EBZ1004

Business
Fundamentals
Topic 3
Marketing
Fundamentals 3-1
 Outline
 3a Consumer Buying Process
 3b Define Marketing
Business
Target Marketing
Marketing Mix
 3c Define Product
Product Line
Product Mix
 3d Product Development Cycle
 3e Product Life Cycle (PLC)
 3f Distribution Methods
 3g Break Even Analysis 3-2
Business Components of the Marketing Plan

Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-3
Inc. Publishing as Prentice Hall
 3a. Understanding Consumer Behavior

• Consumer Behavior
– study of the decision process by which people
Business
buy and consume products
• Psychological Influences
– include an individual’s motivations,
perceptions, ability to learn, and attitudes that
marketers use to study buying behavior
• Personal Influences
– include lifestyle, personality, and economic
status that marketers use to study buying
behavior

Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-4
Inc. Publishing as Prentice Hall
 Understanding Consumer Behavior
(cont.)
• Social Influences
– include family, opinion leaders (people
Business
whose opinions are sought by others),
and such reference groups as friends,
coworkers, and professional associates
that marketers use to study buying
behavior
• Cultural Influences
– include culture, subculture, and social
class influences that marketers use to
study buying behavior
Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-5
Inc. Publishing as Prentice Hall
 Understanding Consumer Behavior
(cont.)
• Brand Loyalty
– pattern of regular consumer
Business
purchasing based on satisfaction
with a product’s performance

Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-6
Inc. Publishing as Prentice Hall
 3a. Consumer Buying Process

• Evoked Set (or Consideration Set)

– group of products consumers will
consider buying as a result of
Business

information search
• Rational Motives
– reasons for purchasing a product that
are based on a logical evaluation of
product attributes
• Emotional Motives
– reasons for purchasing a product that
are based on nonobjective factors
Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-7
Inc. Publishing as Prentice Hall
Business Consumer Buying Process (cont.)

Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-8
Inc. Publishing as Prentice Hall
 Social Media and Marketing

• Social Networking
– network of communications that flow
Business
among people and organizations
interacting through an online platform
• Social Networking Media
– websites or access channels, such as
Facebook, Twitter, LinkedIn, and
YouTube, to which consumers go for
information and discussions
Watch this video to find out more about Social Media Marketing.

Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-9
Inc. Publishing as Prentice Hall
 Social Media and Marketing (cont.)

• Viral Marketing
– type of marketing that relies on the
Business
Internet to spread information like a
“virus” from person to person about
products and ideas
• Corporate Blogs
– comments and opinions published on
the Web by or for an organization to
promote its activities

Copyright
Copyright © 2012
© 2015 Pearson
Pearson Education,
Education Limited. 11-10
Inc. Publishing as Prentice Hall
 3b. Define Marketing

1. Simple version: “Meeting needs profitably”. (Kotler,

2006)
Business

2. Simple version: Deals with identifying and meeting

human and social needs. (Kotler, 2006)

3. Complete Definition: Marketing (Management) is

the art and science of choosing target markets and
getting, keeping and growing customers through
creating, delivering, and communicating superior
customer value. (Kotler, 2006)
3-11
 Target Marketing
• Target Marketing
– The process of identifying, evaluating each
Business
market segment’s attractiveness and selecting
one or more segments to enter profitably.

• Target marketing involves 3 steps:

1. Segmentation (Separating)
2. Targeting (Choosing)
3. Positioning (Offering)

3-12
 Segmentation

• Segmentation - Dividing a market into smaller

Business
segments with distinct needs, characteristics, or
behaviour that might require separate marketing
strategies.
• Classification of variables or
• Types of Segmentation:
– Demographic
– Geographic
– Psychographic
– Behavioural
3-13
 Segmentation
Demographic segmentation – Dividing a market
into segments based on variables such as age,
Business
gender, family size, family life cycle, income,
occupation, education, religion, race, generation,
and nationality.

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 Segmentation

Psychographic segmentation – Dividing a market

Business
into different segments based on social class, life
style and personal characteristics like opinions,
interests, attitudes.

3-15
 Segmentation

Behavioural segmentation – Dividing a market into

Business
different segments based on occasions, benefits
sought, user status, usage rate, buyer readiness,
loyalty status and attitude.

3-16
 Targeting

• Targeting – the process of evaluating each market

segment’s attractiveness and selecting one or
Business
more segments to enter.

• Factors to consider during evaluation:

– Segment size and growth rate vs. company size
and resources.
– Number of and strengths of competitors.
– Number of substitutes.

3-17
 Positioning
• Positioning – Arranging for a product offering to
occupy a clear, distinctive and desirable place
Business
relative to competitors, in the minds of target
consumers.
• Involves product differentiation along the lines of
product, services, channels, people or image.

3-18
 Product Positioning of
Compact Passenger Cars
High
BMW
Nissan
Volkswagon Honda
Business

Power
Low

Toyota

Suzuki

Fuel
Consumption

3-19
 Marketing Mix
• Marketing Mix – the Can you identify the
combination of 4P’s. 4P’s in the
Business
advertisement ?
1. Product
2. Price
3. Place
(Distribution)
4. Promotion
(Communications)

3-20
 3c. Product
• Product – a physical good, a
service or an idea that is
Business
marketed to fulfill a need or a
want.
• Product is often the main
contributor to value.
• Value Package – a bundle of
product features and benefits at a
reasonable cost.
• E.g. making purchase transaction
faster and more convenient.

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 Product
• Benefits can be:
Tangible
Business
Benefits
– Tangible: can be
clearly seen and
touched to exist.

– Intangible: that
Intangible Benefits:
exists but that is Help
Smiles & Courtesy
difficult to describe, With
Claim
understand or Form
measure.
3-22
 Product Line and
Product Mix
• Product Line - a broad group of products, intended
for similar uses and having similar characteristics.
Business

• Product Mix - set of all products offered for sale by

a company.

• A product mix has two dimensions:

– Breadth - the number of different product lines
carried.
– Depth - the variety of sizes, colours, and models
offered within each product line.

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 Product Line and
Product Mix
Business
BREADTH (Three Different Product Lines)
PC’s TV’s Furniture

Desktops LCD TV Sofa

Notebooks LED TV Beds

Netbooks Plasma TV Wardrobe

Various sizes
Each in various Each in various and prices
sizes and prices sizes and prices with different
materials
3-24
 Product Line and
Product Mix
One
Product
Business
Line

Desktops LCD TV Sofa

Notebooks LED TV Beds

Netbooks Plasma TV Wardrobe

Various sizes
Each in various Each in various and prices
sizes and prices sizes and prices with different
materials
3-25
 Product Line and
Product Mix
Business
BREADTH (Three Different Product Lines)
PC’s TV’s Furniture

Desktops LCD TV Sofa

Notebooks LED TV Beds

Netbooks Plasma TV Wardrobe

Various sizes
Each in various Each in various and prices
sizes and prices sizes and prices with different
materials
3-26
 Product Line and
Product Mix
• Draw a product matrix for Air Asia with at least 3
product lines.
Business
BREADTH (Three Different Product Lines)
Air Ticket Hotels Car Rentals
First Class 4-5 Stars Bus/Van
Business Class Budget SUV
Economy Class Apartments Limousine

3-27
 New Product
Development Process
No. Stage What Happens?
1 Product Ideas Search for ideas. Can come from customers, sales
force, R&D (Research & Development) team or even
Business
suppliers.
2 Ideas Screening Eliminate ideas that are not aligned to firm’s
objectives, experiences or resources.
3 Concept Testing Market research to verify consumer needs and check
if product can meet those needs.
4 Business Analysis Gather and compare manufacturing costs against
expected selling price to verify profit level.
5 Prototype Design & By R&D team mainly. Can be extremely costly and
Test time consuming. Competitors often try to outdo each
other here.
6 Test Marketing Introduced to limited group of customers as trial and
to gather feedback from a larger sample size.
7 Commercialization Full scale production and marketing with heavy
promotion.
3-28
 New Product
Development Process
Number of Product Ideas
No. Stage
Starts With
1 Product Ideas Initially Many
Business
Much
2 Screening
Lower

3 Concept Testing $
$$
$$$$
4 Business Analysis
$$$$$$ Ends
$$$$$$$$ With
Prototype Design & $$$$$$$$$$ Very
5
Test $$$$$$$$$$$$$$$ Few
$$$$$$$$$$$$$$$$$$$ or
6 Test Marketing
But even
Increases just
7 Commercialization Quickly 1
Cost of Implementation 3-29
Per Idea & Risk Level
 New Product
Development Process
• Starts with many ideas at stage one and
more and more get eliminated after each
Business
stage.

• This is necessary as the cost of

implementing the next stage (per idea) is

Implementation
always higher than that of the previous

Cost of
stage.

& Risk
• Yet there is also a need to have a backup
(contingency) plan. So firms need to strike a
balance.
3-30
Business 3e. Product Life Cycle

3-31
 Product Life Cycle
Stage Introduction Growth Maturity Decline

Example Commercial Space Mobile Phones Disposable Razors Land-line Phones,

Flights Film Cameras

Sales Very low Climbs Flat Drops

Business
Costs Heavy due to need for Still high due to heavy Less development Almost no
product development promotions to fend off costs but promotions promotions costs.
and promotions competition. still needed.

Profits None or loss making. Breaks even and Declining Towards zero.
growing profit

Product Focus on few models Expand product depth Introduce new Defocus existing
Strategy with high quality first. or width and seek to product to replace product. Focus on
reduce costs of matured existing new product. Use
materials. product. extension strategies

Pricing Penetration or Reduce price slightly. Reduce price heavily Maintain or even
Strategy Skimming to compete. increase if most
competitors are not
supplying any more.

Distribution Few and selected More channels and Maximised to capture Reduced to Selected
Strategy channels. territories are added. market share. channels.

Promotional Raise awareness. Show why better than Reminders and sales Reduce or end
Strategy Encourage trial. competitors. promotion special promotion plans.
3-32
Develop right image deals.
 Product Life Cycle

• What factors influence the length of the MATURE

phase?
Business

1. Product Type
1.
2. _____________________
Levels of Competition
2.
3. _____________________
Marketing Support
3.
4. _____________________
Customer Taste
4. _____________________

• Watch this video to find out and fill in the blanks

above and in the next 2 slides.
3-33
 Product Life Cycle

• What are the 3 options during the DECLINE

phase?
Business

1. Withdraw Product
1. _____________________
2.
2. Wait for Competitors
_____________________to Withdraw
3.
3. Extension Strategies
_____________________

3-34
 Product Life Cycle

• What are 3 product extension strategies?

Business
1.
1. _____________________
Lower prices (demand must be price
2. elastic and no price war induced)
_____________________
3.
2. _____________________
Aggressive sales promotion

3. Target a new market segment

3-35
 Product Life Cycle
• Tutorial - What happened to KODAK?
Read the article “Kodak: Fade-out, the history” – The Straits
Business
1. _____________________
Times dated 26/01/2012 and identify these business issues.
2. Analog
1. _____________________
to digital brought new competitors.
2.
3. Fear of cannibalisation of film business.
_____________________
3. What business are we in?
4. Customer needs: To print or view photos?
5. Strategy: Is film still needed?
6. Product Life Cycle for a Company.
7. Impact of Technology in PEST, Threat and Opportunity in
SWOT.
3-36
 3f. Distribution Methods
(Place)
• Distribution Mix – Combination of
distribution channels by which a firm gets
Business

products to end users.

3-37
 Distribution Mix
Intermediaries
Business

Indirect
Distribution

3-38
 Distribution Mix
Intermediaries
Business

Producers’ own firm

Usually
Independent
Independent
retailer
Wholesaler 3-39
 Direct Distribution
• Channel 1: No Intermediaries

• Producer uses own sales force

Business

• Common among:
– small businesses like laundry, car
washes, home cleaning
– internet based businesses like
fashion blogshops
– Others like tuition centres, 2nd
hand car dealers
– Certain industrial products.
3-40
 Direct Distribution
Advantages:

•No middle-man mark up, so more

Business
competitive (lower) pricing.
•Direct control on promotions.
•Direct contact with customers for price
negotiations and gathering feedback.

Disadvantages:
•Limited resources for logistics, value
added services (e.g. hire purchase,
promotions like advertising.)

3-41
 Indirect Distribution
• Intermediary (a.k.a. Middleman) –
Individual or firm that helps to
Business
distribute a product.
• Roles of an intermediary:
– Helps to promote the products.
– Provides logistics to move them to
the next intermediary or end
consumer.
– Provides additional services like
display, delivery, additional
warranty, hire purchase.
3-42
 Distribution Mix – Intermediaries
• A company must decide the type and
number of intermediaries it needs:
Business
• Wholesaler
– Intermediary who sells products in large
quantities to retailers for re-sale.
– Usually a firm independent of (unrelated
to) the manufacturer.
• Retailer
– Intermediary who sells products directly
to consumers of the products.
– Can be part of manufacturer’s firm or an
independent firm.
3-43
 Distribution Mix – Intermediaries
• Channel 2: Retail Distribution
• Retailer can be:
Business

– Part of manufacturer’s firm. E.g.

Swatch, Levi’s.
– Independent retailers. These are
usually the larger retailers or
those dedicated to that type of
product so they can sell more.
– Levi's Singapore has both.
– (http://levi.com.sg/sg/storelocator?loc=AUTHORISED%20
RETAILERS)

3-44
 Distribution Mix – Intermediaries
• Channel 3: Wholesale Distribution
• Used when products require:
Business
– large and expensive floor space
for storage that manufacturers
do not want to pay for.
– Special or expensive import
license that implies cost savings
with just one importer to act as a
wholesaler.
• Wholesaler eventually sells to end
users through independent
retailers. 3-45
 Brokers
• Broker - is an intermediary who brings
buyers & sellers together.
Business
• May assist in negotiation but finally seller
sells to buyer directly.

• Does not buy and resell so does not make a

margin.

• Usually takes commission from buyer and/or

seller.

• Do not necessarily represent a specific

brand or seller.

• E.g. real estate, independent insurance

broker, security-stock-shares brokers.
Copyright 2005 Prentice- Hall, Inc.
3-46
 Agents
• Agent: usually appointed by the
manufacturer, or the agent wins the bid on
a more permanent basis.
Business

• It represents the seller and gives after-sale

service with the support of the seller. (e.g.
industrial equipment.)

• They may
– buy and resell or
– take commission.

• Usually represents just a few brands.

• E.g. Travel agents for airline tickets.
Copyright 2005 Prentice- Hall, Inc.
3-47
 Indirect Distribution
Advantages:

•Additional resources for logistics and other

Business
value added services (display, ready stock,
hire purchase etc.)
•Stronger and wider promotions like
advertising and sales force.

Disadvantages:

•Mark up inflates end user buy prices.

•Less control and less direct communications
with end users.
•Channel conflict. Eg. Harry Potter in M’sia.
3-48
 Apple’s Distribution
Let us take a look at how Apple distributes in
Singapore.
Business

Apple's Distribution Network in Singapore

Apple Premium Resellers Apple Resellers

Authorised
Resellers

3-49
 3g. Break Even Analysis
Koi Café is undecided between 2 locations to set up a
new branch:
Business

Location Hougang Ion Orchard

Shop Rental $1000/mth $4000/mth

Selling Price $2/cup $5/cup

Assume cost is $1/cup and they can sell 1000 cups

per month, which location should it choose?

3-50
 Scope for Today

• What is Break Even Point?

Business
• The 2 Methods of Calculating BE
Point.
– Equation Method
– Contribution Method
• Applying BE.

3-51
 Break Even In
Simple English
Any business will incur some initial investment (e.g. rental) up
front before they start selling the first product or acquire the first
customer. So, they typically start by losing money and incurring
Business
losses!

However, those who hang on there will sell more quantity and the
profit they make will help to pay off those initial cost they invested
earlier.

There will come a point where the profits they make is just
enough to recover the initial investment. We call this BREAK
EVEN point.

After that, if they can sell even more, the profits will start rolling in
and that is where the business has succeeded to some extent!
3-52
 What is Break Even Point?

It can be the quantity of units sold where the business

Business
is no longer making a loss, neither is it making a profit
yet. It is the quantity or units sold where profit = 0.

It can also be time based, e.g. how many months.

Now, recall: Profit = Total Revenue – Total Cost

So, during break even when Profit = 0, then:

Total Revenue = Total Costs
3-53
 Total Revenue
• Selling Price or Unit Selling Price
– The price per unit that the seller charges.
Business
– Assumed to be the same for every unit.

Total Revenue (TR)

= Total Quantity (Q) x Selling Price
TR = Q x SP
• Total Revenue is sometimes also called Sales or
Total Sales or Turnover
• Quantity is cumulative, not per transaction.
3-54
 Total Cost

Total Costs consist of:

Business

• Fixed Costs
• Variable Costs

Total Costs
= Total Fixed Costs + Total Variable Costs

3-55
 Fixed Costs

• Fixed costs are costs that must be incurred even

Business
before getting the first customer or getting the first
sale. They are incurred only once.

• Fixed costs remains fixed at the same level and

does not increase regardless of number of
customers or quantity sold.

• Fixed costs are a constant for a given period.

3-56
 Fixed Costs
• The period can be life time or for a fixed period.
Business
1. Fixed costs incurred once in a life time can be the
initial investments needed to start a business.
E.g. land, property, renovations.

2. Fixed costs incurred repeatedly for a fixed period

of business cycle are also known as overheads.
E.g. rentals, salaries which are usually paid
monthly.

3-57
 Fixed Costs
• Fixed costs for different periods.
Business
Period Examples

For Life Building purchase, renovations, furniture, fixtures

Time and fittings, heavy machines.
Yearly Insurance, tax, seasonal expenses like corporate
gifts.
Monthly Office rentals, utilities, management salaries.

Weekly Vehicle rental.

Daily Taxi driver’s daily rental fee, wages for daily

rated workers.
3-58
 Variable Costs
• Variable Cost or Unit Variable Cost
– Cost of producing one unit.
Business

– Assumed to be the same for every

unit.
Total Variable Cost (TVC)
= Total Quantity (Q) x Variable Cost (VC)

TVC = Q x VC
3-59
 Equation for Break Even

Total Revenue = Total Costs

Business

TR = TC
TR = TFC + TVC

Where:
Q = BE Quantity, TFC = Total Fixed Cost
SP = Selling Price, VC = Variable Cost
3-60
 Break Even Point
An Example
A hair salon is specialising in hair colouring:
Business
• Variable Cost ( Dye to color hair) = $5 / client

• Fixed Cost (Rental, utilities, labour..) = $60,000/month

• Price of colouring hair = $20 / client

• Monthly Break Even Point = ?

• i.e. How many clients must it have before it starts

making profit?

3-61
 Method 1 – Equation
During Break Even,
Total Revenue = Total Cost
Business

Let the BE Qty = Q,

20Q = 60,000 + 5Q
20Q = 5Q + 60,000
=> Q = 60,000/15 = 4,000

3-62
 Equation Method - Check
At BE Qty of 4,000,
Total Cost = Total Fixed Cost + Total Variable Cost
Business
= Total Fixed Cost + (BE Quantity x Variable Cost)
= $60,000 + (4,000 x $5) = $60,000 + $20,000
= $80,000

Total Revenue = BE Quantity x Selling Price

= 4000 x $20 = $80,000

Total Cost = Total Revenue (Break Even!)

3-63
 Calculating Profit / Loss
Recall:
Business
Profit = Total Revenue – Total Costs
= TR – TC
= TR – (TFC + TVC)

Profit = Q x SP – (TFC + Q x VC)

A negative value for profit implies a loss.
3-64
 Break Even Graph
(For Reference Only, Non-Examinable)
$
$120,000
$ (TR)
= $30,000
Business
$90,000

$70,000 (TC)

(TFC)
= $30,000

$30,000
Total variable costs
(TVC)

Number of Clients

3-65
 Method 2 – Contribution Method
• Profits earned “contribute” towards
recovering fixed cost.
Business
• Contribution = Sale Price – Unit Cost
= $20 - $5 = $15
• We achieve Break Even (BE) when entire
fixed cost is recovered using total
contributions from BE Qty.
• Fixed Cost = BE Qty x Contribution
=> $60000 = BE Qty x $15
=> BE Qty = ($60000) / $15 = 4000

3-66
 Application of BE

• As a decision making tool, it helps us understand

the impact on break even point and profits due to
Business
changes in:

1. Fixed costs like office space rental.

2. Variable cost like raw materials.
3. Selling price.

• For equipment, should we buy (fixed cost) or rent

as and when needed (variable cost)?

3-67
 Review
 3a Consumer Buying Process
 3b Define Marketing
Business
Target Marketing
Marketing Mix
 3c Define Product
Product Line
Product Mix
 3d Product Development Process
 3e Product Life Cycle (PLC)
 3f Distribution Methods
 3g Break Even Analysis 3-68