes and trends in
the market(s) the company operates in and other potential outside influences on
the organization.

3. Summarizing the current situation or “state of the organization” based on the

information gathered and evaluated in steps one and two. This step is important to
the process because it brings together relevant and critical data and information
and allows members of the planning team to more easily get a feel for what
opportunities and obstacles lie ahead.

4. Development of a mission, vision or purpose statement. It really does not matter

what it is called, but this step is important perhaps more because of the process
that the team will go through to develop it than the words that eventually end up
on paper. In this step, the team is starting the process of focusing the organization
and its people on what the organization is all about and what is important to the
organization.

5. Goal setting. Every organization needs goals. Again, focus is a critical element in
the success of any business. This step may be the most important of all of the
strategic planning steps because it establishes the framework and basis for the
development of the other key elements of the plan.

6. Defining objectives that support the goals. Objectives are more specific in nature
and are supportive of the goal. They bring into even greater focus the goals of the
organization.

7. Development of strategies. Strategies begin defining how the goals and objectives
are going to be achieved.

8. While not all strategic plans include tactics, a good strategic plan will include at
least the key tactics thought to be important to supporting the strategies developed
in step 7. Generally tactics are more fully developed and added to the plan as time
goes on. Tactics are the specific tasks associated with carrying out strategies.

5.6 Strategic Marketing Management Planning Process

According to Kotler, and Keller, (2011) there are nine major steps required to develop a
well-crafted, strategic marketing plan: set your marketing goals, conduct a marketing

62
audit, conduct market research, analyze the research, identify your target audience,
determine a budget, develop specific marketing strategies, develop an implementation
schedule for the strategies and create an evaluation process.

1. Set your marketing goals.

Once you’ve decided to market your practice, you need to set realistic and measurable
goals to achieve over the next 18 to 24 months. This time span allows you to plan
activities around community events that are in line with your marketing goals. One way
to define your goals is to separate them into the following three categories: immediate,
one to six months; short-term, six to 12 months; and long-term, 12 to 24 months. Here are
some examples of measurable goals:

• Increase the number of new customers for your product by 5 percent within the
first six months and 10 percent by the end of the first year

• Increase your gross revenue by 30 percent within 24 months.

It is important to share these goals with your staff members. They can tell you from their
perspectives whether they believe the goals are reasonable. If you want your marketing
plan to be successful, your staff needs to support your efforts to achieve the marketing
goals.

2. Conduct a marketing audit.

A marketing audit is a review of all marketing activities that have occurred in your
practice over the past three years. Be as thorough as possible, making sure to review
every announcement, advertisement, phonebook ad, open house, brochure and seminar
and evaluate whether it was successful. Kotler, (2006) lists six components of the
marketing audit, each of which could go on alone if a full audit is not needed or desirable:

• Environment audit
• Strategy audit
• Organisation audit
• Systems audit
• Productivity audit
• Function audit.

3. Conduct market research.

The purpose of market research is to draw a realistic picture of your practice, the
community you practice in and your current position in that community. With this
research, you can make fairly accurate projections about future growth in the community,
identify competitive factors. Your research may even bring to light some problem areas
in your practice as well as solutions you can implement right away Conducting market
research is often the most time-consuming step in this process. However, it’s also one of
the most important steps. It’s from this research that you’re able to find out what your
practice does best and what you need to work on, what the needs of your community are,
who your practice should be targeting and how you should go about it.

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The process of research describes the steps taken in the research activity:

• Gathering
• Analysis
• Storage
• Retrieval
• Dissemination.

The Research Plan

Do not confuse the research process with the research plan. The process and the plan are
related – but they are not the same thing! The benefits of research can be improved in two
ways: by designing it properly, and by conducting it at the right time. This means
planning the process. A plan for research is not really any different to any other plan. It
should include all the normal elements of objective, strategies and programmes and,
above all, it should be logical and structured.
The key elements are as follows:

Outline the problem: could be investigation into new markets; research into buying
patterns, and trends in market size.
• Define the objectives: obviously based on what the problem is
• Determine the target to be researched: crucial in a research plan
• Decide HOW the research is to be carried out: questionnaires; panels, etc.
• Decide WHO is to carry out the research: in-house or external agency
• Determine the time scales
• Set or agree the budget: this may be done initially in order to help in making
other decisions
• Implement the plan: set everything in motion. This is where the PROCESS
comes into being
• Monitor and control: constant checking to make sure that all activities are being
done and time targets, budgets, etc. are still on course
• Reach conclusions: report; action.

There are two types of research:

(a) Desk or secondary research

Desk research is carried out by using information which has already been published by
another party – i.e. it is secondary. Such information can be:

• Internal information, available in-house – past enquiries/sales records,

• External information, available from sources which have reasons to publish
information of different types – market surveys, annual reports

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(b) Field or primary research
Field research is new (primary) research done by, or for, the organisation itself. It relates
directly to the problem in hand and should never be undertaken until desk research has
been completed satisfactorily.
Field research can be carried out by an assortment of means, including:

• visits
• questionnaires, and
• Surveys.

Market and Marketing Research

It is easy to get "market" and "marketing" research confused. However, the difference
between the two terms is important to a professional marketing manager, so let us clarify
the terms now, so there will be no misunderstanding in the future:

• Market research is an investigation into aspects of the market – the size, trends,
competition, legislation, barriers to entry, etc. Market research assists in the audit
stages of marketing planning. It is a general view of the market and is used as a
basis for decision making. It is really concerned with the comparative analysis of
markets and market sectors.

• Marketing research is the investigations into how to reach, or serve, the

customer and/or the end-user in the best way. Marketing research is concerned
with the marketing mix elements – product, price, place and promotion and, in
most circumstances, will include the "soft" elements of people, physical evidence
and processes. This type of research is undertaken by an organisation to make
sure that it is offering the best possible mix to its target audience.

1. Analyze the research.

Next, you need to analyze the raw data you collect and summarize it into meaningful
findings that will be the foundation for determining which marketing strategies make the
most sense and will get the best results for your practice The research will identify the
wants and needs of your current and potential customers and will help you to define your
target audience (for more on target audiences, see step 5, below). This is also a good time
to look back at the goals you’ve chosen. Based on your research findings, you may need
to modify some of your goals.

A strategic marketing plan requires that your practice be defined in terms of what it does
for customers. The research analysis will reveal your practice’s strategic advantages.
After looking closely at your own practice as well as your competitors’, you can ask
yourself some key questions: What are the similarities and differences between your
practice and your competitors’? What sets your practice apart from your competition? Is
your location more desirable than your competitors’? Do you offer a broader scope of
services than the competition? Is there a service you provide that no one else in the
community currently offers? Your competitive edge may lie in your style of practice, the

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range of services you offer, the ease of making an appointment or the way you and your
staff communicate with patients.

2. Identify a target audience.

With the help of your market research analysis, you should be able to identify your
practice’s “target audience,” which is the specific group of customers to which you’d like
to direct your marketing efforts. Your target audience might include customers of a
certain age, gender, location, payer type or language/ethnicity and customers with certain
special needs. Keep in mind that your target audience should not only be the customers
you want to attract but also the people who can influence and provide exposure to that
segment of the population.

3. Determine a budget.
Before you can decide what specific marketing strategies you want to implement to
achieve your goals, you need to examine your financial information and come up with a
marketing budget. Marketing budgets vary by the type of market a firm is in, the age of a
market and whether the market has been marketed before. There’s no standard for how
much should spend. However, many firms in open markets have spent 3 percent to 5
percent of their annual gross incomes on marketing. In a highly competitive market or a
market which has never been marketed before, or if you intend to roll out an ambitious
new program or service, you can expect to spend 10 percent or more of your annual gross
income the first year you implement the plan.

4. Develop marketing strategies.

With your budget in place, you can begin to define specific marketing strategies that will
address your goals, reach your target audience and build your customer base. Remember
to focus your strategies on the elements of your business that can be used to create a
special value in the minds of customers and referral sources. Each strategy should be
related to a specific goal and should be made up of numerous actions. For example, one
strategy related to the goal of increasing customer satisfaction might be to make the sales
office more customers friendly. The actions required for that strategy might include the
following:

• Provide customer satisfaction training sessions to staff;

• Improve sales office decor;
• Provide name tags for staff;
• Require staff to introduce themselves to each new customer
.
5. Develop an implementation schedule.
An implementation schedule is a time-line that shows which marketing actions will be
done when and by whom. The schedule should also include the cost of each marketing
action and how it fits into the budget estimates for the 24-month period. When creating
the schedule, carefully consider how the activities will affect the current marketing
activities and whether there are sufficient resources (such as staff, time and money) to
accomplish the necessary tasks. In some cases, it may be necessary to whittle down the
list or postpone some activities. In other cases, it might be best to go ahead with full

66
implementation of your plan. If you want to fully implement the plan but don’t quite have
the staffing resources, you might consider bringing in a consultant to coordinate the
marketing activities and/or adding a part-time staff member to handle the majority of the
marketing tasks. The implementation schedule will also give you a basis on which to
monitor the progress of your marketing plan.

6. Create an evaluation process.

The value of a marketing plan is its effectiveness, which requires deliberate and timely
implementation and monitoring and evaluation of results. It’s important to measure your
results against the standards you set in establishing your goals. Review your plan
periodically (we recommend quarterly) by comparing your progress with the
implementation schedule. There are several ways you can measure the results of your
progress: customer survey scores, referral sources, increased income, increased new
patients and decreased complaints.

Various marketing authors present slightly different ideas on just what should be included
in a marketing plan.
Kotler, (2006) suggests that the strategic marketing plan should contain the following:

• An executive summary which gives a brief overview of what the plan contains
• A summary of the current position in respect of products, pricing, competition,
etc.
• Opportunities and issue analysis
• Objectives
• Strategy
• Action programmes
• Projected profit and loss statement
• Controls

Baker, (2008) suggested that the marketing plan should contain:

• Mission statement
• Financial summary
• Market overview
• SWOT analysis
• Assumptions,
• Marketing objectives and strategies
• Programmes (with forecasts and budgets).

Activities 5.2

1. What is the difference between a corporate strategy and strategic marketing

management strategy?
2. Develop a strategic marketing management plan for your organization.

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5.7 Implementing the Marketing Plan

Implementing a plan simply means setting it in motion. It means giving people

instructions and letting them get on with it. It should not mean that one person does
everything. A plan for a marketing department encompasses the activities of all involved
people ( Homburg, et al, 2009). These are the people who carry out the implementation –
not simply the planner!
5.7.1 Barriers to Implementation
Reasons for poor implementation will be caused by environmental barriers either within,
or outside, the organization (Drummond et al (2001). At various times during this course
we have considered these environmental factors to one degree or another. But, to
summarise, barriers can be caused by a number of different aspects:

Internal External
Management culture Political intervention
Leadership skills Competition
Organisational structure Distributors
Resources Suppliers
Attitude to planning Customers
Measurement procedures Economic conditions
Communications Changes in technology

No-one can doubt that the support of top management and the involvement of staff in the
planning process are the main keys to successful implementation of any plan. Successful
implementation of the plan will vary in accordance with how the two variables are
balanced, as you can see in the model in Figure 5.1.

Senior Management Support

Low High
Successful Staff will struggle,
High
Implementation implementation
will occur. Will be impeded
Staff Involvement
Staff are likely to resist the Plan resisted in all ways
Low plan. Implementation will be Implementation stage
impeded. unlikely to succeed.

Figure 5.1: Implementation Variables Source: Drummond, et al, (2001)

5.7.2 Successful Implementation

McKinsey's Seven Ss model (Figure 5.2.) is a good way of representing the factors which
are essential in marketing and which can affect the successful implementation of plans.

68
 This shows the links which, when present in a balanced format, will allow marketing plan
to be developed and will aid in its implementation.

Structure

Strategy Systems

Shared Value

Skills Styles

Staff

Figure 5.2: McKinsey's Seven Ss Framework (Source: Baker, 2008)

5.7.3 The Value Chain

Michael Porter, who has produced so many marketing models and concepts, has given us
yet another concept which we can apply here- Value Chain model (Baker, 2008).

He identified key areas which create value and cost in any business. Four of them are
seen as being "support" – the company's management structure, personnel management,
purchasing, and technology. The other five are seen as being "primary" activities –
incoming materials, production, dispatch, marketing and service. Porter's descriptions are
shown in the model given in Figure 5.2 below.

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 FIRM INFRASTRUCTURER

Support HUMAN RESOURCES MANAGEMENT

Activities
TECHNOLOGICAL DEVELOPMENT

PROCUREMENT MARGIN

INBOUND OUT - SALES AND

LOGISTICS BOUND MARKETING SERVICES
OPERATIONS LOGISTICS MARGIN

Primary Activities

Figure 5.2: Michael Porter's Value Chain (Source: Baker, 2008)

Porter describes the value chain as the internal processes or activities a company perform
“to design, produce, market, deliver and support its product.”

Primary activities are directly involved in transforming inputs into outputs and in delivery
and after-sales support. These are generally also the line activities of the organization.
They include:

Inbound logistics—material handling and warehousing;

Operations—transforming inputs into the final product;
Outbound logistics—order processing and distribution;
Marketing and sales—communication, pricing and channel management; and
Service—installation, repair and parts.

Support activities support primary activities and other support activities. They are
handled by the organization’s staff functions and include:

Procurement—purchasing of raw materials, supplies and other consumable items as

well as assets;

70
 Technology development—know-how, procedures and technological inputs needed in
every value chain activity;
Human resource management—selection, promotion and placement; appraisal;
rewards; management development; and labor/employee relations; and
Firm infrastructure— general management, planning, finance, accounting, legal,
government affairs and quality management.

5.7.4 The Service Value Chain

Services are a series of processes, linked together and known as the Service Value Chain.
Managers must be aware of the elements of the service value chain and those
elements/dimensions that are valued most by customers.

Some service value chains are very short, for example, a hairdresser or an accountant
who delivers a service personally to customers. However, the delivery of some services is
more complex and involves a chain of processes, for example, a flight which involves
check-in, luggage handling, in-flight services etc. Technological advances in recent years
have seen the internet being used as a way of delivering a service, e.g. on-line banking.

Therefore value chain management equally applies to the delivery of services as to

products.

The addition of these soft elements to the mix and the acceptance of the value chain
concept, has led to development of both relationship and internal marketing (Homburg
et al, 2009).

5.7.5 Relationship marketing

Relationship marketing is a strategy designed to foster customer loyalty, interaction and
long-term engagement. This customer relationship management (CRM) approach focuses
more on customer retention than customer acquisition.

Relationship marketing is designed to develop strong connections with customers by

providing them with information directly suited to their needs and interests and by
promoting open communication. This approach often results in increased word-of-mouth
activity, repeat business and a willingness on the customer’s part to provide information
to the organization.

Establishing a Programme of Relationship Marketing

Recognising the need for a relationship marketing programme is not sufficient in itself;
there must be logical system or the whole process could fail dismally. Steps to achieve
good business relationships are:

• Identify the key customers, suppliers, etc. who are likely to produce beneficial
relationships.

• Present your proposals to the identified parties.

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 • Each party to select "managers" who will be responsible for monitoring
communications and be recognised contact points for each other.

• Set up a regular programme of meetings, forums, etc.

• Each party must understand the needs and problems of the other, and be prepared
to adapt, and make allowances for each other.

5.7.6 Internal Marketing

Most companies in the world readily accept the idea that they are dealing with "the
market". What they really mean is that they are dealing with external factors such as
customers, suppliers, distributors, competitors and other environmental aspects. Many
often fail to recognise the importance of another, equally important, market, i.e. their own
"internal market".

The internal market of an organisation consists of every employee from the chairman of
the board to the maintenance personnel who change the light fittings. Although some
members of the company's personnel may be more "visible" to the buying customers,
every employee in his or her own way is important in the process of satisfying the
customer.

Therefore, it follows that if the company is to succeed in its search for giving customer
satisfaction, it must give due consideration to these internal people, to understanding their
needs, their training and their motivation. This can only be done by having effective
processes of internal marketing.

Establishing a Programme of Internal Marketing

Kotler has described internal marketing as:
"The task of successfully hiring, training and motivating able employees who want to
serve the customers well..."

Successful Hiring
Careful recruitment of people who are capable of doing a job is vital. This means clear
job descriptions and good interviewing on the part of managers. If an interviewer is not
absolutely clear on the "right" kind of person for a job, there could be problems in store.
The "right" person may be someone who, with training, could be ideal. The main
requirement is that they will fit with the ethos of the company and recognise the
importance of customer satisfaction.

Successful Training
A programme needs to be set up whereby ongoing training and awareness is established
within the organisation. Accepting that training for internal marketing is to create
awareness of the need for customer satisfaction, and the importance of following the
marketing concept, this training is often led by the marketing department. The training

72
 may take the form of meetings within various sectors, or workshops on certain issues, e.g.
new products being developed, new objectives being set. Awareness is achieved by
keeping everyone informed of what is going on. This can be done by notices, newsletters,
e-mail, etc. Any form of internal communication can be used. The point is that it is really
the marketing concept and plan which is being "sold" to the internal customers.
Convincing the workforce of the importance of customer satisfaction is one of the first
steps in achieving it.

Successful Motivation
Motivation is often linked with money, and it certainly helps in many cases. If staff is
given incentives for their efforts, they will respond accordingly and try harder to achieve
their targets. This type of incentive can be a bonus or commission and can be based on
any aspect of the job that the company chooses. However, money is not the only type of
motivation that can be used and, in some cases, can actually cause problems, e.g. the
salesperson who is more interested in his or her commission than actually satisfying
customer needs.

Personal motivation can often be much more effective than money. Motivating factors
vary from person to person. For some people a sense of achievement is important, for
others it can be recognition, status or authority. But everyone likes to feel involved and
important and this type of motivation is easy to achieve.

Activities 5.3
1. How can the McKinsey's Seven Ss model affect the implementation of a strategic
marketing management plan?
2. How can the Value Chain model be used as an important implementation tool?
3. Discuss why internal marketing is essential in the implementation of a strategic
marketing management plan?

5.8 Control and Evaluation

Donnely and Peter, (2009) posits that marketing is an organized discipline, and it is clear
that there is often a substantial delegation of authority from the chief executive, down to
managers, section heads, salespeople and clerical staff.

Delegating authority does not remove responsibility for the results, so the chief executive
will wish to see how well the team is performing. That would be reason enough for the
control system that is needed in marketing organisations, but the more significant reason
is that the chief executive is responsible for the owners' investment in the company. It is
easy to lose sight of the fact that the shareholders own the company, and the whole
management team is in place to serve the interests of the shareholders.

The Control Process

The control process consists of:
• Setting objectives

73
 • Measuring performance
• Investigating deviations from the objectives
• Corrective action.

This process is iterative – it is repeated continuously and the corrective action should
make the results come nearer to the objectives. We need to look at the four activities in
more detail.

5.8.2 Evaluation Marketing Performance

Evaluating the marketing performance is, more likely to be done on a companywide
statistical assessment, such as a continuation of last year's sales graph, or using a break-
even chart, or a market share analysis.

Marketing Cost Analysis

Kotler, (2006) suggests that it is wise to check on the ratio of marketing expense to sales
achieved, and he specifically refers to the ratio of advertising expense to sales, plotted
against time.

Market Share Analysis

Many authorities believe that market share is the single most important indicator of the
company's performance and it is a matter of considerable concern to much management
because the market share analysis relates the performance of the company to that of the
competitors.

Activities 5.4
1. Critically analyse why control systems are important in strategy implementation.
2. Identify control systems that can be put in place by an organization of your choice to
ensure conformity to organization targets.
3. How do you evaluate the success of a marketing plan?

5.9 Summary

Strategy is the direction and scope of an organisation over the long-term: which achieves
advantage for the organisation through its configuration of resources within a challenging
environment, to meet the needs of markets and to fulfill stakeholder expectations.
Strategy is developed at the corporate level of any organization and is implemented at
lower levels: Business and Functional levels.

Marketing plan consists of the following components

• Mission statement
• Financial summary
• Market overview
• SWOT analysis
• Assumptions

74
• Marketing objectives and strategies
• Programmes (with forecasts and budgets).

McKinsey's Seven Ss and the Value Chain Models can be used to ensure the successful
implementation of a strategic marketing management plan. Organisations should identify
external and internal factors that affect strategy implementation.

75
References

Baker, Michael, (2008) The Strategic Marketing Plan Audit.

Donnely, J.H. and Peter, P.J. (2009) Marketing Management Knowledge and Skills,
London: McGraw-Hill.

Du Plessis, C.J. and Strydom, J.W. (2001) Applied Strategic Marketing, Heinemann.

Drummond, G,. Ensor, J and Ashford, A (2001) Strategic Marketing: Planning and
Control, Second Edition, Oxford: Butterworth, Heinemann.

Homburg, Christian; Sabine Kuester, Harley Krohmer (2009) Marketing Management - A

Contemporary Perspective (1st ed.), London.

Kotler, P, (2006) Marketing Management, Analysis, Planning, Implementation and

Control, 11th Edition New Jersey: Prentice Hall.

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 Unit 6

Marketing Management Planning Tools

6.0. Introduction

In this unit I shall examine approaches to marketing management through the

consideration of a number of models/tools which address the marketing issues faced by
most organisations. These models represent a range of strategic choices from which
organisations may select the most appropriate approach in the circumstances to manage
its operations. I shall then go on to look at the way which these choices may be compared
for effectiveness and then selected for implementation.

The models which we shall consider here include:

• Those which identify corporate strategies for the organisation as a whole or for
specific projects – and these include organisational stance and positioning,
Ansoff's four strategic options, Porter's generic strategy model, and the Profit
Impact on Market Strategy (PIMS).

• Those which analyse the product offering and provide a means of identifying
strategy across a range of projects. These are the portfolio models which include
the Boston Consultancy Group Matrix (BCG), General Electric Model and the
Shell Directional Policy Matrix.

6.2 Objectives

By the end of the unit you should be able to:

• know three positions that can be adopted by an organization
• identify models that identify corporate strategies for the organization as a whole
• identify models which analyse the product offering or strategic business units
(SBUs)
• apply various planning models to organizations that you familiar with

6.1 Organisational Stance and Positioning Model

This model assumes that organisations may adopt one of three positions in their market
thus leaders, followers and nichers and that strategy is determined by this position
(Donnely, and Peter, 2009).

Two types of strategic response are postulated – attack and defence – depending on the
circumstances.

77
6.1.1Types of Organisational Stance

(a) Leaders
These are innovative companies who are regularly first into the marketplace with new
products. They tend to be powerful companies who will have major market shares and
the benefit of high resources. They gain advantage from being first to the market, but
they invest heavily in development and face the risks attached to being innovative.

They must adopt strategies which will:

• Protect their current market share by using the mix, or
• Encourage current customers to use more, or
• Attract and retain new users and/or customers, or
• Redesign the product/service for new and existing users, or
• Introduce new products to new markets.

Companies can carry out these strategies by adopting a stance of:

• Innovation – always being in front of the competition
• Fortification – activities aimed at keeping the competition down
• Confrontation – aggressive promotion, price wars
• Harassment – pressure on distributors, criticising competition.

(b) Followers
These are the companies who do not invest heavily in research and development but
"copy" what the leaders do. This type of company will never get the initial major market
share, but they do not have to invest money in development or in making the target
market "aware", as the leaders will have already done this. They may also
capitalise on errors which the leaders make, e.g. if a leader's new product has a slight
technical problem, followers may be able to solve that problem before launching their
own version of the product.

If this is done, the early adopter and early majority categories of buyers may well turn to
the "following product" and the leaders will lose market share. Followers can make many
different amendments to a leader's product (price, quality, distribution, etc.) and
amendment is cheaper than development so costs will be lower.
Followers are often referred to as "me-too" marketers in that they do not come up with
original ideas or practices. They are simply happy to hang on to the tails of the leaders
and take any benefits they can.

Challengers, or followers, may at times seek to overtake the leaders and will often adopt
methods which involve price-cutting incentives to distributors, giving improved service
levels, sharing costs with distribution channel members

(c) Nichers
These types of organisations are those that are, to one extent or another, providing a
"specialised" product offering. They will have some kind of USP (unique service
proposition) which they can offer to their customers.

78
 Niche marketers are often left alone by the market leaders as they (nichers) are either
chasing a small market segment, or are providing something which is non-viable for the
larger firm, individual service levels may be extremely high. Nichers can gain from being
seen as "specialist" and can, consequently, often charge much higher prices for their
product offerings. Niche markets can be very profitable, despite relatively low market
share.

Activities 6.1
1. Why is it important for any organization to know its position in a market?
2. What are the reasons why a market follower may decide not to challenge the market
leader?
3. Under what conditions does market follower challenge the market leader?
4. Why do some firms settle to follow the unattractive niche position?

6.2 Ansoff Growth Matrix

This is perhaps the most quoted model of all in marketing theory and practice.
Ansoff claimed that in marketing we can only ever be talking about products and
markets, and that these can only be old, or existing, and new, or potential (Kotler, 2000).

Thus marketers have:

• Existing products which they can sell to existing markets

• Existing products which they can sell to new markets
• New products which they can sell to existing markets
• New products which they can sell to new markets.

Using these combinations gives a choice, according to Ansoff, of four possible basic
strategies:

79
 PRODUCTS

Existing New

Existing Market
PePP Penetration Product Development

Less Risk Medium Risk

MARKETS

New
Market Development Diversification

Medium Risk High Risk

Figure 6.1 Ansoff Matrix Source: Kotler, (2000)

6.2.1 Market Penetration

This strategy – same product/same market – will be appropriate when a market is
growing and not yet saturated.

Penetration can be achieved by:

• Attracting non-users of a product
• Increasing the usage, or purchasing rate, of existing customers.

The strategy will often be implemented by increasing activity on one or more of the mix
elements – for example, using more intensive distribution, aggressive promotion, pricing,

6.2.2 Market Development

This strategy – same product/new market – is often found when a regional business
wishes to expand or if new markets are emerging because of changes in consumer habits.
It can also occur when a new use has been discovered for an existing product.
Implementation of this strategy involves appealing to market sectors (or geographical
regions) not currently catered for and many mean a repositioning of products as well as,
very often, new distribution methods or channels.

80
6.2.3 Product Development
With this strategy – new product/existing market – an organisation develops new
products to appeal to its existing markets. It may simply be a product "refinement" – for
example, change of packaging or taste.

Product development is most prevalent when branding exists. Promotional aspects will
emphasise the added qualities of the "new" product and link it specifically to the security
of, and confidence in, the brand. This strategy builds on customer loyalty and the benefits
to be gained by purchase. Other mix elements, such as distribution, may remain
unchanged.

6.2.4 Diversification
This strategy – new products/new market – is sometimes introduced so that a company
does not become too dependent on its existing SBUs. It can be a form of "insurance"
against potential disasters that could occur in the event of drastic environmental changes.
It can also simply be a means of growth and expansion of power, "New" might be a
totally innovative product, which has never been seen in the marketplace, or it can be a
product which is already available in the market but is new to the firm. In either case,
Diversification means catering for market sectors which are also new to the firm. If a new
product is developed for the existing market it is Product Development and not
Diversification.

Firms can diversify by producing their own new products or by taking over some other
product. In the latter case there are two main types of diversification – integration (which
may be vertical or horizontal) or conglomeration.

Vertical integration
This involves the acquisition of some other enterprise in the chain of distribution between
the manufacturer and the customer. It can be either "forward", towards the customer, or
"backward" towards the source of raw material.

Horizontal integration
This is the acquisition of another organisation which has a feature that is desired – i.e. the
acquired organisation may be using similar materials or components for which they have
a monopoly of supply. This is particularly relevant when materials, are in short supply.
The company that is acquired may use similar production methods and have greater
capacity; or its distribution channels may be highly effective and would prove
advantageous; or it may have some other quality which could be seen as a benefit.

Conglomeration
This strategy moves the firm away from its existing product-market situation into an
entirely new area in order to satisfy a primary objective. Quite often this is done as a
short-term activity that will allow an organisation to recover from a temporary setback in
market conditions. For example, a company that produces ladies' lingerie, and is faced
with cash problems in the short term, may reap instant profits if it invests in "spot

81
 buying" and "selling-on" of oil on the open market. This type of activity can also be part
of a longer-term strategy to spread risks.

Activities 6.2
1. Show how organizations can the Ansoff model as a planning tool?
2. Under what conditions does an organization adopt diversification as a strategy?

6.3 Porter’s Generic Strategy Model

Michael Porter is a very widely quoted writer on marketing and this model claims that
there are only three main strategies (Baker, 2008) which a business can follow:
• Overall cost leadership
• Differentiation strategy
• Focus strategy.
A business which followed none of these strategies would become "stuck in the middle".

Differentiation

"Stuck
in the middle"
No clear strategy

Source: Baker, (2008)

Cost
Figure 6.2:Leadership
Porter's Generic Strategy Model Focus

Source: Baker (2008)

6.3.1 Cost Leadership

Following this strategy means that the company aims to produce in large quantities, at the
lowest cost possible and sell at lower prices. By doing this they can capitalise on
economies of scale and defeat any competitor who has not got equal production capacity,
or who can keep prices to a minimum. This strategy will also attract price-sensitive
buyers away from the competition.

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6.3.2 Differentiation
This strategy involves offering some unique selling proposition (USP) that the
competition do not have. Prices may not be too important to buyers of products sold
under this strategy and it often follows that customers become brand or product loyal

6.3.1 Focus
The company aims at very select market sectors and will be charging higher prices or
offer special USPs. The company can concentrate on its key products for specific targets,
acquire a reputation for being "specialist", or can simply attack sectors of the market
which are being ignored by the competition.

Porter's strategy model allows a company to decide which overall "type" of marketing
they want to adopt. If the firm is powerful and rich in resources they may well choose to
follow a Cost Leadership strategy. However, smaller firms may be forced to adopt either
a Focus or Differentiated strategy because their product offering has a very specific
market.

Activities 6.3
1. How can an organization adopt the cost leadership strategy?
2. Using the Value Chain Model, show how an organization can pursue the cost
leadership strategy?
3. Identify conditions suitable for the adoption of a Cost Leadership, Differentiation and
Focus strategies? Use different examples.

6.4 Profit Impact On Market Strategy (PIMS)

Although PIMS is referred to as a "model" it is actually a "programme" which was

originally a research project between the Marketing Science Institute and Harvard
Business School, in the USA, to determine how profit impacted on marketing strategy
and vice versa (Drummond, et al, (2001). The programme, which is still continuing, has
four main areas of strategic planning under investigation which can be of use to
businesses when they are selecting strategies:

• Forecasting profits
• Allocating resources
• Measuring performance
• Appraising new business propositions

The main findings of the PIMS programme have been that profitability is influenced by
(a) Competitive position (market share and product quality)
(b) Production structure
(c) The attractiveness of the target market.

83
 The main purpose of this model, or programme, is to enable companies to look at the
outcomes of strategies pursued by others when they are faced with similar
situations/conditions. Information is available, at a cost, in reports in one of four formats:

• PAR – average ROI and cash flow based on market technology, cost structure and
competition
• Look-alikes – strategies (and outcomes) used by similar companies
• Strategy analysis – shows the likely effects of strategy changes on ROI/cash flow
both short and long term.
• Optimum strategy – suggests strategies which will maximise results.

Activities 6.4
1. How feasible is PIMS model as marketing planning tool?
2. Apply the PIMS model to Mobile communication Industry in Zimbabwe.

6.5 Boston Consultancy Group Matrix (BCG)

The BCG matrix is as well known as Ansoff and you may be familiar with it. Using the
variables of market share and market growth rate, planners can plot their
products/SBUs onto a grid which will then suggest certain strategies that can be used
(Kotler, 2000).

Because analysis is undertaken on an individual basis (SBU/product) it means that firms

can mix and match their efforts in order to achieve optimum results at any given time.

In using the BCG the planners can classify their products/SBUs into four categories
according to their position on the matrix. This classification can also help in
understanding the "nature" of the products/SBUs – i.e. whether they are "cash providers"
or "cash users".

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 20X

STAR QUESTION MARKS

High

10X

Market Growth

Low CASH COW

DOG

10X High 1X Low 0.1X

Market Share
Figure 6.3: Product Classification in the Boston Consultancy Group Matrix
Source: Kotler, (2000)

The four classifications are defined as follows.

Question Mark (sometimes referred to as Problem Children or Wildcats)

Question Marks are products which have low market share and are in high growth
markets. The product/SBU has not yet reached a dominant position in the market.

Although it may be generating funds, it still requires a lot of investment for development
and the company must decide if they want to keep investing. For example, in Figure 6.3
the company has three Question Marks. Planners may decide that it would be better to
concentrate all efforts on one of them, in order to make it successful, and keep the others
just ticking along until they have secured the position of the most favourable. The
product which is producing a greater proportion of revenue for the company (the one with
the largest circle) may be chosen for additional effort as it obviously has good earning
potential. A greater market share should be gained as soon as possible. Decisions of this
type would be based on a variety of factors relating to the product(s) and the competitive
environment.

85
Star
If Question Marks succeed they become Stars – leaders in high growth markets. Stars are
the "providers of tomorrow" and a company with no Stars should worry. The company
depicted in Figure 6.3 has two Star products – one which has the leading share in its
market and one which has only slightly more share than its leading competitor. Efforts
should be made to increase the share of the second product in order to secure its future
profitability, particularly as the market has a very high growth rate – this could be where
future earnings lie.

This, of course, means investment, which can be a cash drain on the organisation. Even
Stars with high market share may involve investment in promotion or distribution, etc. if
the competition is attacking. Stars can therefore both produce revenue and use resources
– which can mean "breaking even". Investment decisions must be based on the future
potential of the product and its market. Companies want to retain the share that Stars
hold, but they also want the market to stabilise as stable markets are much easier to cope
with than high growth markets which can mean difficulties in production and
distribution. In Figure 3.5 the Star with the leading share is moving down the spectrum
which indicates that growth in that market is slowing or stabilising and, providing no
share is lost, the Star should become a Cash Cow.

Cash Cow
When market growth reaches a stable level (10% is used in our diagrams as an example
but this will vary according to the particular market) Stars become Cash Cows providing
they hold a leading share of the market. If they lose any market share to the competition
they will "slip" into either being a marginal Question Mark or, at very worst, a Dog. Cash
Cows produce good revenue, do not require high investment and often mean that
economies of scale can be gained. The money earned from Cash Cows should be used to
invest in other products/SBUs which are placed in the other classifications on the BCG
matrix. Figure 6.3 show that the company has only one Cash Cow so is vulnerable. A loss
in market share could mean trouble, even more so if there is no Star to come in and take
the place of the Cash Cow. In this situation a company would have to pump in finance to
support its Cash Cow, thereby deflecting support from the other categories. If the
company continued to support other categories and neglected its Cash Cow, the Cash
Cow could eventually become a dog.

In our example, it would be very dangerous if the Cash Cow slipped to being a Dog, as
the Star which could come into the Cash Cow category is not making as much money for
the company as the current Cash Cow. Given these circumstances it is likely that the
company would invest in its current Cash Cow to retain market share. Sometimes Cash
Cows which are losing their share can be turned into Question Marks, which are
preferable to becoming Dogs, but this situation, will only really occur if something
happens to revitalise the market – perhaps a new use for a particular product may be
found and the market will begin to grow again.

86
 Dog
Dogs have weak market share in low growth or stable markets. These products can often
take up more time than they are worth. They usually produce low profits and very often
incur losses. They will always consume cash, even if it is just in the time taken to manage
them.

Given the fact that Dogs consume cash many are often dropped by companies, but it is
not always wise to do that immediately as they may still be making money. In Figure 6.3
you can see that the proportion of the company's revenue for one of its Dog products are
actually higher than the proportion of revenue gained by one of its Star products. If the
company were to drop the Dog, they would have less cash coming in, which could have
serious repercussions.

The competition must also be considered, as well as the effects on customers.

Dropping a product from a range can upset buyers who will then look for alternative
sources for that product. The alternative sources may also be able to offer other products
which the buyers want and they may place their future orders with the new suppliers –
resulting in the loss of even more sales overall. Decisions on product deletion must
therefore not be taken lightly or without full investigation. Dogs that are retained tend to
be kept because they are recognised as being a product with "other" benefits. For
example, the customer will have to come back to the company to buy consumable
supplies which are actually highly profitable for the company, or perhaps the product has
such a high image and reputation in the market that the company prefers to maintain it.

There is also danger in keeping on a Dog if it is proving to be useless as this just wastes
resources that could be better employed elsewhere. Decisions to retain Dogs past their
useful life are usually based on someone's great belief in, or favour for, that product –
they become "Pets". For example, the owner of a company may wish to maintain a
product which was the foundation of the company's current product range despite the fact
that the market has changed and technology has bypassed the original product.
Sentimentality, and the power of the owner, will ensure that the product is retained and
money will be wasted.

We should also not overlook the case of products which have just been launched and the
market has not really taken off. Such products could be classified as Dogs but, given
more investment, the market might be stimulated into a faster growth rate and the Dog
could actually gain more share. Sometimes the faith of one manager in a product can turn
a company's portfolio around completely. As we noted earlier – product deletion
decisions can be risky. They should always be calculated for effects.

6.5.1 BCG Matrix

Cash Position for Products
We have seen that the various types of products or SBUs each have different
characteristics as far as revenue generated and money for investment are concerned.
Figure 6.4 indicates the likely cash position for products, etc. placed on a BCG matrix,

87
 but planners should not be too dogmatic about this as there will always be exceptions to
the rule.

20X

STAR QUESTION MARKS

High
Revenue +++ Revenue ++
Investment ___ Investment _ _ _
_________ _______
10X 0 _

Market Growth CASH COW DOG

Revenue +++ Revenue

X Investment _
Investment _
________
______

Low 0 ++ 0

10X High 1X Low 0.1X

Market Share

Figure 6.4 BCG Matrix Source: Kotler, (2011)

6.5.2 Portfolio Strategies

After positioning all products (SBUs) on the BCG matrix, the company must decide if it
has a balanced portfolio. (Too many of any one type means it is unbalanced.) It then must
allocate objectives, strategies, etc. to each of the SBUs. Strategies suggested by the BCG
matrix can be one of four:

Build – (for Question Marks) to increase share, even if it means giving up short-term
profit.
Hold – (for strong Cash Cows) to preserve share.
Harvest – (for weak Cash Cows where the future is dim or for Question Marks and
Dogs) to increase short-term cash flow regardless of long-term effects.
Divest – (Dogs and Question Marks draining resources) to sell off, liquidate or delete an
SBU or a product.

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6.5.3 Limitations of BCG Matrix
The major weaknesses are:
• Market growth and market share are considered by many as inadequate for
overall attractiveness and competitive strength. Many marketers consider that
models using market attractiveness and business strength to be more appropriate.
• It is difficult to plot information accurately. The sizes of circles, unless done by
computer modeling, can only ever be estimated.
• It is not fair to expect all SBUs to have the same rate of return or market
share, etc. The whole point of this method is to assess the position of each
product, or SBU, and different markets will have different growth rates. It is
therefore really better to plot only one product or SBU onto a BCG matrix.
• If the model is used as a predictor of cash usage, valuable products may be
left to stagnate and die owing to lack of investment.
• It is not particularly helpful for many SMEs who may have a small market
share but are highly profitable.
• The model ignores environmental factors which may have an impact on
performance.
• Positioning can encourage planners to develop bad habits, e.g. not allowing
enough funds to maintain the Cash Cows so that they grow weak. Planners can
also sometimes leave them too many funds and fail to invest in other categories.

Activities 6.5
1. How can a firm come up with a balanced portfolio?
2. Show how you can use the BCG to analyse your company businesses?
3. Why do some firms decides to keep some products in Dog category?
4. Show why the BCG is considered as a weak model marketing planning model?

6.6 General Electric Matrix

The GE matrix is an improvement on the models we have looked at so far in that it covers
more qualitative aspects. It allows for judgment on the part of the planner and takes into
account not only the nature of the market, but also the capabilities of the company
(Kotler, 2011). SBUs are assessed in terms of the attractiveness of the industry and the
business strengths of the company.

Table 6.1 G.E Factors

Industry Attractiveness Business Strength (s)
Market Size Differential Advantages
Market Diversity Market share
Growth Rate Sales Volume/growth
Profitability Breadth of the product line
Competitors Marketing Mix Effectiveness
Social/ legal environment Innovativeness
Source: Drummond, et al, (2001)

89
 Planners, with their knowledge of the market and the company itself, can decide how an
SBU, or a product, can be assessed in terms of the market attractiveness and the
Company’s strength and can then place that product, or SBU, on the matrix. Assessment
can be based on "High", "Medium" or "Low" or, more likely, on a basis of "weighting"
where the planner will give a score to each of the factors under consideration and then the
total is taken as the point at which the SBU is placed on the grid.

INDUSTRY ATTRACTIVENESS

High Medium Low

High
(1) (2)

BUSINESS
Medium

STRENTH

(3)

Low
Source: Kotler, (2011)
Source: Drummond, et al, (2001)

Figure 6.5: General Electric Business Matrix

Although this model uses circles, similar to the BCG model, it is different in that the
circles represent the overall market sales (BCG circles represent the income for the
company only). The share held by the company is then shown as a proportion of the
circle.
Looking at Figure 6.5 we can see the characteristics of various products in a company's
portfolio. The company has major shares in three markets:

• A highly attractive market, with a large overall market potential revenue; the
company has high business strengths. The company is in a very strong position
with this SBU.

• A market which is viewed as being mid position in attractiveness but the company
has high business strengths. The overall market income is not major, in terms of
the other SBUs, but activity could generate further interest which could increase
the attractiveness of the market. Given the share held, this SBU could potentially
be a future high earner for the company.

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 • A market which is not seen as being highly attractive coupled with the fact that
the company does not have any high degree of business strength in that field. The
fact that the company has such a major share of the overall market may indicate
that the competition has withdrawn because of costs incurred, or some other
reason, and the company has acquired share by default rather than activity. It is
unusual to find a high overall market income in such a market but it can happen.

6.6.1 Managing GE Matrix

Strategic options for SBUs placed on the GE matrix cover three types of marketing
management activity. Each strategy covers three of the nine cells as shown in Figure 6.6
below.

INDUSTRY ATTRACTIVENESS

High Medium Low

******************************************* ……………………
******************************************* ……………………
High ******************************************* ……………………
******************************************* ……………………
******************************************* ……………………

……………………….. OOOOOOOOOOOOO
……………………….. OOOOOOOOOOOOO
***************************** …………………………………. OOOOOOOOOOOOO
BUSINESS ***************************** …………………………………. OOOOOOOOOOOOO
***************************** ………………………………… OOOOOOOOOOOOO
STRENTH ***************************** ………………………………… OOOOOOOOOOOOO

…………………………………. OOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
Medium …………………………………..OOOOOOOOOOOOOOOOOOOOOOOOOOOOO
…………………………………. OOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
…………………………………..OOOOOOOOOOOOOOOOOOOOOOOOOOOOO
Key …………………………………. OOOOOOOOOOOOOOOOOOOOOOOOOOOOOO
INVESTMENT GROWTH
Low
MANAGE SELECTIVELY FOR EARNINGS

*******
***********
INVESTMENT GROWTH
……………

MANAGE SELECTIVELY FOR EARNINGS

ooooooo
HARVEST OR DIVEST

Figure 6.6: GE matrix Marketing Management Activities

Source: Drummond, et al. (2001)

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 The strategies are defined as follows.

Investment for Growth

This is a strategy for use with strong products in markets with high or medium
attractiveness (similar to BCG Stars), where the company also has high or medium
business strengths. Full resources should be used: innovations, product-line extensions,
product/brand advertising, intensive distribution, good price margins, etc. Profitability
expectations would be high.

Manage Selectively for Earnings

Strong position in weak market (like BCG Cash Cow); company uses marketing to retain
loyalty. Moderate position in moderate market; company can identify underserved
segments and invest on a selective basis. Weak position in attractive market (like BCG
Question Mark); company must decide whether to increase investment, concentrate on
the niche(s), acquire another business or trim off activities.

Harvest/Divest
Here the SBUs are similar to BCG Dogs. The strategy can be to minimise marketing
activities and concentrate on selected products rather than the whole range. They can
divest products from the range, closing down or deleting an SBU which is seen as
nonproductive or to have little future. Profits are "harvested" because investments are
minimal.

Activities 6.6
1. Show why the GE matrix is considered the most comprehensive marketing planning
tool?
2. Using a company of choice show how you can use the GE Matrix as marketing
planning tool?
3. Discuss the similarities and differences between the BCG and the GE

6.7 Shell Directional Policy Matrix

This is another nine cell matrix; similar to the General Electric one, but here the variables
are competitive capabilities of the company and potential profitability of the market
sector (Drummond, et al, 2001).

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 Prospects for Sector Profitability

Unattractive Average Attractive

Weak
DISINVEST PHASED DOUBLE OR
Enterprise’s WITHDRAWAL QUIT
Competitive
Capabilities PHASED CUSTODIAL TRY HARDER
WITHDRAWAL GROWTH

Average

CASH GENERATION GROWTH LEADER LEADER

Strong

Figure 6.7 Shell Directional Policy Matrix Source: Drummond, et al, (2001)

Activities 6.7
1. What is the difference between the GE and the Shell Directional Policy Matrix?
2. How can you use the Shell Directional Policy Matrix as a marketing plaaning tool?
3. Using a company of your choice identify competitive capabilities of a company that
can be used to maximize on profits.

6.8 Arthur D. Little Strategic Condition Matrix

This is a slightly more detailed model in that there are twenty cells used to identify
various SBUs (Drummond, et al, 2001). The variables used with this model are
competitive position, which denotes the nature of the position held by the company in
the market (and whether or not it can maintain that position), and the stage of industry
maturity which, in some ways, is similar to describing a life cycle of the industry.

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 STAGE OF INDUSTRIAL MATURITY

EMBRYONIC GROWTH MATURE AGEING

Grow fast. Grow fast. Defend position. Defend position

Build barriers. Aim for cost Increase the Focus

Importance of cost.
Act offensively. Leadership Consider
Defend Position Act offensively withdrawal
Dominant Act Offensively

Grow fast. Low Cost. Lower costs. Harvest

Differentiate. Differentiate. Differentiate

Attack small
Firms Focus

Strong Grow fast. Focus Focus

Competitive Differentiate. Differentiate Differentiate Harvest
Position
Favourable Defend Hit smaller firms

Grow with the Hold on or Hold on or

industry. withdraw withdrawal Withdraw

Focus. Niche Niche

Tenable
Aim for growth

Source: Drummond et al, (2001)

Search for a Niche or
niche. Withdrawal Withdrawal Withdrawal

Attempt to catch
Weak
others.

Figure 6.8: Arthur D. Little Strategic Condition Matrix

What this model does not show is the "non-viable position", which occurs when the
company's capabilities are truly limited and the market does not give any indication of
opportunities for improvement. In such cases the planner or strategist would simply have
to accept that it may be better to cease activity and withdraw from the market in a manner

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 which incurs the least cost and creates minimal disruption to the company's overall
portfolio.

Activities 6.8
1. Discuss the usefulness of the Arthur D. Little Strategic Condition Matrix as a
marketing tool.

6.9 Summary

Some marketing planning models are too simplistic and ignore too many variables which
can have an influence on the company's activities for example the BCG. Also some
models are too complex to construct and require far too much detailed information to
make them useful to a planner. However the usefulness of the models cannot be
dismissed. Models can be useful but they are no good in isolation. Unless the value
judgment of a planner is used, and full consideration is given to all influencing factors,
the use of a marketing model can simply become a theoretical exercise.
If models are used correctly, planning can be improved, resources can be allocated more
effectively and control mechanisms can be much easier to establish.
Having said all this, we have to accept that, very often, marketing managers do not use
models on a regular basis. There can be various reasons for this:

• Lack of knowledge of the models themselves.

• Knowing the models but not understanding how to apply them.
• Models are seen as a waste of time because they have not been found to be useful
in the past.

Thankfully, this situation is changing gradually as more managers are trained in the use
and application of models – particularly marketing models such as those we have
considered in this study unit. Many companies, both large and small, now expect their
managers to use modeling techniques when planning and this trend is likely to continue.

95
References

Baker, Michael, (2008) The Strategic Marketing Plan Audit.

Donnely, J.H. and Peter, P.J. (2009) Marketing Management Knowledge and Skills,
London: McGraw-Hill.
Drummond, G., Ensor, J. and Ashford, A. (2001) Strategic Marketing: Planning and
Control, Second Edition, Oxford: Butterworth, Heinemann.

Homburg, Christian; Sabine Kuester, Harley Krohmer (2009): Marketing Management -

A Contemporary Perspective (1st ed.), London.

Kotler, P. (2006) Marketing Management, Analysis, Planning, Implementation and

Control, 11th Edition New Jersey: Prentice Hall.

Kotler, P. and Keller, K. (2011), Marketing Management, 14th Edition, USA: Prentice
Hall Inc.

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 Unit 7

New Product Development

7.0 Introduction

Businesses focus on designing new products and selling these products to customers. The
company's goal with creating new products involves two parts. The first part consists of
finding a product that customers want to pay for; only products that customers purchase
produce revenue for the business. The second part consists of beating competitors to
market. The first company to offer a product generates the greatest number of repeat
customers.

The market stance adopted by the company will, to a large extent, dictate whether a
company will be an innovative leader and involved in extensive new product
development (NPD), be a follower and copy the leaders, or whether the products will
only be refined over and over again to make them appear "new" to the buyers.
Companies, who do not have the benefit of one perfect product which will always be in
demand by loyal customers and will never be attacked by competition, need to be
involved in NPD to one extent or another. NPD can be amendment of existing products in
order to produce products which are "new" to the market or it can be totally innovative, in
which case products entirely new to both market and company will be developed.

7.1 Objectives

By the end of the unit, you should be able:

• Know the reasons why companies invest in new product development
• Know the steps involved in new product development
• Explain the reasons why new products fail in the market

7.2 What is New Product Development?

It is process of developing a new product or service for the market. This type of
development is considered the preliminary step in product or service development and
involves a number of steps that must be completed before the product can be introduced
to the market. New product development may be done to develop an item to compete
with a particular product/service or may be done to improve an already established
product. New product development is essential to any business that must keep up with
market trends and changes.

There are many different types of new products. According to Kotler, (2011) new
products fall into five major types:

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New to the world products

These are really revolutionary products that breaks new ground in terms of innovation.
For example, Apple iPad. These products create a new market for the product.
Developing such new products is extremely risky.

New to the company products

These are products that help company enter new market segments. The market For
example, Blackberry Storm was the first touch phone for Blackberry. These new
products are often seen as me-too products, and if the new product does not offer value to
the customer and does not distinguish from the current market leader then it will fail in
market place. So companies resources on market research and product development to
create truly differentiated products.

On the other hand, there are companies that try to draft behind the market leader by
creating a lower cost, imitation products that typically follows a me-too market strategy.
This typically happens if the entry barriers are low and the products does not have strong
differentiating features. E.g, ZTE cell phones.

Additions to existing product line

Companies often add new products to existing product line to address needs of adjacent
markets - the markets that is currently not being served by the current range of products.

Improvements and Revisions to existing products

When a company introduces its first version of its product to the market, it may not have
all the features or functions needed, Often times the first version of the products may not
even succeed in the market. But companies can keep improving the product and release
several revisions to the existing product and succeed. Product revisions are done to all
products - software, hardware, automobiles etc.

Cost reductions or Price revisions

Once a product is proven in the market, the seller may redesign/rebuild the product such
that it costs less to manufacture. A part of this cost reduction could be passed on to
customers - thus lowering the price and changing the market segment into which the
product could now be sold to. For example, the price of laptops have dropped steadily -
this with every drop in selling price, the laptop computers gained more market share from
the desktop users.

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7.2.1 Reasons for New Product Development
According to Drummond, et al, (2001) there are several reasons for new product failure
which include:

1. For company growth

This is the most often cited reason for needing new product. New product is the route to
company growth. Industries are maturing. Products are maturing. Innovation is the
creation and transformation of new knowledge into new products, processes, or services
that meet market needs. As such, innovation creates new businesses and is the
fundamental source of growth in business and industry.

2. For the progression of human well-being

This may be the least cited reason for needing new product but perhaps the most
important result of achieving innovation. As given in number 1, new products create new
businesses. As such and at the same time, new businesses create new jobs. For reasons
obvious, new jobs create personal income and thereby provide the where-with-all for
achieving the personal well-being of humans. Innovative new products are essential to
the progress of any society. Imagine if we had not progressed beyond stone-age tools and
implements: we might go home tonight and do a load of laundry by banging our socks
with a big stone in the neighborhood stream. New products respond to the wants and
needs of the populace and stimulate higher standards of living. The processes of
developing new products provide employment and economic well-being for those
directly associated with them and for persons employed in supporting industries.

3. For competitive advantage

Companies that use and act on their insights get a jump on the competition. They are the
competition. They leave behind those that are lulled by the security of strong, enduring
economic performance and the conventional corporate wisdom that stays the course
often, the leader loses. The battle is swift; it's too late to respond. This is not a theory. It is
fact.
• Michelin captured the US tire market when it introduced radials.
• Citibank made its competitors look old-fashioned when it introduced ATMs.
• Sony grabbed the recorded music market with the introduction of the compact
disc.
• The Japanese gained advantage over the Swiss with digital watches.

4. Because cost-cutting is not enough anymore

Profit = revenue cost. The profit equation shows that for profits to grow, or even be
maintained, you've got to manage cost, even reduce it. It is the most obvious way to grow
profits. And companies have been doing these introducing new products through new
technology, through re-engineering.

5. Desire for higher business revenues

On the same side of the profit equation as cost is the revenue term. It is the most often
neglected term, but it takes only a little insight to see that profits can be increased by
increasing revenue. With costs reaching bottom and few opportunities to reduce them

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further, companies can turn to increasing sales. New products come to mind here and do
well to sell more of what you have to sell. But new products and services bring in new
revenues too. New products sell.

6. To improve disappointing performance

Companies introduce new products to improve disappointing performance. Incremental
improvement can turn products over and get more, newer models out. This may all sound
dull, but the achievements can be exhilarating.

7. To take advantage of opportunity

It is no surprise that surprises, often disappointing surprises, are the seeds of new
products. Take the oil companies. It is no surprise that some oil companies are becoming
oil-and gas companies. Why? Because gas is found more often and in greater abundance
than oil. After the surprise and disappointment of continued gas finds, oil companies
realized that opportunity might be presenting itself. With large amounts of a raw material
considered to be the less desirable one, you can be sure that utilizing the abundant raw
material in hand became the focus of many innovations in the oil industry.

8. For a more constant flow of new products

For some companies, it's feast or famine. They find themselves either scooping up the
wealth of new ideas turned into new products or waiting for one to arrive. Or pouring
money into existing operations with no visible new output. Innovation and the deliberate
systematic management thereof can even out the surges and slumps by providing a
continuous stream of ideas for the new products pipeline.

9. For better returns

New products themselves not only break the mold but also yield far better returns than
ordinary business ventures. One American study found that the overall rate of return for
some 17 successful new products averaged 56%! Compare that with the 16% average
return on investment for all American business over the past 30 years.

10. For business survival

As Alan M. Kantrow, editor of Harvard Business Review, once put it, "For companies to
survive a discontinuity (Kantrow is referring to S-curve discontinuities or major
innovations that change the nature of the game: the subject of yet another discourse), they
must face the rather unpalatable reality that there may have to be fundamental changes in
who they are, what they do, and how they do it, as wrenching and dislocating as it may
be." In a real sense, they will have to undergo a metamorphosis. Kantrow does not
discuss the alternative. It is not a subject for further discourse.

Activity7.1
1. What is a new product? Support your answer with practical examples?
2. Why do companies invest a lot of money on new product development?

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7.3 Phases of New Product Development
Improving and updating product lines is crucial for the success for any organisation.
Failure for an organisation to change could result in a decline in sales and with
competitors racing ahead. The process of NPD is crucial within an organisation. Products
go through the stages of their lifecycle and will eventually have to be replaced.

The new product development process has, for many years, been viewed as a linear,
sequential process involving several stages of analysis and review (Kotler, 2000). The
model most frequently quoted for this is the Booz Allen Hamilton model, identifying
logical sequences in the process as follows:

Idea generation

Screening

Concept testing

Outlining marketing strategy

Business analysis

Product development

Test marketing

Commercialisation

Figure 7.1 NPD Process Source: Kotler, (2000)

1. Idea generation
The formal process begins with the generation of the maximum number of new ideas.
The company will be actively looking for opportunities, and new products can be
produced in response to a perceived, or recognised, demand. The process of gathering the
ideas may take weeks or even months. The ideas have to be collated, considered for
feasibility and eventually passed to the people who are responsible for screening.
Ideas come from internal and external sources.

Internal sources of idea generation

• idea from production department
• basic research e.g. on Google
• sales men's idea
• top management's idea

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External sources of idea generation
• Competitors
• Business magazine
• Consumers
• Government
• Suppliers
• Universities and other Tertiary institutions
• Trade Unions and pressure groups

Idea should be helpful for satisfying consumer's need, otherwise drop the idea. For taking
second step ask from yourself, is it worth considering - if yes, then take second step

2. Idea Screening
Idea screening is helpful:
a) to reduce the chance of development of product on the basis of poor idea.
b) to reduce the chance of not developing the product on the basis of very good idea.

The screening stage is crucial, as it is here that non-viable ideas are shelved. Tests for
viability are generally carried out for compatibility with organisational policies,
strategies, resource constraints, etc. Note that there is opportunity here for a well
organized screening process to sift out ideas that may have potential in another SBU or
even in another organisation to whom they can be sold.

Once the ideas have been assessed for their initial viability, it is necessary to devise a
method of screening these so as to reduce them to a manageable number which are
considered to have real prospects. A series of factors which research has shown are
desirable to the consumer and to the company will have been identified. The new ideas
can then be compared so as to establish a short list of those that fit most closely to these
criteria.

The company will have set certain criteria – for example, being able to produce the
product without further investment in production plant or personnel, or that the product
must "fit" with the rest of the range, there must be a recognised level of demand, it must
give a stated level of profit; it must be different to what the competition is offering, etc.
Other factors that will come under consideration are raw material availability, production,
distribution and the effect on sales of other products.

The people who are responsible for screening the new ideas must try to "match" the ideas
against the stated criteria wherever possible. Assuming some of the ideas meet the
criteria, they are then passed on to the people responsible for the next stage in the
process.

Company can enumerate his employees to make check list for idea screening.

• Value of idea.
• Basis of screening.

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• Good idea - should be selected.
• Bad idea - should not be selected.

3. Concept Testing
The next stage, known as concept testing, is to determine whether the new product is
likely to appeal to customers. Concept development and testing is focused on consumer
need – is there a concept that wraps the idea up into a package that will be welcomed by
sufficient consumers? This is not a "product test" but an "idea test". The concept is taken
to potential buyers as well as to the internal processing people to check on manufacture,
packaging, distribution, etc. At this stage people are being asked such questions as: "Do
you think it is a good idea?" "Would you buy it at x price?" "Can we make it?" "Will it be
easy to store and distribute?" Once again, a time-consuming process, before the next
stage is begun.

The usual approach to concept testing with consumers is to form panels of potential target
consumers – focus groups – and present them with the concept in some appropriate form.
There is no requirement for a physical product at this stage, although the addition of
specific examples – a sample made up with dummy packaging perhaps – adds reliability
to the research. The consumers are presented with a clear description of each concept
under test and are then asked for their responses. The format of the research will vary
with need, the skills of the researcher and the time and cost constraints. A concept which
has been well received in initial tests is likely to go through much more detailed testing
before a formed consumer view is reported back.

The beauty of concept testing is that it makes it possible to gauge consumers' reactions
before the company has incurred heavy costs in production runs. However, note that the
answers to questions which ask the consumer to predict future action – such as "Would
you definitely/probably/probably not/definitely not buy the product if it were made
available?" or reactions to prices – must be taken very conservatively. Individual
consumers judge a product on whether it will deliver a value that the individual consumer
needs, at the time when the consumer needs it.

4. Marketing strategy development

Strategy development is concerned with locating an affordable marketing strategy that
will support the concept. The results of the concept testing can help a company to decide
just how it will market the product. Will it be distributed direct, or through specialist
channels, or will it be made widely available to cater for a mass market? What
positioning will it be given – high quality, good value for money, or cheap and cheerful?
Will the communications be heavily biased towards direct marketing, or in the major
media? What strategy would cause least reaction from the competition? How can results
be most effectively measured?

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Decisions made at this time depend a great deal not only on the results of the concept
testing but on knowledge of the marketplace and the planning skills of the marketers
involved. Knowledge of the marketplace is something which requires research. Research
needs to be on-going and takes time.

5. Business Analysis
This stage is crucial to the NPD process. It is here that the potential profits are compared
to the production and marketing costs to see if it is worth proceeding. Competitive
activity, market trends, environmental aspects, etc. will all be analysed in order to give as
accurate a picture as possible.

At this stage, the company has to consider the financial viability of the new idea.
Research and forecasting techniques are used to determine the likely level of demand. A
cost analysis will examine not only direct production costs but also capital investment
and marketing costs and even new personnel. Profitability can then be established in
terms of "breakeven" and rate of return analysis. It is at this stage that products are often
rejected because they do not demonstrate enough potential earnings in a given period of
time, whereas given the appropriate support, they may actually be products which could
give huge profits over a longer period of time. Assuming that the product idea is still a
viable proposition at this stage, the next stage then comes into effect.

6. Actual Product development

Product development is the creation of a rounded product that is sound technically,
commercially and meets strategic requirements. To begin manufacturing a new product is
a risky venture and there can still be some doubt as to the viability of the product.
Because of this, some manufacturers will choose to produce a prototype, or small
batches, in order to test effectiveness before they give full commitment to production.
The effort in producing small quantities adds to the expense and time involved, not to
mention the possibility of the competition becoming aware of what the company is doing.
It is during this stage that final planning for the other elements of the marketing mix
(brand names/pack sizes, etc.) will be completed and this is often the time when
something completely unexpected will crop up – meaning higher costs for the company.

7. Market Test
This is where the product is introduced to a representative sample of the potential market
to gain consumers' reactions. The aim is to establish whether sales are likely to meet
initial expectations, and to evaluate sales and distribution prior to a full-blown launch. It
represents an opportunity to adapt any of the mix elements which prove to need
adjustment – any problems or flaws in the product or its promotion can be identified and
made good before the continued roll-out.

Factors which cause problems in test marketing are:

• Failure to understand the needs of the target market adequately
• The wrong sector is chosen for the test and it is not truly representative of the
whole market
• The size of the market sector being tested is not big enough

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 • The timing is wrong, e.g. testing products in July, when they are likely to be
purchased for Christmas gifts or entertainments
• The length of the test is too short, or too long, which can give distorted results
• Not enough resources are put into the advertising and promotional aspects
• The results of the test are ignored because of an over-belief in the product by one
influential executive in the company.

8. Commercialization
In this step, company manages large scale production, marketing and
commercialization of new product with following marketing strategy.

• Where to produce - fix the geography

• When to produce - fix the time
• To whom to sell - target marketing strategy
• How - Brand Strategy

Activities 7.2
1. Identify and discuss the sources of new product ideas.
2. Why the screening stage is regarded as the most crucial stage of the NPD process?
3. Market testing may generate wrong signals. Why?

7.4 Reasons for Product Failure

o Marketers assess the marketing climate inadequately.

o The wrong group was targeted.
o A weak positioning strategy was used.
o A less-than-optimal "configuration" of attributes and benefits was selected.
o A questionable pricing strategy was implemented.
o The ad campaign generated an insufficient level of awareness.
o Cannibalization depressed corporate profits.
o Over-optimism about the marketing plan led to a unrealistic forecast.
o Poor implementation of the marketing plan in the real world.
o The new product was pronounced dead and buried too soon.
o Go Error/ Drop Error

Activity 7.3
1. What can an organization do for its new product to succeed?

7.5 Adoption of the New Product by Consumers

The Adoption Process (also known as the Diffusion of Innovation) is more than forty
years old (Kotler, 2011). It was first described by Bourne (1959), so it has stood the test
of time and remained an important marketing tool ever since. It describes the behaviour
of consumers as they purchase new products and services. The individual categories of
innovator, early adoptor, early majority, late majority and laggards are described below.

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 2.5% 13% 34% 34% 16.5%

Innovators Early Early Late Majority Laggards

Adopters Majority

Figure 6.3 Adoption Process Source: Drummond, et al, (2001)

Innovators are the first to adopt and display behaviour that demonstrates that they likely
to want to be ahead, and to be the first to own new products, well before the average
consumer. They are often not taken seriously by their peers. The often buy products that
do not make it through the early stages of the Product Life Cycle (PLC).

Early adoptors are also quick to buy new products and services, and so are key opinion
leaders with their neighbours and friends as they tend to be amongst the first to get hold
of items or services.

The early majority looks to the innovators and early majority to see if a new product or
idea works and begins to stand the test of time. They stand back and watch the
experiences of others. Then there is a surge of mass purchases.

The late majority tends to purchase the product later than the average person. They are
slower to catch on to the popularity of new products, services, ideas, or solutions. There
is still mass consumption, but it begins to end.

Finally, laggards tend to very late to take on board new products and include those that
never actually adopt at all. Here there is little to be made from these consumers.

There are a number of examples of products that have gone through the adoption process.
They include IPods or DVD players (or even video players and digital watches). Initially
only a small group of younger or informed, well off people bought into these products.
Opinion leaders or the early adopters then buy the product and tend to be a target for
marketing companies wishing to gain an early foot hold. The early majority is slightly

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 ahead of the average, and follow. Then the late majority buys into the product, followed
by any laggards. New adoption process or curves begin all the time. Who knows what
will happen with solid state technology or Internet purchases of media?

Activities 7.4
1. Show how the adoption process is important in the adoption of a new product?
2. What causes different customers to respond differently to a new product?

7.6 Summary

Introduction of new products is an important determinant of sustained company

performance. Although new products open up new opportunities for companies, the
substantial risk associated with these new products should not be neglected. Management
is highly interested in learning about factors which impact the success of new products.
.

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References

Baker, Michael, (2008) The Strategic Marketing Plan Audit

Donnely, J. H and Peter, P.J, (2009) Marketing Management Knowledge and Skills,
London: McGraw Hill.

Drummond, G., Ensor, J. and Ashford, A. (2001) Strategic Marketing: Planning and
Control, Second Edition, Oxford: Butterworth, Heinemann.

Homburg, Christian; Sabine Kuester, Harley Krohmer (2009) Marketing Management - A

Contemporary Perspective (1st ed.), London.

Kotler, P. (2006) Marketing Management, Analysis, Planning, Implementation and

Control, 11th Edition New Jersey: Prentice Hall.

Kotler, P. and Keller. K. (2011), Marketing Management, 14th Edition, USA: Prentice
Hall Inc.

108
 Unit 8

Marketing Mix

8.0 Introduction

To effectively market a product or service there are four things you need to get right:
Product, Price, Place and Promotion. These four elements are known as the marketing
mix or the 4Ps. The four elements should be viewed as one unit and structured to support
each other; Otherwise a firm's marketing strategy will be confusing and uncoordinated.
This unit provides you with information to each element and how they are used achieve
competitive advantage in a market.

8.1 Objectives

By the end the unit you should be able to:

• define product, industrial goods
• explain the elements of a product
• manage pricing, promotion and distribution activities,

8.2 Product
A product is anything that can be offered to a market for attention, acquisition, use or
consumption: it includes physical objects, services, personalities, places, organizations
and ideas (Kotler, 2000).

Product has three main dimensions:

• Functional
Functionality refers to the use of the product – what it is for, or what does it do? It may
be that it plays music, or it keeps out the cold, or whatever. For a refrigerator, for
example, this could be that it stores, preserves and cools.
The "function" of a product may change at times because someone has found another
purpose for it – for example, house bricks can be used as supports for beds, seats or
shelving units.

• Tangible
This refers to the physical features that are offered – the materials from which it is made,
the style, quality, packaging, etc. For the refrigerator, this could be that it fits under
worktop, is self-cleaning and is offered in a range of colours.

• Symbolic
The symbolic attributes of products are also sometimes known as "psychological"

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 attributes or the "augmented product". This dimension of the product includes the add-on
benefits provided along with the product – after-sales service, guarantees and warranties,
credit facilities, availability in the market, delivery, etc. For our fridge, this might include
image, guarantee, free credit and the particulars of the after-sales service. The symbolic
attributes also refer to the "value" which a user gives to a product. Value is intangible and
will vary from person to person (Drummond, 2001).

According to Kotler, (2011) product fall into two groups namely consumer products, and
industrial products

8.2.1 Consumer Products

These are categorized as discussed below:

Convenience Products – These are products that appeal to a very large market segment.
They are generally consumed regularly and purchased frequently. Examples include most
household items such as food, cleaning products, and personal care products. Because of
the high purchase volume, pricing per item tends to be relatively low and consumers
often see little value in shopping around since additional effort yields minimal savings.
From the marketer’s perspective the low price of convenience products means that profit
per unit sold is very low. In order to make high profits marketers must sell in large
volume. Consequently, marketers attempt to distribute these products in mass through as
many retail outlets as possible.

Shopping Products – These are products consumers purchase and consume on a less
frequent schedule compared to convenience products. Consumers are willing to spend
more time locating these products since they are relatively more expensive than
convenience products and because these may possess additional psychological benefits
for the purchaser, such as raising their perceived status level within their social group.
Examples include many clothing products, personal services, electronic products, and
household furnishings. Because consumers are purchasing less frequently and are willing
to shop to locate these products, the target market is much smaller than that of
convenience goods. Consequently, marketers often are more selective when choosing
distribution outlets to sell their products.

Specialty Products – These are products that tend to carry a high price tag relative to
convenience and shopping products. Consumption may occur at about the same rate as
shopping products but consumers are much more selective. In fact, in many cases
consumers know in advance which product they prefer and will not shop to compare
products. But they may shop at retailers that provide the best value. Examples include
high-end luxury automobiles, expensive champagne, and celebrity hair care experts. The
target markets are generally very small and outlets selling the products are very limited to
the point of being exclusive.
In addition to the three main categories above, products are classified in at least two
additional ways:

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 Emergency Products – These are products a customer seeks due to sudden events and
for which pre-purchase planning is not considered. Often the decision is one of
convenience (e.g., whatever works to fix a problem) or personal fulfillment (e.g.,
perceived to improve purchaser’s image).

Unsought Products – These are products whose purchase is unplanned by the consumer
but occur as a result of marketer’s actions. Such purchase decisions are made when the
customer is exposed to promotional activity, such as a salesperson’s persuasion or
purchase incentives like special discounts offered to certain online shoppers. These
promotional activities often lead customers to engage in Impulse Purchasing.

8.2.2 Industrial Goods

Industrial goods are products that companies purchase to make other products, which
they then sell. Some are used directly in the production of the products for resale, and
some are used indirectly. Unlike consumer goods, industrial goods are classified on the
basis of their use rather than customer buying habits. These goods are divided into five
subcategories: installations, accessory equipment, raw materials, fabricated parts and
materials, and industrial supplies.

Industrial goods also carry designations related to their durability. Durable industrial
goods that cost large sums of money are referred to as capital items. Nondurable
industrial goods that are used up within a year are called expense items.

Installations Installations are major capital items that are typically used directly in the
production of goods. Some installations, such as conveyor systems, robotics equipment,
and machine tools, are designed and built for specialized situations. Other installations,
such as stamping machines, large commercial ovens, and computerized axial tomography
(CAT) scan machines, are built to a standard design but can be modified to meet
individual requirements.

The purchase of installations requires extensive research and careful decision making on
the part of the buyer. Manufacturers of installations can make their availability known
through advertising. However, actual sale of installations requires the technical
knowledge and assistance that can best be provided by personal selling.

Accessory Equipment Goods that fall into the subcategory of accessory equipment are
capital items that are less expensive and have shorter lives than installations. Examples
include hand tools, computers, desk calculators, and forklifts. While some types of
accessory equipment, such as hand tools, are involved directly in the production process,
most are only indirectly involved.

The relatively low unit value of accessory equipment, combined with a market made up
of buyers from several different types of businesses, dictates a broad marketing strategy.
Sellers rely heavily on advertisements in trade publications and mailings to purchasing

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agents and other business buyers. When personal selling is needed, it is usually done by
intermediaries, such as wholesalers.

Raw Materials Raw materials are products that are purchased in their raw state for the
purpose of processing them into consumer or industrial goods. Examples are iron ore,
crude oil, diamonds, copper, timber, wheat, and leather. Some (e.g., wheat) may be
converted directly into another consumer product (cereal). Others (e.g., timber) may be
converted into an intermediate product (lumber) to be resold for use in another industry
(construction).

Most raw materials are graded according to quality so that there is some assurance of
consistency within each grade. There is, however, little difference between offerings
within a grade. Consequently, sales negotiations focus on price, delivery, and credit
terms. This negotiation plus the fact that raw materials are ordinarily sold in large
quantities make personal selling the principal marketing approach for these goods.

Fabricated Parts and Materials Fabricated parts are items that are purchased to be
placed in the final product without further processing. Fabricated materials, on the other
hand, require additional processing before being placed in the end product. Many
industries, including the auto industry, rely heavily on fabricated parts. Automakers use
such fabricated parts as batteries, sun roofs, windshields, and spark plugs. They also use
several fabricated materials, including steel and upholstery fabric. As a matter of fact,
many industries actually buy more fabricated items than raw materials.

Buyers of fabricated parts and materials have well-defined specifications for their needs.
They may work closely with a company in designing the components or materials they
require, or they may invite bids from several companies. In either case, in order to be in a
position to get the business, personal contact must be maintained with the buyers over
time. Here again, personal selling is a key component in the marketing strategy.

Industrial Supplies Industrial supplies are frequently purchased expense items. They
contribute indirectly to the production of final products or to the administration of the
production process. Supplies include computer paper, light bulbs, lubrication oil, cleaning
supplies, and office supplies. Buyers of industrial supplies do not spend a great deal of
time on their purchasing decisions unless they are ordering large quantities. As a result,
companies marketing supplies place their emphasis on advertising particularly in the
form of catalogue so business buyers. When large orders are at stake, sales
representatives may be used. It is not always clear whether a product is a consumer good
or an industrial good. The key to differentiating them is to identify the use the buyer
intends to make of the good. Goods that are in their final form, are ready to be consumed,
and are bought to be resold to the final consumer are classified as consumer goods. On
the other hand, if they are bought by a business for its own use, they are considered
industrial goods. Some items, such as flour and pick-up trucks, can fall into either
classification, depending on how they are used. Flour purchased by a supermarket for
resale would be classified as a consumer good, but flour purchased by a bakery to make
pastries would be classified as an industrial good. A pickup truck bought for personal use

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 is a consumer good; if purchased to transport lawnmowers for a lawn service, it is an
industrial good.

Activities 8.1
1. Show how you can use three dimensions of a product to purchase the right product.
2. What is the difference between consumer goods and industrial goods?

8.2.3 Product life-cycle (PLC)

Once a product is launched after it has gone through the NPD process (Unit 7 refers), it
begins its own life cycle and will eventually decline and disappear, becoming obsolete.
However, there is no set period of time attributed to this – it may be short-lived in the
case of something like a ladies' fashion or still be enjoying maturity after many years like
the Coke.

Like human beings, products also have an arc. From birth to death, human beings pass
through various stages e.g. birth, growth, maturity, decline and death. A similar life-cycle
is seen in the case of products. The product life cycle goes through multiple phases,
involves many professional disciplines, and requires many skills, tools and processes.
Product life cycle (PLC) has to do with the life of a product in the market with respect to
business/commercial costs and sales measures. To say that a product has a life cycle is to
assert three things:
• Products have a limited life,
• Product sales pass through distinct stages, each posing different challenges,
opportunities, and problems to the seller,
• Products require different marketing, financing, manufacturing, purchasing, and
human resource strategies in each life cycle stage.

The four main stages of a product's life cycle and the accompanying characteristics are:
Characteristics
Stage
2. Costs are very high
3. Slow sales volumes to start
4. Little or no competition
1. Market
5. Demand has to be created
introduction stage
6. Customers have to be prompted to try the product
7. Makes no money at this stage

1. Costs reduced due to economies of scale

2. Sales volume increases significantly
3. Profitability begins to rise
4. Public awareness increases
2. Growth stage
5. Competition begins to increase with a few new
players in establishing market
6. increased competition leads to price decreases

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3. Maturity stage
1. Costs are lowered as a result of production
volumes increasing and experience curve effects
2. Sales volume peaks and market saturation is
reached
3. Increase in competitors entering the market
4. Prices tend to drop due to the proliferation of
competing products
5. Brand differentiation and feature diversification is
emphasized to maintain or increase market share
6. Industrial profits go down

Introduction Growth Maturity Decline

Sales Stage Stage Stage Stage

Total
Market Sales

Time

Figure 8.1 Product Life Cycle Source: Kotler,(2000)

Kotler, (2000) suggests that the product life cycle concept can also be applied to fashions,
fads and styles.

Style
A style is the manner in which a product is presented and certain styles come and go. The
current style for mobile phone is touch screen and this style will last until a new
technology style appears. So the shape of a style life cycle is like a wave, as one style
fades out, another appears.

Fashion
A fashion is a current trend which can have a long or short life cycle. Certain clothing
fashions usually last for a shorter period therefore the PLC will decline very rapidly.

Fad
A fad is a product that is around for a short period and is generated by hype. As you can
see sales peak very quickly, as this product has a very short life cycle.

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 Style Fashion Fads

Sales Sales Sales

Time Time Time

Figure 8.2 Style, Fashion and Fads Product Life Cycles Source: Kotler, (2000)

Managers are always in need of predictive tools to help them navigate a seemingly
chaotic market, and the PLC model gives managers the ability to forecast product
directions on a macro level, and plan for timely execution of relevant competitive
moves. Coupled with actual sales data, the PLC model can also be used as an explanatory
tool in facilitating an understanding of past and future sales progression. The PLC model
aids in making sense of past events as part of any extrapolatory and interpretive approach
to building strategy. Once a product strategy or product line strategy has been formulated,
the PLC model can be used as part of an ongoing strategy validation process since it
reflects on market trends, customer issues and technological advancement. Companies
always anticipate the emergence of new competitors and therefore, must prepare in
advance to battle the competition and strengthen their product’s position.

The PLC model is advantages in planning long-term offensive marketing strategies,

particularly when markets and economies are stable. Nevertheless, most products die and
once products are dead they hold no substantial revenue potential and are a toll on a
company’s resources. By combining the elements of time, sales volume and notion of
evolutionary stages, the PLC model helps determine when reasonable to eliminate dead
products (Kotler, 2000).

8.2.4 Benefits of PLC

The PLC model offers some degree of usefulness to marketing managers, in that it is
based on factual assumptions. Nevertheless, it is difficult for marketing management to
gauge accurately where a product is on its PLC graph. A rise in sales per se is not
necessarily evidence of growth. A fall in sales per se does not typify decline.
Furthermore, some products do not (or to date, at the least, have not) experience a
decline. Coca Cola and Pepsi are examples of two products that have existed for many
decades, but are still popular products all over the world. Both modes of cola have been
in maturity for some years.

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Another factor is that differing products would possess different PLC "shapes". A fad
product would hold a steep sloped growth stage, a short maturity stage, and a steep
sloped decline stage. A product such as Coca Cola and Pepsi would experience growth,
but also a constant level of sales over a number of decades. It can probably be said that a
given product (or products collectively within an industry) may hold a unique PLC shape,
and the typical PLC model can only be used as a rough guide for marketing management.
This is why its called the product life cycle. The duration of PLC stages is unpredictable.
It is not possible to predict when maturity or decline will begin. Strict adherence to PLC
can lead a company to misleading objectives and strategy prescriptions.

8.2.5 Limitations of the Product Life Cycle

We know that most marketing models are not perfect and can be criticised for various
reasons. The product life cycle model is no exception to this and managers are faced with
a variety of problems in using it as the basis for planning and action.

Variable influences
Product life cycles are a reflection of sales over time. We all know that sales can be
affected in numerous ways and, no matter how good the forecasting or planning there can
always be a reduction in sales. The product life cycle takes no account of variations in the
factors which may cause this – environmental influences such as competitive activity,
legal pressures or customer buying behaviour.

Predictability
As it is not possible to be 100% accurate in forecasting sales in advance, the only way
that the product life cycle model can reflect a true picture is if it relates to sales already
achieved. It follows, then, that only historical product life cycles can be accurate.

Position of products
Another problem that managers face is in knowing exactly where each product is in its
life cycle. The growth stage may be protracted or very short. The potential size of the
market may have been underestimated, which could result in a manager thinking that the
product had reached the maturity stage when, in fact, there could still be opportunities for
growth.

Over-reliance
Sometimes a reduction in sales revenue can be because of some influencing factor (e.g.
recession). Just because the product appears to have reached maturity does not mean that
it will go naturally into decline. An over-belief in the concept of the life cycle can mean
that a manager will withdraw support from a product when sales slowdown. Doing this
can actually create decline and the product will fail. This is known as the "self-fulfilling
prophecy syndrome" and has caused many products to disappear from the market earlier
than necessary.

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Activity 8.2
1. How can a marketer use the PLC to manage an organisation’s product(s).
2. The PLC has been criticized in some quarters. What do you think may be the
reason?

8.2.5 Branding
Any brand is a set of perceptions and images that represent a company, product or
service. While many people refer to a brand as a logo, tag line or audio jingle, a brand is
actually much larger. A brand is the essence or promise of what will be delivered or
experienced (Baker, 2008).

The process involved in creating a unique name and image for a product in the
consumers' mind, mainly through advertising campaigns with a consistent theme.
Branding aims to establish a significant and differentiated presence in the market that
attracts and retains loyal customers.

Building Strong Brands

The steps are as follows:
1. Ensure identification of the brand with consumers and an association of the brand in
customers mind with a specific product class or consumer need.

2. Firmly establish the totality of brand meaning in the mind of consumers by

strategically linking a host of tangible and intangible brand associations with certain
properties.

3. Elicit the proper customer responses to this brand identification and brand meaning.

4. Convert brand response to create an intense, active loyalty relationship between

customers and the brand.

Criteria for Choosing Brand

In general, there are six criteria in choosing brand elements

1. Memorability
The brand must have a high level of brand awareness. It must be easily recognizable and
easily recalled by consumer.

2. Meaningfulness
Beside brand awareness, a brand must convey the message in terms of valuable
information it must convey general information about the nature of product category on
one side. On other side, it must provide information regarding specific attribute and
benefit of the brand.

3. Liability
Brand element can be chosen that are rich in visual and verbal imagery and inherently fun
and interesting.

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4. Transferability
Up to what extent can the brand element add to the product category and geographic
sense? Up to what extent does not element add to brand equity across geographic
boundaries and market segment?

5. Adaptability
The brand should be changed with the change in consumer values and opinions as well as
taste and preferences for example, logos and characters can be given a new looking or a
new design to make them appear more modern and relevant.

6. Protectability
This is last consideration regarding legal and competitive sense. The brand elements can
be legally protected on an international basis. The brand formally registers them with
appropriate legal bodies.

Logos and symbols

Although the brand name typically is the central element of the brand, visual brand
elements often play a critical role in building brand equity, especially in terms of brand
awareness. Logos are defined as a means to indicate origin, ownership, or association.
There are many types of logos, ranging from corporate names or trademarks written in a
distinctive form. Examples of brands with strong word mark or trademarks include Coca-
Cola, Kit-Kat, where no accompanying logo separate from the name. Examples of
abstract logos include the Mercedes star, Rolex crown and Olympic rings. The non-word
mark logos are often called as symbols.

Slogans
Slogans are short phrases that communicate descriptive or persuasive information about
the brand. Slogans often appear in advertising but can play an important role on
packaging and in other aspects of the marketing program.

Jingles
Jingles are musical messages written around the brand. Professional songwriters typically
compose jingles. They often have enough catchy hooks and choruses to become almost
permanently registered in the minds of listeners. Jingles can be thought of as extended
musical slogans and in that sense can be classified as a brand element. It can
communicate brand benefits and convey product meaning in a musical way.

Packaging
Packaging involves the activities of designing and producing containers or wrappers for a
product. Early humans covered themselves with leaves and animal skin. Packaging is
used to identify the brand and convey descriptive and persuasive message to consumers.
It facilitates transportation and protection to product. It can be reused home storage.
Today, Packaging has been elevated in its importance and has now become an integral
part of product development and launch.

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Approaches to Branding
Branding approaches include the following:
Individual Product Branding – Under this branding approach new products are
assigned new names with no obvious connection to existing brands offered by the
company. Under individual product branding the marketing organization must work hard
to establish the brand in the market since it cannot ride the coattails of previously
introduced brands.

Family Branding – Under this branding approach new products are placed under the
umbrella of an existing brand. The principle advantage of this approach is that it enables
the organization to rapidly build market awareness and acceptance since the brand is
already established and known to the market. But the potential disadvantage is that the
market has already established certain perceptions of the brand.

Co-Branding – This approach takes the idea of individual and family branding a step
further. With co-branding a marketer seeks to partner with another firm, which has an
established brand, in hopes synergy of two brands on a product is even more powerful
than a single brand. The partnership often has both firms sharing costs but also sharing
the gains.

Private or Store Branding – Some suppliers are in the business of producing products
for other companies including placing another company’s brand name on the product.
This is most often seen in the retail industry where stores or online sellers contract with
suppliers to manufacture the retailer’s own branded products. In some cases the supplier
not only produces product for the retailer’s brand but also markets their own brand so that
store shelves will contain both brands.

No-Name or Generic Branding – Certain suppliers supply products that are

intentionally “brandless.” These products are mostly basic commodity-type products that
consumer or business customers purchase as low price alternatives to branded products.
Basic household products such as paper products, over-the-counter medicines such as
ibuprofen, and even dog food are available in a generic form.

Brand Licensing – Under brand licensing a contractual arrangement is created in which

a company owning a brand name allows others to produce and supply products carrying
the brand name. This is often seen when a brand is not directly connected with a product
category. For instance, several famous children’s characters, such as Sesame Street’s
Elmo, have been licensed to toy and food manufacturers who market products using the
branded character’s name and image.

8.3 Pricing

Price represents the amount of income that has to be given up in exchange for the
package of benefits to be derived from the product (Drummond, 2001).

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8.3.1 Pricing Objectives
The firm's pricing objectives must be identified in order to determine the optimal pricing.
Common objectives according to Kotler, (2011) include the following:

Current profit maximization - seeks to maximize current profit, taking into account
revenue and costs. Current profit maximization may not be the best objective if it results
in lower long-term profits.

Current revenue maximization - seeks to maximize current revenue with no regard to

profit margins. The underlying objective often is to maximize long-term profits by
increasing market share and lowering costs.

Maximize quantity - seeks to maximize the number of units sold or the number of
customers served in order to decrease long-term costs as predicted by the experience
curve.

Maximize profit margin - attempts to maximize the unit profit margin, recognizing that
quantities will be low.

Quality leadership - use price to signal high quality in an attempt to position the product
as the quality leader.

Partial cost recovery - an organization that has other revenue sources may seek only
partial cost recovery.

Survival - in situations such as market decline and overcapacity, the goal may be to
select a price that will cover costs and permit the firm to remain in the market. In this
case, survival may take a priority over profits, so this objective is considered temporary.

Status quo - the firm may seek price stabilization in order to avoid price wars and
maintain a moderate but stable level of profit.

8.3.2 Pricing approaches and strategies

There are three main approaches a business takes to setting price:
Cost-based pricing: price is determined by adding a profit element on top of the cost of
making the product.

Customer-based pricing: where prices are determined by what a firm believes

customers will be prepared to pay

Competitor-based pricing: where competitor prices are the main influence on the price
set. Let’s take a brief look at each of these approaches;

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 • Cost based pricing
This involves setting a price by adding a fixed amount or percentage to the cost of
making or buying the product. In some ways this is quite an old-fashioned and somewhat
discredited pricing strategy, although it is still widely used.

After all, customers are not too bothered what it cost to make the product – they are
interested in what value the product provides them.

Cost-plus (or “mark-up”) pricing is widely used in retailing, where the retailer wants to
know with some certainty what the gross profit margin of each sale will be. An advantage
of this approach is that the business will know that its costs are being covered. The main
disadvantage is that cost-plus pricing may lead to products that are priced un-
competitively.

• Customer-based pricing
Penetration pricing
You often see the tagline “special introductory offer” – the classic sign of penetration
pricing. The aim of penetration pricing is usually to increase market share of a
product, providing the opportunity to increase price once this objective has been
achieved.

Penetration pricing is the pricing technique of setting a relatively low initial entry
price, usually lower than the intended established price, to attract new customers. The
strategy aims to encourage customers to switch to the new product because of the
lower price.

Penetration pricing is most commonly associated with a marketing objective of

increasing market share or sales volume. In the short term, penetration pricing is likely to
result in lower profits than would be the case if price were set higher. However, there are
some significant benefits to long-term profitability of having a higher market share, so
the pricing strategy can often be justified.

Penetration pricing is often used to support the launch of a new product, and works best
when a product enters a market with relatively little product differentiation and where
demand is price elastic – so a lower price than rival products is a competitive weapon.

Price skimming
Skimming involves setting a high price before other competitors come into the market.
This is often used for the launch of a new product which faces little or no competition –
usually due to some technological features. Such products are often bought by “early
adopters” who are prepared to pay a higher price to have the latest or best product in the
market.

There are some other problems and challenges with this approach:
Price skimming as a strategy cannot last for long, as competitors soon launch rival
products which put pressure on the price

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Distribution (place) can also be a challenge for an innovative new product. It may be
necessary to give retailers higher margins to convince them to stock the product, reducing
the improved margins that can be delivered by price skimming.
A final problem is that by price skimming, a firm may slow down the volume growth of
demand for the product. This can give competitors more time to develop alternative
products ready for the time when market demand (measured in volume) is strongest.

Loss leaders
The use of loss leaders is a method of sales promotion. A loss leader is a product priced
below cost-price in order to attract consumers into a shop or online store. The purpose of
making a product a loss leader is to encourage customers to make further purchases of
profitable goods while they are in the shop. But does this strategy work?

Pricing is a key competitive weapon and a very flexible part of the marketing mix. If a
business undercuts its competitors on price, new customers may be attracted and existing
customers may become more loyal. So, using a loss leader can help drive customer
loyalty.

One risk of using a loss leader is that customers may take the opportunity to “bulk-buy”.
If the price discount is sufficiently deep, then it makes sense for customers to buy as
much as they can (assuming the product is not perishable).

Using a loss leader is essentially a short-term pricing tactic for any one product.
Customers will soon get used to the tactic, so it makes sense to change the loss leader or
its merchandising every so often.

Predatory pricing (note: this is illegal)

With predatory pricing, prices are deliberately set very low by a dominant competitor in
the market in order to restrict or prevent competition. The price set might even be free,
or lead to losses by the predator. Whatever the approach, predatory pricing is illegal
under competition law.

Psychological pricing
Sometimes prices are set at what seem to be unusual price points. For example, why are
DVD’s priced at $12.99 or $14.99? The answer is the perceived price barriers that
customers may have. They will buy something for $9.99, but think that $10 is a little too
much. So a price that is one pence lower can make the difference between closing the
sale, or not!

The aim of psychological pricing is to make the customer believe the product is cheaper
than it really is. Pricing in this way is intended to attract customers who are looking for
“value”.

• Competitor-based pricing
If there is strong competition in a market, customers are faced with a wide choice of who
to buy from. They may buy from the cheapest provider or perhaps from the one which

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offers the best customer service. But customers will certainly be mindful of what is a
reasonable or normal price in the market.

Most firms in a competitive market do not have sufficient power to be able to set prices
above their competitors. They tend to use “going-rate” pricing – i.e. setting a price that
is in line with the prices charged by direct competitors. In effect such businesses are
“price-takers” – they must accept the going market price as determined by the forces of
demand and supply.

An advantage of using competitive pricing is that selling prices should be line with rivals,
so price should not be a competitive disadvantage.

The main problem is that the business needs some other way to attract customers. It has
to use non-price methods to compete – e.g. providing distinct customer service or better
availability.

Activities 8.3
1. Identify pricing approaches which a marketer can employ. Which is suitable to your
company?
2. Why does a company adopt a loss leader as a pricing strategy?
3. Predatory pricing is considered illegal. Why?
4. What the objectives of any pricing strategy?

8.4 Integrated Marketing Communications (IMC) – Promotion

IMC is a management concept that is designed to make all aspects of marketing

communication such as advertising, sales promotion, public relations, and direct
marketing work together as a unified force, rather than permitting each to work in
isolation (Kotler, 2000).

Integrated Marketing Communications is a simple concept. It ensures that all forms of

communications and messages are carefully linked together.

At its most basic level, Integrated Marketing Communications, or IMC, as we'll call it,
means integrating all the promotional tools, so that they work together in harmony.

8.4.1 Advertising
According to Baker, (2008) advertising is any paid form of non-personal communication
about an organization, product, service, idea or cause by an identified sponsor.

Advantages of advertising
• Advertiser controls the message
• Cost effective way to communicate with large audiences
• Effective way to create brand images and symbolic appeals

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 • Often can be effective way to strike responsive chord with consumers

Disadvantages of advertising
• High costs of producing and running ads
• Credibility problems and consumer skepticism
• Clutter
• Difficulty in determining effectiveness

Development of Advertising Programme

Kotler, (2000) identified the following as the steps involved in the development of an
advertising programme:

1. Setting the advertising objectives

The first step in developing an advertising programme is to set the advertising objectives.
These objectives must flow from prior decisions on the target market, market positioning
and marketing mix. The objectives can be classified on the basis of the aim which can be
either to:

(a) Inform the target about the product features, performance, service available, a price
change or new uses etc-- informative advertising
(b) To persuade the prospect to may be remain brand loyal, or switch brands, or to
purchase now etc--called persuasive advertising
(c) To remind the buyer or the prospect about the product or its features, price where to
buy it from etc--called reminder advertising.

8.4.2 Deciding on the advertising budget

After determining the objectives, the company can proceed to establish its advertising
budget for each product. Every company would like to spend the amount required to
achieve the sales goal. But how should it decide how much to spend on advertising.
There are several methods from which a company can choose from while deciding on
how much to spend:

(a) What-all-you-can-afford method: Many companies set the promotion budget at

what they think the company can afford. However, this method completely ignores the
role of promotion as an investment and the immediate impact of promotion on sales
volume. It leads to an uncertain annual promotion budget.

b) Percentage of sales method: Many companies set their promotion expenditure at a

specified percentage of sales (either current or anticipated). A number of advantages are
claimed for the percentage of sales method. First, it means that promotion expenditures
would vary with what the company can “afford”. Second, it encourages management to
think in terms of the relationship between promotion cost, selling price and profit per
unit. Third, it encourages competitive stability to the extent that competing firms spend
approximately the same percentage of their sales on promotion.

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(c) Competitive parity method: Some companies set their promotion budget to achieve
parity with their competitors. Two arguments have been advanced for this method. One is
that the competitors’ expenditures represents the collective wisdom of the industry and
second is that maintaining a competitive parity helps prevent promotion wars.

(d) Objective-task method: This method calls upon marketers to develop their
promotion budgets by defining their specific communication objectives, determining the
tasks that must be performed to achieve these objectives, and estimating the costs of
performing these tasks. The sum of these costs is the proposed promotion budget. This
method has the advantage of requiring management to spell out its assumptions about the
relationship between the amount spent, exposure levels, trial rates and regular usage.

3. Deciding on the massage

Advertisers go through the following steps to develop a creative strategy message
generation, message evaluation and selection and message execution.

Message Generation: In principle, the product’s message (theme, appeal) should be

decided as part of developing the product concept; it expresses the major benefit that the
brand offers. Creative people use several methods to generate possible advertising
appeals. Many creative people proceed inductively by talking to consumers, dealers,
experts and competitors. Consumers are the major source of good ideas. Their feelings
about the strength and shortcomings of existing brands provide important clues to
creative strategy.

Message Evaluation and Selection: The advertiser needs to evaluate the alternative
messages. A good ad normally focuses on one central selling proposition without trying
to give too much product information, which dilutes the ad’s impact. Messages should be
rated on desirability, exclusiveness and believability. The message must first say
something desirable or interesting about the product. Finally, the message must be
believable.

Message Execution: The impact of the message’ depends not only upon what is said’ but
also on ‘how it is said’. Some ads aim for rational positioning (designed to appeal to the
rational mind) e.g. Surf-washes clothes whitest, whereas other advertisements aim for
emotional positioning, which appeal to the emotions of love, tenderness, care etc. The
choice of headlines, copy and so on, can make a difference to the ad’s impact. The
advertiser usually prepares a copy strategy statement describing the objective, content,
support and tone of the desired ad. A number of researchers of print advertisements
report that the picture, headline, and copy are important in this order. The reader first
notices the picture and hence it must be strong enough to draw attention.

4. Deciding on the media

The advertiser’s next task is to choose advertising media to carry the advertising
message. The steps are deciding on desired reach, frequency and impact, choosing among
major media types, selecting specific media vehicles, and deciding on media timing.

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(a) Deciding on reach frequency and impact: Media selection is the problem of finding
the most cost-effective media to deliver the desired number of exposures to the target
audience. But what do we mean by the desired number of exposures? Presumably, the
advertiser is seeking a certain response from the target audience. eg. a certain level of
product trial. The impact of exposures on audience awareness depends on the
exposure’s reach, frequency and impact.

Reach (R): The number of different person or households exposed to a particular media
schedule at least once during a specified time period.
Frequency (F): The number of times within the specific time period that an average
person or household is exposed to the message.

Impact (I): The qualitative value of an exposure through a given medium e.g. a woman’s
product in Borrowdale would have a higher impact than in the Mbare).

(b) Choosing among Major Media Types: The media planner has to know the capacity
of the major media types to deliver, reach, frequency and impact. The major media types
are newspapers, television, direct mail radio, magazines, and outdoor. Media planners
make their choice among these media categories by considering several variables, the
most important ones being the following:

Target-Audience Media Habits: e.g. television and radio are the most effective media
for reaching teenagers.

Product: Women’s dressers are best shown in colored magazines.

Massage: A message announcing a major sale tomorrow will require radio or

newspapers.

Cost: Television is very expensive, whereas newspaper advertising is comparatively

much cheaper. What counts are the cost per thousand exposures and not the total cost?

(c) Selecting specific media vehicles: Now the media planner searches for the most cost-
effective media vehicle. There are hundreds of magazines and newspapers specially
targeted at special audience which a planner chooses from. Similarly on the television
media, there are several channels and programmes from which a choice can be made.

Media planners are increasingly using more sophisticated measures of media

effectiveness and employing them in mathematical models for arriving at the best media-
mix. Many advertising agencies use computer programmes to select the initial media and
then make further improvements based on subjective factors cited in the model.

(d) Deciding on media timing: The advertiser faces a macro scheduling problem and a
micro scheduling problem.

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Macro-scheduling Problem: The advertiser has to decide how to schedule the
advertising in relation to seasonal & business cyclic trends.

Micro-scheduling Problem: The micro scheduling problem calls for allocating

advertising expenditures within a short period to obtain the maximum impact.

5. Evaluating advertising effectiveness

Good planning and control of advertising depends critically on measures of advertising
effectiveness. Most advertisers try to measure the communication effect of an ad that is
its potential effect on awareness, knowledge or preference. They would like to measure
the sales-effect but often find it is too difficult to measure. Yet both can be researched.

Communication-Effect Research: Communication-effect research seeks to determine

whether an ad has been able to communicate effectively i.e. copy testing. It can be done
before an ad is put into media and after it is printed or broadcast.

There are three major methods of advertising pre-testing:

(a) Direct-rating method: Which asks consumers to rate alternative Ads?

(b) Portfolio tests: entail a group of consumes to view and/or listen to a portfolio of
advertisements and then they are asked to recall all the ads and their content,
aided/unaided by the interviews.

(c) Laboratory tests: use equipment to measure consumer’s physiological reactions-

heartbeat, blood pressure, pupil dilation etc. which measures the ad’s attention-getting
power.

Activities 8.4
1. Why advertising is regarded as the most effective promotion tool as compared to
other promotional tools?
2. How do you test the feasibility of an Ad?
3. Develop an advertising campaign of any organization of your choice.
4. Identify factors that affect media selection.

8.4.3 Direct marketing

Direct Marketing is a system of marketing by which organizations communicate directly
with target customers to generate a response and/or a transaction (Drummond, et al,
2001).

Advantages of direct marketing

• Changes in society have made consumers more receptive to direct-marketing
• Allows marketers to be very selective and target specific segments of customers
• Messages can be customized for specific customers.
• Effectiveness easier to measure

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Disadvantages of direct marketing
• Lack of customer receptivity and very low response rates
• Clutter (too many messages)
• Image problems – particularly with telemarketing

Direct marketing methods

• Direct mail
• Catalogs
• Telemarketing
• Direct response ads
• Direct selling
• Internet

8.4.4 Internet Marketing

Internet Marketing a form of marketing communication through interactive media which
allow for a two-way flow of information whereby users can participate in and modify the
content of the information they receive in real time (Brassington and Pettit, 2000).

Advantages of interactive/ internet marketing

• Can be used for a variety of IMC functions
• Messages can be tailored to specific interests and needs of customers
• Interactive nature of the Internet leads to higher level of involvement
• Can provide large amounts of information to customers.

Disadvantages of internet marketing

• Internet is not yet a mass medium as many consumers lack access
• Attention to Internet ads is very low
• Great deal of clutter on the Internet
• Audience measurement is a problem on the Internet

Use of the Internet as an IMC Tool

• As an advertising medium to inform, educate and persuade customers
• As a direct sales tool
• To obtain customer database information
• To communicate and interact with buyers
• To provide customer service and support
• To build and maintain customer relationships
• As a tool for implementing sales promotion
• As a tool for implementing publicity/public relations programs

Activities 8.5
1. What is the difference between Direct Marketing and Internet?
2. What has led to the development of Direct Marketing?
3. How can you use the internet as IMC tool?

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8.4.5 Sales Promotion
Sales Promotions are marketing activities that provide extra value or incentives to the
sales force, distributors, or ultimate consumers and can stimulate immediate sales (Kotler,
and Keller, 2011.

Consumer-oriented Sales Promotion Tools-Targeted to the ultimate users of a product

or service
• Coupons
• Sampling
• Premiums
• Rebates
• Contests
• Sweepstakes
• POP materials

Trade-oriented Promotional Tools-Targeted toward marketing intermediaries such as

retailers, wholesalers, or distributors
• Promotion allowances
• Merchandise allowances
• Price deals
• Sales contests
• Trade shows

Sales promotion Uses

• Introduce new products
• Get existing customers to buy more
• Attract new customers
• Combat competition
• Maintain sales in off season
• Increase retail inventories
• Tie in advertising & personal selling
• Enhance personal selling efforts

Activities 8.6
1. Identify conditions that favour sales promotion.
2. How can a manufacturer influence wholesalers and retailers to stock its products?
3. When can a company use sales promotions?

8.4.6 Public Relations (PR) and Publicity

According to Kotler, (2000) PR is the management function which evaluates public
attitudes, identifies the policies and procedures of an individual or organization with the
public interest, and executes a program of action to earn public understanding and
acceptance.

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Tools used by Public Relations
• Publicity
• Special publications
• Community activity participation
• Fund-raising
• Special event sponsorship

Publicity is a non-personal communication regarding an organization, product, service,

or idea not directly paid for or run under identified sponsorship.

Advantages of publicity
• Credibility
• Low cost (although not totally free)
• Often results in word-of-mouth

Disadvantages of publicity
• Not always under control of organization
• Can be negative

Activities 8.7
1. How can a company promote its image?
2. When can an organization use PR as promotion tool?
3. PR is regarded as a forerunner to all marketing activities. Do you agree?

8.4.7 Personal selling

Personal Selling is a direct person-to-person communication whereby a seller attempts to
assist and/or persuade perspective buyers to purchase a product or service Drummond et
al, (2001).

Advantages of personal selling

• Direct contact between buyer and seller allows for more flexibility
• Can tailor sales message to specific needs of customers
• Allows for more direct and immediate feedback
• Sales efforts can be targeted to specific markets and customers who are best
prospects.

Disadvantages of personal selling

• High costs per contact
• Expensive way to reach large audiences
• Difficult to have consistent and uniform message delivered to all customers

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8.5 Reasons for IMC

1. It can create competitive advantage, boost sales and profits, while saving money, time
and stress.
2. IMC wraps communications around customers and helps them move through the
various stages of the buying process. The organisation simultaneously consolidates its
image, develops a dialogue and nurtures its relationship with customers.

3. This 'Relationship Marketing' cements a bond of loyalty with customers which can
protect them from the inevitable onslaught of competition. The ability to keep a customer
for life is a powerful competitive advantage.

4. IMC also increases profits through increased effectiveness

5. Carefully linked messages also help buyers by giving timely reminders, updated
information and special offers which, when presented in a planned sequence, help them
move comfortably through the stages of their buying process

6. Finally, IMC saves money as it eliminates duplication in areas such as graphics and
photography since they can be shared and used in say, advertising, exhibitions and sales
literature.

7. IMC also makes messages more consistent and therefore more credible. This reduces
risk in the mind of the buyer which, in turn, shortens the search process and helps to
dictate the outcome of brand comparisons.

Activities 8.8
1. What the advantages of personal selling?
2. Under what conditions is personal selling suitable?

8.6 Distribution

Place (or its more common name “distribution”) is about how a business gets its products
to the customers (Kotler and keller, 2011).
Distribution includes the organizations (a company and its partners), locations (quantity
and type), and processes (physical, digital, intellectual) that support the creation and
fulfillment of customer demand, and provide any required post-purchase service.
Effective distribution provides customers with convenience in the form of availability
(what, where, when - the right product, at the right place, at the right time), access
(customers' awareness of the availability and authorization to purchase), and support (e.g.
pre-sales advice, sales promotion and merchandising, post-service repairs).

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8.6.1 The Importance of distribution
Most producers use intermediaries to bring their products to market. They try to develop
distribution channel marketing channel) to do this. A distribution channel is a set
of interdependent organizations that help make a product available for use or
consumption by the, agents, brokers, or retailers who help move a product from the
producer to the consumer or business user.

8.6.2 Functions of distribution channels

Distribution channels perform a number of functions that make possible the flow of
goods from the producer to the customer. These functions must be handled by someone
in the channel. Though the type of organization that performs the different functions can
vary from channel to channel, the functions themselves cannot be eliminated. Channels
provide time, place, and ownership utility. They make products available when, where,
and in the sizes and quantities that customers want. Distribution channels provide a
number of logistics or physical distribution functions that increase the efficiency of the
flow of goods from producer to customer. Distribution channels create efficiencies by
reducing the number of transactions necessary for goods to flow from many different
manufacturers to large numbers of customers (Kotler, 2000). Distribution is important in
several ways:

1. Breaking bulk - Wholesalers and retailers purchase large quantities of goods from
manufacturers but sell only one or a few at a time to many different customers.

2. Channel intermediaries reduce the number of transactions by creating assortments —

providing a variety of products in one location, so that customers can conveniently
buy many different items from one seller at one time. Channels are efficient.

3. The transportation and storage of goods is another type of physical distribution

function. Retailers and other channel members move the goods from the production
site to other locations where they are held until they are wanted by customers.

4. Channel intermediaries perform a number of facilitating functions, functions that

make the purchase process easier for customers and manufacturers. Intermediaries
often provide customer services such as offering credit to buyers and accepting
customer returns. Customer services are oftentimes more important in B2B markets in
which customers purchase larger quantities of higher-priced products.

5. Some wholesalers and retailers assist the manufacturer by providing repair and
maintenance service for products they handle.

6. Channel members also perform a risk-taking function. If a retailer buys a product

from a manufacturer and it doesn’t sell, it is “stuck” with the item and will lose
money.

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 7. Channel members perform a variety of communication and transaction functions.
Wholesalers buy products to make them available for retailers and sell products too
their channel members. Retailers handle transactions with final consumers. Channel
members can provide two-way communication for manufacturers. They may supply
the sales force, advertising, and other marketing communications necessary to inform
consumers and persuade them to complaints, changing tastes, and new competitors
in the market

8.6.3 Channel Participants

Distribution channels can have a number of levels. Kotler (2000) defined the simplest
level that of direct contact with no intermediaries involved, as the 'zero-level' channel.
The next level, the 'one-level' channel, features just one intermediary; in consumer goods
a retailer, for industrial goods a distributor. In small markets (such as small countries) it
is practical to reach the whole market using just one- and zero-level channels. In large
markets (such as larger countries) a second level, a wholesaler for example, is now
mainly used to extend distribution to the large number of small, neighborhood retailers.

Channels Levels

Zero Level: Manufacturer Consumer

One level: Manufacturer Retailer Consumer

Two Level: Manufacturer Wholesaler Retailer Consumers

Three Level: Manufacturer wholesaler Jobber Retailer Consumer

Figure 8.1 Consumer Marketing Channels Source: Kotler, (2006)

Zero level: Manufacturer Business Customer

One Level: Manufacturer Business Distributor Business customer

Two Level: Manufacturer Manufacturer Representative Business Customer

Or Sales Branch

Three level: Manufacturer Manufacturer Representative Business Business

Or sales Branch Distributor Customer

Figure 8.2 Business Marketing Channels Source: Kotler, (2006)

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Wholesaling: Wholesaling is all activities involved in selling products to those buying
for resale or business use. Wholesaling intermediaries are firms that handle the flow of
products from the manufacturer to the retailer or business user. Wholesaling
intermediaries add value by performing one or more of the following channel functions:
Selling and Promoting, Buying and Assortment Building, Bulk-Breaking, Warehousing,
Transportation, Financing, Risk Bearing, Market Information.

8.6.4 Channel Strategy:

Marketers face several strategic decisions in choosing channels and marketing
intermediaries for their products. Selecting a specific channel is the most basic of these
decisions. Marketers must also resolve questions about the level of distribution intensity,
the desirability of vertical marketing systems, and the performance of current
intermediaries.

• Marketing Channel Selection

Marketing channel selection can be facilitated by analyzing market, product, producer,
and competitive factors.

• Distribution Intensity
Distribution intensity refers to the number of intermediaries through which a
manufacturer distributes its goods. The decision about distribution intensity should
ensure adequate market coverage for a product. In general, distribution intensity varies
along a continuum with three general strategies: Intensive distribution, selective
distribution and exclusive distribution
.
a) Intensive Distribution
An intensive distribution strategy seeks to distribute a product through all available
channels in an area. Usually, an intensive distribution strategy suits items with wide
appeal across broad groups of consumers, such as convenience goods.

b) Selective Distribution
Selective distribution is distribution of a product through only a limited number of
channels. This arrangement helps to control price cutting. By limiting the number of
retailers, marketers can reduce total marketing costs while establishing strong working
relationships within the channel. Moreover, selected retailers often agree to comply with
the company’s rules for advertising, pricing, and displaying its products. Where service is
important, the manufacturer usually provides training and assistance to dealers it chooses.
Cooperative advertising can also be utilized for mutual benefit. Selective distribution
strategies are suitable for shopping products such as clothing, furniture, household
appliances, computers, and electronic equipment for which consumers are willing to
spend time visiting different retail outlets to compare product alternatives. Producers can
choose only those wholesalers and retailers that have a good credit rating, provide good
market coverage, serve customers well, and cooperate effectively. Wholesalers and
retailers like selective distribution because it results in higher sales and profits than are
possible with intensive distribution where sellers have to compete on price.

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c) Exclusive Distribution
Exclusive distribution is distribution of a product through one wholesaler or retailer in as
specific geographical area. The automobile industry provides a good example of
exclusive distribution. Though marketers may sacrifice some market coverage with
exclusive distribution, they often develop and maintain an image of quality and prestige
for the product. In addition, exclusive distribution limits marketing costs since the firm
deals with a smaller number of accounts. In exclusive distribution, producers and retailers
cooperate closely indecisions concerning advertising and promotion, inventory carried by
the retailers, and prices. Exclusive distribution is typically used with products that are
high priced, that have considerable service requirements, and when there are a limited
number of buyers in any single geographic area. Exclusive distribution allows
wholesalers and retailers to recoup the costs associated with long selling processes for
each customer and, in some cases, extensive after-sale service. Specialty goods are
usually good candidates for this kind of distribution intensity.

8.6.5 Marketing Channel Conflicts

Conflict is an inherent behavioral dimension in all social system including the marketing
channel. In any social system, when a component perceives the behavior of the other
component to be impending the attainment of its goal or the effective performance of its
instrumental behavior pattern, an atmosphere of frustration prevails. When this frustration
is not resolved by the other component, a stage of conflict may exist. The conflict may be
sales man versus distributor, distributor versus wholesaler, wholesaler versus retailer and
so on (Drummond et al. 2001).

Causes of Marketing Channel Conflicts

Various channel analysts have advanced a number of causes of conflicts. Robert Little
point to such cause as misunderstood communication, divergent functional specialization
and goals of the channel member and failing in joint decision making process. Some
other experts suggest different economic objective and ideological differences among
channel members as cause of conflict.

The most comprehensive list of conflict causes in the marketing channels according to
Kotler and Keller, (2011) are:

1. Role incongruities: A role is a set of perception defining what the behavior of position
member should be. When applied to the marketing channel, any given member of the
channel has a series to role to which he is expected to fulfill. For example a franchiser is
expected to provide extensive management assistance and promotional support for his
franchises. In return the franchisees are expected to operate in strict accordance with the
franchiser standards operating procedure. If either of the franchisee or franchiser deviates
from his role, conflict situation may result.

2. Resource scarcities: This refers to conflict stemming between channel members over
the allocation of some valuable resources needed to achieve their respective goals. A
common example of this is the allocation of resources between the wholesaler and the
salesman. In the case both wholesaler and salesman as a valuable resource necessary to

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achieve their target view the retailer. Frequently the wholesale distributor decides to keep
some of high volume retailers for himself as his accounts. This leads to objection by
salesperson over what they consider to be an unfavorable allocation of resources. This
kind of disputes is often one of the conflicts.

3. Perceptual difference: Perceptions refers to the way an individual selects and

interprets environmental stimuli. The way stimuli are perceived however is often quite
different from objective reality. In a marketing channel context, the various channel
members may perceive the same stimuli but attach different interpretation to them. A
common example of this is the case of sale material provided by manufacturing company
for their retailer to put on at their retail counters. From the company point of view these
sale materials are valuable promotional tools needs to move their products of the retailer
shelves. Whereas the retailer often perceives the material as useless junk which serves
only to take up its valuable space.

4. Expectation difference: Various channel members have expectations about the

behavior of the other channel members. In practice, these expectations are predictions or
forecast concerning the future behavior of the other channel members. Sometimes this
forecast turns out to be inaccurate but the channel members who make the forecast will
take action based on the predictive outcome. By doing so, he can elicit a response
behavior from other channel member which might now have occurred in the absence of
the original action. An example of this could be seen at the retail end where a retailer
expects stock on credit due to his past experience, now if the salesman, upon instructions
of the distributor, tries to tighten the credit suddenly the retailer might refuse to oblige,
resulting in possible conflict.

5. Decision domain disagreement: each channel member explicitly or implicitly carves

out for himself an area of decision making which he feels is exclusively his own. In
contractual channel system such as franchise, the decision domain is quite explicit and
usually spelled out clearly in franchise contract. But in more traditional loosely aligned
channels made up of independent firms, the decision domains are sometime up for grabs.
Hence conflicts can arise over which member has the right to moves to make the
decision.

6. Goal incompatibilities: Each member of the marketing channel has his own set of
goals and objectives that are very often incompatible with those of other channel
members. When goals of two or more members are incompatible, conflicts may result
and incompatible goals often arise between channel members for example the most
common conflict issues, which arise between manufacturer and industrial distributor.
• How to handle large accounts
• The required inventory stocking levels
• The quality of distributors management
• Size of distributor’s margin

Clearly underline many of these issues, are the difference in goals, aims and values
among channel members involves. Furthermore in consumer goods market there are

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literally items of thousands of small retailer served by large manufactures. Large
manufacturers tend to be growth oriented where as small retailers are more interested in
status quo. The likelihood of the conflict is high in such situation is because in their
pursuit of policies that re congruent with their dynamic goal. The former would likely
adopt innovative programs that contradict the more static orientation of the latter.

9 Communication difficulties: Communication is the vehicle for all interactions

among these channel members. Whether such interactions are cooperative or conflictive.
A foul up or break down in the process of communication can turn quickly a cooperative
relationship into a conflicting one. For example manufacture often make changes in
product design, prices and promotional strategies. The resellers generally feel that they
are entitled to ample advance notice of such changes so that they can make appropriate
strategic adjustments, if necessary. If adequate communication is not provided and these
failing results in negative consequences for a channel member, severe conflict can result.

Activities 8.9
1. Some argue that the inclusion of intermediaries in the distribution channel is very
expensive. Do you agree this argument? Provide practical support to your answer.
2. Identify key channel participants and discuss their roles in the distribution channel?
3. Identify factors that influence the length of the channel of distribution.

8.7 Summary

The basic major marketing management decisions can be classified in one of the
following four categories, namely Product, Price, Place (distribution) and Promotion.

Product: It is the tangible object or an intangible service that is getting marketed through
the program. Tangible products may be items like consumer goods (Toothpaste, Soaps,
Shampoos) or consumer durables (Watches, IPods). Intangible products are service based
like the tourism industry and information technology based services or codes-based
products like cellphone load and credits. Product design which leads to the product
attributes is the most important factor. However packaging also needs to be taken into
consideration while deciding this factor. Every product is subject to a life-cycle including
a growth phase followed by an eventual period of decline as the product approaches
market saturation. To retain its competitiveness in the market, continuous product
extensions though innovation and thus differentiation is required and is one of the
strategies to differentiate a product from its competitors.

Price: The price is the simply amount a customer pays for the product. If the price
outweigh the perceived benefits for an individual, the perceived value of the offering will
be low and it will be unlikely to be adopted, but if the benefits are perceived as greater
than their costs, chances of trial and adoption of the product is much greater.

Place: Place represents the location where a product can be purchased. It is often referred
to as the distribution channel. This may include any physical store (supermarket,

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departmental stores) as well as virtual stores (e-markets and e-malls) on the Internet. This
is crucial as this provides the place utility to the consumer, which often becomes a
deciding factor for the purchase of many products across multiple product categories.

Promotion: This represents all of the communications that a marketer may use in the
marketplace to increase awareness about the product and its benefits to the target
segment. Promotion has four distinct elements: advertising, public relations, personal
selling and sales promotion. A certain amount of crossover occurs when promotion uses
the four principal elements together (e.g in film promotion). Sales staff often plays a
major role in promotion of a product.

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References

Baker, Michael, (2008) The Strategic Marketing Plan Audit

Donnely, J. H and Peter, P.J, (2009) Marketing Management Knowledge and Skills,
London: McGraw Hill.
Drummond, G., Ensor, J. and Ashford, A. (2001) Strategic Marketing: Planning and
Control, Second Edition, Oxford: Butterworth, Heinemann.

Homburg, Christian; Sabine Kuester, Harley Krohmer (2009) Marketing Management - A

Contemporary Perspective (1st ed.), London.

Kotler, P. (2006) Marketing Management, Analysis, Planning, Implementation and

Control, 11th Edition New Jersey: Prentice Hall.

Kotler, P. and Keller. K. (2011), Marketing Management, 14th Edition, USA: Prentice
Hall Inc.

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 Unit 9

Marketing Information Systems

9.0 Introduction

Information is the life blood of successful marketing. It is of great strategic value to

marketers, as well as contributing to tactical and more routine operational decision
making. Knowing what kind of information to obtain and how to make effective use of it
once you have got it, are the key skills of strategic marketing. Such information gives the
firm an opportunity to gain competitive advantage over competitors. Armies win wars not
necessarily because they have superior military power, but through more effective
intelligence gathering procedures. Likewise commercial firms are waging commercial
war in a free market competitive economy. They too will have a better chance of
‘winning’ if they have superior intelligence to their competitors.

All aspect of information including its collection, storage, processing, retrieval and use
must be managed. The marketing oriented firm needs some form of process to carry out
this activity. What is needed is some form of system devoted to the management of the
entire information needs of the organisation. Such a system is called a Marketing
Information System (MkIS). This unit is going to discuss the concept of MKIS in detail.

9.1 Objectives

By end the unit, you be able to:

• identify the different roles managers play and how marketing information systems
can support them in these roles
• evaluate the different types and levels of marketing decision-making
• explain the major components of a marketing information system
• discuss the often under-utilised internal sources of information available to
enterprises
• clearly distinguish between marketing research and marketing intelligence
• examine the nature of analytical models within marketing information system

9.2 Marketing Information System (MKIS)

A marketing information system (MKIS) is intended to bring together disparate items of

data into a coherent body of information. An MIS is, as will shortly be seen, more than
raw data or information suitable for the purposes of decision making. An MIS also
provides methods for interpreting the information the MIS provides. Moreover, as Kotler,
(2000) definition says, an MIS is more than a system of data collection or a set of
information technologies:

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 "A marketing information system is a continuing and interacting structure
of people, equipment and procedures to gather, sort, analyse, evaluate, and
distribute pertinent, timely and accurate information for use by marketing
decision makers to improve their marketing planning, implementation, and
control" (Kotler, 2000).

9.3 Characteristics of MkIS

MkIS systems are designed to be comprehensive and flexible in nature and to integrate
with each other functionally. They are formal, forward looking and essential to the
organization’s ability to create competitive advantage (Baker, 2008). The MkIS is the
firm’s “window on the world” and, increasingly, it is the primary customer interface

• MIS is a consciously-developed master plan for information flow. It is an on-

going process. It operates continuously.

• MIS is future-oriented. It anticipates, prevents and solves marketing problems. It

is a preventative as well as curative process in marketing.

• Management gets a sturdy flow of information on a regular basis. MIS provides

the right information to the right people at the right time and cost.

• MkIS was seen as a set of procedures and methods for the regular planned
analysis and presentation of information for use in making marketing decisions.

• Marketing information was divided into control, planning and research

information

9.4 Features of MKIS

Hansen, (2000) identified the features of MKIS as:

i) Inter-related components: MKIS is a set of inter-related components which consist

of people, equipment and procedures. Information and communication technology is used
to deliver it.

ii) Processing: MKIS collects, processes, analyses, stores, retrieves, and disseminates
information for decision making and control.

iii) Timeline: MKIS provides right information to right people at right time.

iv) Accuracy: It provides accurate and reliable information.

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 v) Consistency: It provides consistent information based on same definition, assumption
and time period.

vi) Accessibility: The information is easily available to authorized person through

communication technology.

9.5 Importance of Marketing Information System

a) Marketing Planning: MKIS provides updated, reliable, and accurate information

which helps marketing to predetermine future courses of action. It also helps to set
objectives and standards of performance for marketing planning. Marketing opportunities
can be identified and strategies can be formulated in order to achieve them.

b) Marketing performance Implementation: MKIS helps to analyze various

information such as sales trends, stage of product life cycle, pricing and non- pricing
strategies of competitors, changing preference of consumer. Marketer design and
implement marketing mix on the basis of such information.

c) Marketing control: MKIS facilitates continuous monitoring of marketing

performance for timely corrective action. Deviation between standard and actual
performance can be analysed and corrected with the environmental dynamics.

d) Marketing Coverage: MKIS provides information to increase market coverage. It can

be single or multiple segment coverage. Marketing information also helps to create
demand.

e) Environmental Adaptation: The major function of MKIS is to provide information

about changing needs and preference, innovation and external changes. This helps
organization to identify opportunities and face threats. New strategies can be made to
adapt in changing environment.

f) Marketing Decision making: Marketing decision making is based on marketing

information provided by MKIS. It’s help them to understand the problem, identify and
evaluate alternatives and to make a choice, through which the decision can be easily
made.

Activities 9.1
1. MKIS is very important in every organization. Do you agree?
2. What are the characteristics of MKIS?

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9.7 Components of MKIS

The components of MKIS begins with a description of each of its four main constituent
parts: the internal reporting systems, marketing research system, marketing intelligence
system and marketing models.

DATA INFORMATION

Strategic
MARKETING
ENVIRONMENT Marketing Decisions
Internal
Markets Report Research
Control
Channels Records Systems
Competitors Decisions

Political Marketing Marketing

Decision
Legal Intellegence Support
Systems Operational
Technology Systems
(Marketing
Models) Decisions

Marketing Decisions and Communication

Figure 9.1 Components of Marketing Information Systems Source: Kotler and Keller, (2011)

9.7.1 Internal record system

Every organization keeps records of all transactional and non- transactional data such as:
order, shipping, annual report, sales trends, financial statement etc. The system which
keeps such internal record is called internal record system. They consist of:

i) Customer related records: It includes order, invoices, shipping documents, inventory

records, payment records, customer demands and their profile.

ii) Sales Report: Sales reports submitted by sales force provide information about
performance of brands, sales trends and customers expectation.

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 iii) Other Report: It includes annual reports, financial statement, audit report, and other
special report as per requirement which provide useful information.

9.7.2 Marketing intelligence system

Marketing intelligence system is a set of procedures and sources used by managers to
obtain everyday information about pertinent developments in....the marketing
environment. It provides information about everyday happening in the marketing
environment. The information derived from MIS are collected from the following
sources:

i) Marketing Managers: They read books, newspaper, trade publication and even talk
with customers, suppliers, distributors to gather information.

ii) Sales force: They find and report new development in the market place and motivate
the organization for marketing intelligence purpose.

iii) Middlemen: They handle several products and usually know in advance about
competitor’s move.

iv) Specialists: They are appointed to gather marketing intelligence.

v) Outsourcing: Commercial detectives are hired to gather specific information. Data can
be purchased from research firm.

vi) Marketing Information section: It is a special section which scans the environment
and surf internet to gather information.

Activities 9.2
1. How can internal records be of value in decision making?
2. Explain how a marketer can carry out marketing intelligence and how he/she may use
the information obtained?

9.7.3 Marketing Decision Support System (MDSS)

Marketing decision support systems (MDSS) constitute a set of core applications of the
MkIS. The MDSS provides computer-based tools, models, and techniques to support the
marketing manager’s decision process. In the general case, MDSS is optimized for
queries of historical data. MDSS data typically are derived from both internal and
external market sources. The MDSS features inquiry and report generation functions
where the manager can access marketing data, analyze it statistically, and use the results
to determine an optimal course of action (Kachur, 2000).

Marketing Decisions Support System (MDSS) Functions

The MDSS can provide analytical models for forecasting, simulation, and optimization.
MDSS tools include simple spreadsheets such as Excel, statistical analysis packages such
as SPSS and SAS, on-line analytical processing (OLAP) tools, data mining applications,

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and neural networks. The MDSS provides the user with the ability to explore multiple
options. Typical MDSS functions include models and tools for:

1. Sensitivity analysis. Decision-makers can explore changes in a strategic variable such

as price and model its impact on demand or competitive behavior.
2. What-if analysis. Can be easily accomplished with a spreadsheet. Revenues and costs
can be manipulated to show the impact of each variable on profits and cash flows.
3. Goal setting. Analysis focuses on the desired result and builds the resource base
necessary to accomplish the goal.
4. Pareto analysis. Analysis looks for activities that generate disproportionate results.
For instance, the top 20 percent of customers may account for 80 percent of sales
revenues.
6. Forecasting models. Econometric models are used to analyze time series data for the
purpose of predicting future sales and market share levels.
7. Simulation models. Monte Carlo simulations address marketing decision making
under conditions of uncertainty. Variables such as the market price, unit variable cost,
and quantity sold are not known ahead of the product investment decision. Simulation
models allow the marketer to analyze risk and assess the probabilities of likely outcomes
of their decisions.

MDSS marketing uses

Marketers typically use MDSS models and tools to analyze markets, customers,
competitors, and internal operations (Hansen, 2000). The following list presents some of
the most common types of issues targeted by MDSS analyses.

1. Market segment analysis. Use omodeling techniques to identify segments and

analyze economic trends demographics and behavior.
2. Market share analysis. Analyze trends and determinants of market share.
3. Competitor analysis. Analysis of competitors’ market positions, economics customer
base, and marketing strategies.
4. Pricing analysis. Identifies and analyzes the factors that influence a firm’s ability to
set prices including price elasticity and demand analysis. Includes internal economics and
market related factors.
5. Cost analysis. Studies a firm’s overall cost structure and its impact on product cost.
Margin analysis combines cost analysis with pricing analysis. Variance analysis looks for
explanations of costs overages and under ages.
6. Sales analysis. Studies the distribution of a firm’s sales by region, product, brand,
sales territory, etc.
7. Sales forecasting. Develops estimates of sales potential by product, region, sales
territory, brand, etc.
8. Sales force productivity. Studies sales force effectiveness and efficiency and
contributing factors.
9. Advertising analysis. Analyzes advertising effectiveness, media choices and brand
awareness.
10. Distribution. Analyzes channel decisions from economic and strategic perspectives.
11. Simulation. Simulates decision making under various strategic scenarios.

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 12. Customer satisfaction. Analyzes issues concerning the customer’s expectations and
outcomes with the product.

Activities 9.3
1. Show how your company may use MDSS models and tools.
2. Why is MDSS models important component of MKIS?

9.7.4 Marketing research

Marketing research is the systematic design, collection, analysis, and reporting of data
and finding relevant to a specific marketing situation facing the company. It helps
organization to resolve the marketing problem through different alternatives. It is a tool
for identifying market opportunities and to minimize threats (Kotler and Keller, 2011).

The features of marketing research are given below:

i) Systematic: Marketing research is a systematic process which is properly planned and

implemented

ii) Objective: It is objective in collecting, analyzing, interpreting and reporting data.

iii) Problem oriented: It deals with specific marketing problems.

iv) Decision-Making: Marketing research ultimately aimed at helping the marketing

managers for decision making.

Marketing research process

1) Define the problem: Problem provides the foundation to marketing research; it

determines the scope of research. Thus it should be defined carefully neither too broadly
nor too narrowly. It should be defined in such a way, in which the researcher can find out
the core of the problem easily and the problem should not be mixed with symptoms. For
example: If the sales of Nepali garments decline due to high price, sales decline is a
symptoms and high price is the problem. Problem identification can be based on:

a) Literature review
b) Experience survey: Conversation with qualified persons inside and outside the
organization who possess knowledge and experience.

c) Case Study: Exploratory study of the organization to identify the problem.

d) Brainstorming: Ideas are generated spontaneously through group creativity.

Freewheeling is encouraged but criticism is disallowed.

2) Stating Research Objectives: Objectives of research is the important phenomenon

which specifies the information required for research. Thus it should be stated clearly.

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They also determine the research design. Objective should follow from the problem
defined for research hypothesis can be posed.

3) Developing Research plan: It is the research methodology for gathering the needed
information. It deals with the decision on:

a) Data Sources: It may be the primary and secondary data. Secondary data are collected
earlier for other purpose. It includes internal report of organization, book, government
publication etc. while primary data refers to data collected for the first time for a specific
purpose.

b) Research Methods; They are used for collecting primary data: they are:

• Survey: It involves direct questioning of people to gather facts, opinion and other
information.
• Observation: It is the process of collecting information by watching the action of
people on setting.
• Focus group research: It is the method of collecting information by gathering of
small group of 6 to 10 people who are invited to spend a few hours with a skilled
moderator to discuss the research problem.
• Experiment: It is the method of collecting data by lab or field experiment.
• Consumer panel: In such method a panel of group of people serves as subject of
survey.

c) Research Instrument: It may be the questionnaire or Mechanical instruments.

d) Sampling plan: Sampling is the process of selecting small units from the total
population for collecting data. It includes sampling unit, sample size and sampling
procedure.

e) Contact Method: This is the method of contact to respondent. This can be mail method,
interview or computer.

f) Analytical tool: It includes the statistical tools such as mean, regression, correlation,
variance for analyzing information.

4) Collection of Needed data: Collection of primary data involves field study. Skilled
personnel are used to collect data. Information is collected with recording the response of
interview questionnaires. The information should be usable and relevant.

5) Analysis of Data: It involves coding, tabulating and statistical analysis to analyze and
interpret the collected data objectively. Nowadays computer technology is used to
interpret the data effectively.

6) Report Finding: research finding are reported to the relevant clients in the form of
written report and oral presentations.

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 Activities 9.4
1. What is the difference between market research and marketing research?
2. Identify the stages of the marketing research process.
3. Carryout a market research of your organization.

9.8 Summary

The rapid adoption of Internet-based technologies and the attendant development of e-

business and e-commerce applications are having a revolutionary impact on the
marketing discipline. Marketing information systems, in particular, are being transformed
as these new technologies are enabling the integration of marketing, sales and customer
service activities. The primary drivers of this shift are the promises of delivering
increased value to the customer more rapidly and at less cost. Future implementations of
MkIS will increasingly involve the customer in the value creation process and work to
more effectively align the enterprise and its supply chain on rapidly changing market
opportunities

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Reference

Baker, Michael, (2008) The Strategic Marketing Plan Audit

Donnely, J.H. and Peter, P.J. (2009) Marketing Management Knowledge and Skills,
London: McGraw-Hill.

Drummond, G., Ensor, J. and Ashford, A. (2001) Strategic Marketing: Planning and
Control, Second Edition, Oxford: Butterworth, Heinemann.

Homburg, Christian; Sabine Kuester, Harley Krohmer (2009) Marketing Management - A

Contemporary Perspective (1st ed.), London.

Kotler, P. (2006) Marketing Management, Analysis, Planning, Implementation and

Control, 11th Edition New Jersey: Prentice Hall.

Kotler, P. and Keller. K. (2011), Marketing Management, 14th Edition, USA: Prentice
Hall Inc.
Hansen, W. (2000). Internet Marketing, Cincinnati, Ohio: South-Western Publishing.

Kachur, R. (2000). Data Warehouse Management Handbook. Paramus, N.J.: Prentice

Hall.

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 Unit 10

Environmental and Ethical Issues in Marketing

10.0 Introduction

Ethical marketing refers to the application of marketing ethics into the marketing process.
Briefly, marketing ethics refers to the philosophical examination, from a moral
standpoint, of particular marketing issues that are matters of moral judgment. Ethical
marketing generally results in a more socially responsible and culturally sensitive
business community. The establishment of marketing ethics has the potential to benefit
society as a whole, both in the short- and long-term. Ethical marketing should be part of
business ethics in the sense that marketing forms a significant part of any business model.

10.1 Objective

By the end of the unit, you should be able:

• describe environmental issues that affect marketing
• discuss ethical issues common in marketing.

10.2 Current environment issues in marketing

There are several environmental issues plaguing the earth which have gotten to be a
major concern today. Most of these come about as a result of various man-made activities
(Fry, and Polonsky). Common ones are as follows:

1. Global Warming
Global warming is one of the major issues that we are being faced with today. The term
signifies an increase in the atmospheric temperature near the earth's surface, which is
caused due to various reasons.
The causes are split up into two groups, man-made or anthropogenic causes, and natural
causes.

• Natural Causes
Natural causes are causes created by nature. One natural cause is a release of methane gas
from arctic tundra and wetlands. Methane is a greenhouse gas. A greenhouse gas is a gas
that traps heat in the earth's atmosphere. Another natural cause is that the earth goes
through a cycle of climate change.

• Man-made Causes
Man-made causes probably do the most damage. There are many man-made causes.
Pollution is one of the biggest man-made problems. Pollution comes in many shapes and

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sizes. Burning fossil fuels is one thing that causes pollution. Fossil fuels are fuels made of
organic matter such as coal, or oil. When fossil fuels are burned they give off a green
house gas called CO2. Also mining coal and oil allows methane to escape.

2. Ozone Depletion
The term ozone depletion implies a decline in the quantity of ozone in the earth's
stratosphere. Ozone depletion is caused by a group of manufactured chemicals,
containing chlorine and/or bromine. These chemicals are called "ozone-depleting
substances" (ODS).

3. Pollution
Pollution is something that we face on an everyday basis and comes in the following
forms:
Air pollution occurs with the addition of harmful chemicals into the earth's atmosphere.
The main pollutants of air are carbon monoxide, CFCs (Chlorofluorocarbons), nitrogen
oxides and sulfur dioxide.

Water pollution is caused when wastes are released into the water and contaminates it.

Soil pollution takes place when the soil is contaminated due to various industrial
activities.

Noise pollution occurs when the noise levels (honking, loud speakers, etc.) crosses the
normal decibel level. This can have a harmful effect on one's hearing and lead to more
severe after-effects, both physical and psychological (fatigue, irritation, stress, etc.).

4. Loss of Natural Resources

With the alarming rate of increase in population, the loss of natural resources has become
one of the major concerns. Issues like deforestation, animal extinction, shortage of water,
lack of space and food are only some of the concerns brought on by the lack of resources.
There are many reasons that lead to the loss of natural resources (increasing demands
brought on by population explosion, disregard for nature, human greed). This, in turn,
affects the varied ecosystems.

5. Nuclear Problems
Nuclear energy is generated from the splitting of uranium atoms. This energy is used to
create steam, which in turn is used to produce electricity. While there are definite
advantages of generating nuclear power, what stands equally true is the fact that the
process of producing the same harms the environment in many ways. The process of
converting uranium into usable energy produces radioactive waste which is extremely
harmful for human, animal and plant health at many levels.

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 6. Loss of Biodiversity
Biodiversity refers to the combination of a diverse range of species on earth. The varied
plants, animals and microorganisms, the different ecosystems (coral reefs, deserts, rain
forests, etc.) all have a unique role to play in the cycle of earth. These diverse species
lead to the boost of varied ecosystems, which thus enables them to prevent, as well as
recover from several disasters. However, due to varied human activities like
deforestation, and hunting, the natural habitats as well as the survival of several species
are being threatened.

7. Energy Crisis
The impact of energy on human life is probably only second to agriculture and forestry.
That having been said, the negative impact that energy, as a source, has on the
environment is quite far-reaching. Energy of any kind, may it be thermal, hydro, and
nuclear or electric has led to several environmental concerns.

8. Improper Waste Management

Wastes can be of several kinds (industrial, nuclear, chemical, domestic), and each can
lead to environmental degradation. From excessive plastic used at home to the
radioactive waste produced by nuclear plants, the impact can be disastrous.

Activities 10.1

1. Why is it important for a marketer to have a thorough understanding of current

environmental issues?
2. As a marketer how can you influence proper waste management in your company?
3. How can a company balance company interests and environmental issues?

10.3 Green Marketing

According to the American Marketing Association (2004), green marketing is the

marketing of products that are presumed to be environmentally safe. Thus green
marketing incorporates a broad range of activities, including product modification,
changes to the production process, packaging changes, as well as modifying advertising.
Green or Environment Marketing consist of all activities designed to generate and
facilitate any exchanges intended to satisfy human needs or wants, such that the
satisfaction of these needs and wants occurs, with minimal detrimental impact on the
natural environment.

10.4 Green marketing basics

For green marketing to be effective, consider the following:

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 • Balance environmental issues with primary customer needs. If customers aren’t
going to use environmental issues to gauge products and companies, and if
environmental initiatives are not going to drive a purchasing decision or brand
loyalty, green marketing isn’t going to be an effective use of the marketing
budget.
• The green marketing claims must be credible. Companies need to provide a level
of detail about the claims that make them meaningful, and be able to substantiate
those claims. Customers need to believe the claims for green marketing to be
effective.
• Green marketing must empower the customers. The green marketing message
must make customers feel that by using the product or service they will make a
difference.
• Overcome customers’ concerns about price and product performance. Educate
customers about the benefits the product or service provides, and provide
testimonials, case studies, or research reinforcing the performance and value
claims.

10.2 Activities
1. Identify environmental issues affecting your organization.
2. How can you help your organization to be environmental friendly?
3. How can your company promote green marketing?

10.4 Ethics in marketing

Ethics are moral guidelines which govern good behaviour. So behaving ethically is doing
what is morally right. Behaving ethically in business is widely regarded as good business
practice (Ferrel and Ferrel, 2005). An important distinction to remember is that behaving
ethically is not quite the same thing as behaving lawfully:
• Ethics are about what is right and what is wrong
• Law is about what is lawful and what is unlawful
An ethical decision is one that is both legal and meets the shared ethical standards of the
community.

According to Murphy, (2005) Ethics are a collection of principles of right conduct that
shape the decisions people or organizations make. Practicing ethics in marketing means
deliberately applying standards of fairness, or moral rights and wrongs, to marketing
decision making, behavior, and practice in the organization.

The purpose of marketing is to create a competitive advantage. An organization achieves

an advantage when it does a better job than its competitors at satisfying the product and
service requirements of its target markets. Those organizations that develop a competitive
advantage are able to satisfy the needs of both customers and the organization.

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10.5 Argument for ethical behaviour in marketing

As our economic system has become more successful at providing for needs and wants,
there has been greater focus on organizations' adhering to ethical values rather than
simply providing products. This focus has come about for the following reasons.
• When an organization behaves ethically, customers develop more positive
attitudes about the firm, its products, and its services.

• When marketing practices depart from standards that society considers

acceptable, the market process becomes less efficient and sometimes it is even
interrupted.

• Not employing ethical marketing practices may lead to dissatisfied customers, bad
publicity, a lack of trust, lost business, or, sometimes, legal action. Thus, most
organizations are very sensitive to the needs and opinions of their customers and
look for ways to protect their long-term interests.

• Ethical abuses frequently lead to pressure (social or government) for institutions

to assume greater responsibility for their actions. Since abuses do occur, some
people believe that questionable business practices abound. As a result, consumer
interest groups, professional associations, and self-regulatory groups exert
considerable influence on marketing.

10.6 Advantages of ethical marketing

• Ethical marketing will appeal to a wider audience

• You can avoid negative press and opinions
• Ethical marketing will lead to a more harmonious environment
• Visitors, clients, customers and guests appreciate ethical behaviour
• Ethical behaviour is positive for the company. And legal!
• You appear more professional and trustworthy
• It protects your reputation
• Others are more likely to recommend you
• You stand over out the ‘unethical’ competition
• Being ethical shows you care about more than money or business; you care about
doing things right

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10.7 Unethical Marketing Practices

10.7.1 Unfair or deceptive marketing practices

According to Hombury, et al, (2004) marketing practices are deceptive if customers
believe they will get more value from a product or service than they actually receive.
Deception, which can take the form of a misrepresentation, omission, or misleading
practice, can occur when working with any element of the marketing mix. Because
consumers are exposed to great quantities of information about products and firms, they
often become skeptical of marketing claims and selling messages and act to protect
themselves from being deceived. Thus, when a product or service does not provide
expected value, customers will often seek a different source.

Deceptive pricing practices cause customers to believe that the price they pay for some
unit of value in a product or service is lower than it really is. The deception might take
the form of making false price comparisons, providing misleading suggested selling
prices, omitting important conditions of the sale, or making very low price offers
available only when other items are purchased as well. Promotion practices are deceptive
when the seller intentionally misstates how a product is constructed or performs, fails to
disclose information regarding pyramid sales (a sales technique in which a person is
recruited into a plan and then expects to make money by recruiting other people), or
employs bait-and-switch selling techniques (a technique in which a business offers to sell
a product or service, often at a lower price, in order to attract customers who are then
encouraged to purchase a more expensive item). False or greatly exaggerated product or
service claims are also deceptive. When packages are intentionally mislabeled as to
contents, size, weight, or use information, that constitutes deceptive packaging. Selling
hazardous or defective products without disclosing the dangers, failing to perform
promised services, and not honoring warranty obligations are also considered deception.

10.7.2 Offensive materials and objectionable marketing practices

Marketers control what they say to customers as well as and how and where they say it.
When events, television or radio programming, or publications sponsored by a marketer,
in addition to products or promotional materials, are perceived as offensive, they often
create strong negative reactions. For example, some people find advertising for all
products promoting sexual potency to be offensive. Others may be offended when a
promotion employs stereotypical images or uses sex as an appeal. This is particularly true
when a product is being marketed in other countries, where words and images may carry
different meanings than they do in the host country.

When people feel that products or appeals are offensive, they may pressure vendors to
stop carrying the product. Thus, all promotional messages must be carefully screened and

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 tested, and communication media, programming, and editorial content selected to match
the tastes and interests of targeted customers. Beyond the target audience, however,
marketers should understand that there are others who are not customers who might
receive their appeals and see their images and be offended (Hombury, et al, 2005).

10.7.3 Direct marketing excesses

Direct marketing is also undergoing closer examination. Objectionable practices range
from minor irritants, such as the timing and frequency of sales letters or commercials, to
those that are offensive or even illegal. Among examples of practices that may raise
ethical questions are persistent and high-pressure selling, annoying telemarketing calls,
and television commercials that are too long or run too frequently. Marketing appeals
created to take advantage of young or inexperienced consumers or senior citizens
including advertisements, sales appeals disguised as contests, junk mail (including
electronic mail), and the use and exchange of mailing list say also pose ethical questions
(Murphy, 2005).

10.7.4 Unethical issues in marketing to children

Children are an important marketing target for certain products. Because their knowledge
about products, the media, and selling strategies is usually not as well developed as that
of adults, children are likely to be more vulnerable to psychological appeals and strong
images. Thus, ethical questions sometimes arise when they are exposed to questionable
marketing tactics and messages. For example, studies linking relationships between
tobacco and alcohol marketing with youth consumption resulted in increased public
pressure directly leading to the regulation of marketing for those products.

The proliferation of direct marketing and use of the Internet to market to children also
raises ethical issues. Sometimes a few unscrupulous marketers design sites so that
children are able to bypass adult supervision or control; sometimes they present
objectionable materials to underage consumers or pressure them to buy items or provide
credit card numbers. When this happens, it is likely that social pressure and subsequent
regulation will result. Likewise, programming for children and youth in the mass media
has been under scrutiny for many years.

10.7.5 Unethical issues in marketing to minorities

Markets are broken into segments in which people share some similar characteristics.
Unethical issues arise when marketing tactics are designed specifically to exploit or
manipulate a minority market segment (Murphy, 2005). Offensive practices may take the
form of negative or stereotypical representations of minorities, associating the
consumption of harmful or questionable products with a particular minority segment, and
demeaning portrayals of a race or group. Ethical questions may also arise when high-
pressure selling is directed at a group, when higher prices are charged for products sold to
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 minorities, or even when stores provide poorer service in neighborhoods with a high
population of minority customers. Such practices will likely result in a bad public image
and lost sales for the marketer.

Unlike the legal protections in place to protect children from harmful practices, there
have been few efforts to protect minority customers. When targeting minorities, firms
must evaluate whether the targeted population is susceptible to appeals because of their
minority status. The firm must assess marketing efforts to determine whether ethical
behavior would cause them to change their marketing practices.

10.7.6 Unethical issues surrounding the portrayal of women in marketing efforts

As society changes, so do the images of and roles assumed by people, regardless of race,
sex, or occupation. Women have been portrayed in a variety of ways over the years.
When marketers present those images as overly conventional, formulaic, or
oversimplified, people may view them as stereotypical and offensive.

Examples of demeaning stereotypes include those in which women are presented as less
intelligent, submissive to or obsessed with men, unable to assume leadership roles or
make decisions, or skimpily dressed in order to appeal to the sexual interests of males.
Harmful stereotypes include those portraying women as obsessed with their appearance
or conforming to some ideal of size, weight, or beauty. When images are considered
demeaning or harmful, they will work to the detriment of the organization.
Advertisements, in particular, should be evaluated to be sure that the images projected are
not offensive.

10.7.7 Unethical product and distribution practices

Several product-related issues raise questions about ethics in marketing, most often
concerning the quality of products and services provided. Among the most frequently
voiced complaints are ones about products that are unsafe, that are of poor quality in
construction or content, that do not contain what is promoted, or that go out of style or
become obsolete before they actually need replacing. An organization that markets poor-
quality or unsafe products is taking the chance that it will develop a reputation for poor
products or service. In addition, it may be putting itself in jeopardy for product claims or
legal action. Sometimes, however, frequent changes in product features or performance,
such as those that often occur in the computer industry, make previous models of
products obsolete. Such changes can be misinterpreted as planned obsolescence.

Ethical questions may also arise in the distribution process. Because sales performance is
the most common way in which marketing representatives and sales personnel are
evaluated, performance pressures exist that may lead to ethical dilemmas. For example,
pressuring vendors to buy more than they need and pushing items that will result in
higher commissions are temptations. Exerting influence to cause vendors to reduce

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 display space for competitors' products, promising shipment when knowing delivery is
not possible by the promised date, or paying vendors to carry a firm's product rather than
one of its competitors are also unethical.

10.7.8 Unethical conduct in research

Research is another area in which ethical issues may arise. Information gathered from
research can be important to the successful marketing of products or services.
Consumers, however, may view organizations' efforts to gather data from them as
invading their privacy. They are resistant to give out personal information that might
cause them to become a marketing target or to receive product or sales information.
When data about products or consumers are exaggerated to make a selling point, or
research questions are written to obtain a specific result, consumers are misled. Without
self-imposed ethical standards in the research process, management will likely make
decisions based on inaccurate information.

10.8 Does marketing over-focus on materialism?

Consumers develop an identity in the market place that is shaped both by who they are
and by what they see themselves as becoming. There is evidence that the way consumers
view themselves influences their purchasing behavior (Ferrel, 2004). This identity is
often reflected in the brands or products they consume or the way in which they lead their
lives.

The proliferation of information about products and services complicates decision

making. Sometimes consumer desires to achieve or maintain a certain lifestyle or image
results in their purchasing more than they need or can afford. Does marketing create these
wants? Clearly, appeals exist that are designed to cause people to purchase more than
they need or can afford. Unsolicited offers of credit cards with high limits or high interest
rates, advertising appeals touting the psychological benefits of conspicuous consumption,
and promotions that seek to stimulate unrecognized needs are often cited as examples of
these excesses.

Activities 10.3
1. What does the organization gain by being ethical in its marketing?
2. Identify the don’ts in marketing ethics.
3. Apply the Marketing Mix to identify unethical marketing practices the company
should avoid.
4. Is there any difference between ethical issues and legal issues?

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10.9 Summary

Because marketing decisions often require specialized knowledge, ethical issues are often
more complicated than those faced in personal life and effective decision making requires
consistency. Because each business situation is different, and not all decisions are simple,
many organizations have embraced ethical codes of conduct and rules of professional
ethics to guide managers and employees. However, sometimes self-regulation proves
insufficient to protect the interest of customers, organizations, or society. At that point,
pressures for regulation and enactment of legislation to protect the interests of all parties
in the exchange process will likely occur.

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Reference

American Marketing Association, (2004). What Are The Definitions of Marketing and
Marketing Research?, available at
http://www.marketingpower.com/content4620.php, accessed 14 January 2013.

Ferrell, O.C. (2004). “Business Ethics and Customer Stakeholders.” Academy of

Management Executive, Vol. 18, No. 2, 126-129.

Ferrell, O.C. and L. Ferrell. 2005. “Ethics and Marketing Education.” Marketing
Education Review.

Fry, M. and M.J. Polonsky. (2004). “Examining the Unintended Consequences of

Marketing,” Journal of Business Research, Vol. 57, 1303-1306.

Homburg, C., H. Krohmer, and J.P. Workman. (2004). “A Strategy Implementation

Perspective of Market Orientation,” Journal of Business Research, Vol. 57, 1331-
1340.

Murphy, P.E., G.R. Laczniak, N.E. Bowie, and T.A. Klein. (2005). Ethical Marketing,
Upper Saddle River, N.J: Pearson Prentice-Hall.

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