Marketing (ICSA Diploma in Business Practice)

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MARKETING

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ibam Diploma in Business Practice

Marketing JILL VERSTAGE

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Published by ICSA Publishing Ltd 16 Park Crescent London W1B 1AH © ICSA Publishing Ltd 2005 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form, or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission, in writing, from the publisher. Typeset by Fakenham Photosetting Limited, Fakenham, Norfolk British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. ISBN 1–86072–297–2

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Contents Acknowledgements How to Use this Study Text Studying for the ibam Certificate and Diploma in Business Practice The Marketing Syllabus Syllabus Overview Acronyms and Abbreviations PART ONE Marketing: an overview 1

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Marketing in context 1 Marketing defined 2 The nature of marketing 3 The marketing process 4 Marketing in different organisations 5 The development of the marketing approach 6 The marketing mix The marketing domain 1 The marketing environment 2 Analysing the external environment – PESTLE 3 Social and ethical considerations 4 Market segmentation

PART TWO Market Identification 3

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Marketing intelligence 1 Information and research 2 Sources of information 3 Reliability 4 Marketing research process 5 Marketing information systems International marketing 1 Reasons for entering international markets 2 Methods of entering international markets 3 Assessing international markets 4 The international marketing mix

vi vii x xiv xx xxv

1 3 3 4 6 8

PART THREE The Marketing Mix 5

6

7

12 14 19 19 21 25 29

PART FOUR Marketing Communications 8

37 39 39 42 50 51 53 56 56 57 60 63

Product 1 The nature of the product 2 Branding 3 Product life cycle 4 Product positioning 5 New product development Price 1 Pricing in different markets 2 Influences on price 3 Approaches to pricing Distribution 1 The importance of distribution 2 Distribution channels 3 The role of intermediaries 4 Physical distribution 5 Distribution strategies 6 Selection of channels 7 The impact of the internet

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Buyer behaviour 1 Decision-making process 2 Types of buying situation 3 Influences on the buying decision 4 Diffusion of innovation 5 Buying behaviour in organisational markets 6 Stakeholders Promotion 1 Marketing communication 2 Advertising 3 Sales promotion 4 Personal selling 5 Direct marketing and exhibitions 6 Public relations and sponsorship 7 Internet marketing 8 Deciding the promotional mix

69 71 71 74 77 80 83 89 89 92 98 105 105 106 109 112 113 114 118

123 125 125 128 129 134 135 137 139 139 142 146 150 152 154 158 160

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CONTENTS

PART FIVE Strategy and Planning

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10 Strategies and planning 1 A framework and mission 2 The competitive position 3 Product analysis 4 Setting objectives 5 Growth strategies 6 Control and evaluation 11 Marketing planning 1 The marketing planning process

165 165 169 171 174 177 182 184 184

2 Situation analysis 3 Objectives 4 Marketing strategies 5 Control and evaluation 6 A promotional plan Suggested Answers to Practice Questions Sample Examination Paper and Suggested Answers Glossary Directory Index

185 188 189 192 195 201 218 228 232 233

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How to Use this Study Text

All ibam study texts developed to support ibam’s Certificate and Diploma in Business Practice follow a standard format and include a range of navigational, self-testing and illustrative features to help you get the most out of the text. Each study text is divided into three main sections: ● introductory material ● the text itself, divided into parts and chapters ● additional reference material What follows shows you how to find your way around the text and make the most of its features.

Introductory material The Studying for the ibam Certificate and Diploma in Business Practice section gives an overview of the two programmes, how they fit into ibam’s suite of qualifications, recommended study routes and guidance on the examinations. We recommend that you read this before starting on the text itself, and

again as you approach revision and the examination itself. It is followed by the detailed module syllabus and an extended syllabus overview, which gives a more detailed outline of the syllabus, highlights key topics and concepts and provides guidance on how best to approach the module and guarantee success in the examination. Where relevant, the introductory section may also include other material such as a list of acronyms or list of legal cases.

The text itself Each text part opens with a list of chapters, an overview of the topics covered and learning outcomes specific to that part. This should help you break the material down into manageable sections for study. Part openings also include a case study which will be used as a business scenario throughout the part to test understanding and help apply theory into practice.

Best Practice: Stakeholder Relations



Demonstrate the exceptions to the basic assumption that the liability of directors and shareholders is limited;



Compare and contrast limited companies, limited liability partnerships and partnerships; Describe the role of shareholders;

  

Contents 1 2 3

Company directors Company shareholders and officers Employees and employment legislation

Overview A good start for anyone studying business or company law is a full understanding of the roles and responsibilities of the parties involved - the stakeholders – and the relationships between them. In chapter one, we look at the directors of the company, their powers and the risks they take. From there we move on in chapter two to examine the shareholders, who they are and how their role differs from the directors. Chapter two also looks at the roles and responsibilities of the other company officers, such as the company secretary and the auditor. In chapter three we move on to examine the legal position of the employees based on current legislation. Some of you may have experience of this area of the law and how complex it can be. We will focus on the interactions between employees and third parties, examining the relationship, responsibilities and something called vicarious liability. We will also examine when an employer could be held liable for the acts of an employee. Chapter three also investigates the relatively new area of law: whistleblowing We will look at the legal consequences of the Public Interest Disclosure Act 1998, its implications and effectiveness, looking at the recent case decisions.

Learning objectives    

By the end of part one you should be able to:Describe the relationships between all stakeholders in a corporate situation, including directors, shareholders, company officers and employees; Describe the different types of directors, explain their roles and how they are appointed and removed Discuss the role of the Memorandum and Articles, including the ultra vires concept; Compare and contrast the roles of shareholders and directors;



PART ONE

Differentiate between shareholders and directors; Discuss the roles of company officers including company secretary, auditor and accountant; Apply case law and statute where appropriate.

CASE STUDY

Squash Strings Ltd is a small company that specialises in the production of squash racquets to individual specifications. Their market is the Senior’s Squash Tour plus one or two up and coming young professionals who have not yet managed to obtain individual sponsorship deals. Tim and Roger Davis are directors of the company, along with Greg Mottram, who has recently been appointed production director. Tim’s wife, Susan, is the company secretary. The shareholders are Tim, Greg, Roger and Susan, all owning 25% each. The company employs four staff, all on the production of racquets. All the employees have signed confidentiality agreements as Tim and Roger feel that their product is manufactured in a unique manner and this is their key advantage in the market. Tim and Roger are ex-professional squash players, having won numerous events during their careers and use their contacts within the game to sell their products. During a recent tournament in Florida a string snapped and hit the star player, James McArgue, in the eye. James had only recently joined the tour, having retired from the professional tour five years ago, following a very successful career which included many wins at top tournaments around the world. The

organisers of the tour, Senior Executives, had been hoping that James’s presence on the tour would have a positive effect on attendances and sponsorship. The early signs had been good, with attendances up 15% and sponsorship and potential future event enquiries also increasing. Since James’s injury attendances have started to slip back to previous levels and enquiries have slowed down. After extensive, and expensive, medical treatment and opinion, it now appears that the accident may well have finished James’s career. It is being claimed that the incident occurred because of a production error at the factory of Squash Strings Ltd. An employee, Stuart Green, has approached Tim and informed him that he intends to tell the press that the production process at the factory is flawed and that Tim and the company have ignored his previous warnings. In fact in his last report to Tim he actually speculated on the possibility of a piece of string becoming detached and hitting a player in the eye. Companies House has also written to Susan threatening to have the company struck off because they have not submitted their annual accounts to them for the last three years.

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How to Use this Study Text

Every chapter opens with a list of topics covered and an introduction to what follows.

Features The text is enhanced by a range of illustrative and self- testing features to assist understanding and to help you prepare for the examinations. Each feature

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is presented in a standard format so that you will become familiar with how you can use them in your study. Each chapter ends with a summary, and each part with a series of practice questions based on the kind of questions you will face in the exams. Answers to the practice questions are given at the end of the text.

PART ONE Best Practice: Stakeholder Relations

Although it is usually the board that recommends the appointment of directors, a company’s Articles may also permit shareholders to propose the appointment of a director. In this case, Table A (Arts 76-79) requires specific information to be provided to the company within set time limits. Table A also requires 21 days notice of the meeting to be given to the members. A director is appointed, therefore, by being: ● named in the statement of directors when the company is formed ● individually appointed by ordinary resolution of the company in general meeting ● appointed by the existing board to fill a casual or new vacancy until the next AGM. A person cannot be appointed as a director without their consent, which is given by signing statutory form 288a.

Test yourself

1.4

(a) In a meeting of a board of directors, who has the casting vote? (b) How are directors appointed by: the board the members?

1.1

Putting the case

Q

From the Squash Strings Ltd case study, what type of directors are Tim, Roger and Greg? What are the implications of your answer?

A

It would appear that each of them are executive directors, they are all involved in the day to day management of the company. This means that they are responsible for the management of the company, although through the corporate veil

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they are not personally liable. Their powers will be described in the Articles of Association. The company does not appear to have any nonexecutive directors and there would appear to be no need for alternate directors. The Memorandum of Association will also state how many of the directors are needed to form a quorum. With only three directors appointed, one might expect the Articles to state that all three must be present at any meeting, in which case the quorum is three.

Powers of directors

Test Yourself Short, revision-style questions to help you re-cap on core information and concepts.

Putting the case Short questions, plus answers, based on the part opening case, designed to help you apply theory in practice.

7.1 Directors powers – generally

general meeting A meeting of the company’s shareholders (members).

As we have seen, directors’ powers, individually and collectively, are set down in the Articles of Association. The directors are responsible for the day to day running of the company and typically they will have the authority to undertake anything that is not required to be done by shareholders in general meeting. Once awarded the powers belong to the board and cannot then be exercised by the members. In practice this means that members cannot overrule a board decision.

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Marginal definitions Marginal definitions explain key terms and concepts.

PART ONE Best Practice: Stakeholder Relations

quoted (listed) public company A company whose shares are traded on a recognised investment exchange.

In summary, companies limited by shares can be categorised as follows: Public: Market/quoted or listed Off-market Private: All off market These distinctions are important because legislative and regulatory requirements can be different for private companies as opposed to public companies or even public as opposed to listed public companies. For example, only private companies can benefit from filing abbreviated accounts (see Chapter 8) and the corporate governance reporting requirements are more onerous for listed public companies (see Chapter 4).

1.3 How many directors? CA 1985 sets out the minimum number of directors a company must have. For a public limited company the minimum is two, and for a private limited company there must be at least one. (s.282 CA 1985). It is important to remember that these are minimum numbers and many companies exceed these numbers by merely stating so in their Articles of Association. Table A states that all companies will have a minimum of two directors, although, naturally this can be amended specifically by the company. Art.73 Table A states that all directors must retire by rotation, which means that at each annual general meeting (AGM) a number of directors (one third or the nearest whole number) will have to retire or stand for re-election by the members (see section 9.4 below).

Test yourself

1.1

What is the significance of the outcome of Salomon v Salomon & Co Ltd 1897?

Making it work Making it work examples use real-life scenarios to illustrate and bring theory to life.

1.1

Making it work The recognition of a limited company as separate from the directors and shareholders is the cornerstone of company law. It is crucial that in your dealings with companies you realise that you are dealing with the company, not with the directors. Third parties, such as suppliers, and lenders can find themselves in a difficult position should a transaction go wrong, particularly if they have not taken

2

precautions. For example if you are trading with a company which becomes insolvent, the only assets available to the creditors are those of the company. Many third parties protect themselves by taking guarantees from the directors, thus giving themselves access to the directors and their assets should the company be wound up.

Types of directors

In the course of reaching its judgement in Re Hydrodan (Corby) Ltd 1994 the courts suggested that there were three types of directors, namely:-

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How to Use this Study Text

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PART THREE Using financial information to manage business resources

This can be illustrated by the following example.

9.1

Worked example

A business buys and sells computers. It buys a computer for cash at a cost of £500. The computer is likely to be held for 15 days before it is sold. The computer will be sold on credit for £800. The debtors normally take 50 days to settle their debts. Activity Day 1

Days

Operating cycle in days

Worked examples

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Worked examples are crucial to an understanding of accountancy-based modules. Questions and answers allow you to work through the calculation as part of your study.

Stock purchased for cash

Day 15

Stock sold on credit

Stock turnover period

15

Day 50

Debtors pay their debts

Debtors’ payment period

50

The above illustrates that the £500 to purchase the computer is “tied up” for 65 days. This is the length of time the cash invested in the stock takes to be converted into cash being received from debtors. Consider what will happen if the business purchases the computer on credit and pays its suppliers in 33 days. The impact on the operating cycle will be as follows: Activity

Days

Day 1

Stock purchased on credit

Day 15

Stock sold on credit

Stock turnover period

15

Day 33

Suppliers paid

Credit taken from suppliers

(33)

Day 50

Debtors pay their debts

Debtors’ payment period

50

Operating Cycle in days

32

The above illustrates that the £500 to purchase the computer is “tied up” for 32 days. This is the length of time between paying cash for the stock and receiving cash from debtors.

2

Factors influencing working capital levels

There is no fixed level of working capital or a time period for the operating cycle. The level of working capital and the length of the cycle is dependant on the following:

2.1 The nature of the business

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CHAPTER 1 The role of company directors

Some businesses require high levels of working capital while others need little if no working capital. Here are some examples: ● A business selling fresh fish or fruit and vegetables will have low stock levels, low debtors and few creditors as most of the transactions will be on a cash basis. The business will have a short operating cycle. ● A business manufacturing motor vehicles will have a longer operating cycle because of the time involved in acquiring the raw materials, assembling the vehicles, selling the vehicles and collecting the cash. ● Businesses manufacturing aircraft or constructing motorways or shopping complexes will have an operating cycle spreading over more than one year.

Partnership Act that the partners may not wish to apply, and helping to avoid disputes in the future. One drawback of trading as a partnership is that each partner is jointly and severally liable with the other partners for the debts and obligations incurred by the partnership while they are a partner (s.9 Partnership Act 1890). However, as partnerships have grown over time, some partners took the view that this was no longer equitable. For example a partner in an accountants practice in London, could theoretically be liable for an action made by a partner of the same firm, , based in Newcastle whom he had never met. This was partly the reason for the introduction of the Limited Liability Partnership Act 2000. This allows a limited liability partnership to be created, where the liability of the partner is limited to his share of the capital invested in the partnership. This means that the partner’s personal assets (including his house) are no longer available to the creditors of the partnership. Prior to this legislation, partners could only limit their liability if the partnership was created as a limited partnership under the Limited Partnership Act 1907. The main difference between a limited partnership and a

Table 1.1 Differences between partnerships, limited liability partnerships and limited companies.

Stop and Think Stop and Think boxes encourage you to think how your own experiences or common business scenarios relate to the topic under discussion.

Topic

Limited company

Limited liability partnership Partnership

Liability of members/ directors/ partners

Usually limited, but there are exceptions (see 1.9 above)

Limited, although only in existence since 2000, exceptions are thought to apply similarly (see Bondina case etc.)

Unlimited joint liability under Partnership, including potential access to personal assets.

Setting up formalities

Memorandum and Articles, registration with Companies House, receipt of relevant certificate. Can be costly.

Formal agreement, registration at Companies House. Can be costly.

No formal agreement needed, can be verbal. Bound by terms of Partnership Act unless specifically overridden

Effect of death of members/directors/ partners

Perpetual succession, providing minimum numbers are not breached

Refer to agreement

Death dissolves partnership unless expressly overridden by agreement.

Main governing statutes

Companies Act 1985

Limited Liability Partnership Act 2000

Partnership Act 1890

Stop and Think

1.2

If you had been dealing with a partnership for a number of years and they have now informed you that they will be trading as a limited liability partnership in the future, how might this affect your dealings with them from now on?

Reference material The text ends with a range of additional guidance and reference materials. In addition to answers to practice questions, the text also includes a sample examination paper and suggested answers so that you can test your

understanding of the subject against what will be expected of you in the examination. Other reference material includes a glossary of key terms and a directory of further reading and web resources.

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Studying for the ibam Certificate and Diploma in Business Practice The new ibam Certificate and Diploma in Business Practice is designed to offer students a solid foundation in the principles and practice of contemporary business management. The programmes provide well-rounded and practical professional business qualifications for students who may already be employed or seeking employment in a range of business organisations – large companies, small businesses, public sector bodies or voluntary organisations. The ibam Certificate and Diploma are each made up of four modules which can be studied full-time or part-time, by distance learning or self-study. The two levels provide the opportunity to earn an award from an internationally recognised professional body, which will enable you to continue your studies either through ibam, or by moving on to a further course of study, such as an honours degree. In completing the eight modules which comprise the ibam Certificate and Diploma you are completing programmes which are broadly the equivalent of the first two years of UK three-year undergraduate degree, or a Foundation degree without the workbased component. As these are professional examinations, candidates will be expected to demonstrate knowledge, understanding and the ability to apply at least some of the knowledge acquired. Once you have successfully passed the four modules which make up the ibam Certificate you will be entitled to use the designatory letters Cert. IBAM and after successfully completing the four modules which make up the ibam Diploma, you will be entitled to use the designatory letters Dip. IBAM. Throughout your study of the Certificate or Diploma modules, you can rely on the integrity of the quality assurance process, predicated on more than 100 years’ rigorous examinations offered with integrity by a senior international chartered body.

Themes and core concepts You will be aware of a number of themes which are threaded through both the Certificate and the Diploma. These themes are based around: ● governance ● ethics and integrity ● best practice. The Certificate and Diploma are designed to encourage reflective and effective business acumen delivered from an ethical standpoint. Both qualifications are structured to be of practical use in all types of business organisation, including small and medium-sized enterprises (SMEs), plcs, not-for-profit organisations, (NFPs), charities and local government. Business Communications underpins all modules at Certificate and Diploma level. The themes outlined in Business Environment (Cert) find their link in Business Law in Practice as well as in Marketing, Business Finance and Business Strategy and Planning.

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Studying for the ibam Certificate and Diploma in Business Practice

Accounting for Business (Cert) is expanded in Business Finance but also in Business Law in Practice, Marketing and Business Strategy and Planning. Business Management links through to Business Strategy and Planning and Marketing. Business Environment underpins all other modules and links through to all of them.

Studying for the ibam certificate and diploma The ibam study texts have been especially written to support candidates studying for the ibam Certificate and Diploma in Business Practice. All material within each study text for a particular module can be examined. The style of the study text draws on case studies and real-life examples to give candidates a strong feel for the practical application of relevant knowledge to the workplace. Detailed syllabus overviews included in each of the texts give advice and guidance to students regarding approaching study of each module and the particular requirements of the examination.

Recommended study routes You can work through the modules at your own pace and in different study combinations, however we strongly recommend the following pattern: ● Certificate Examination Session One: Business Communications with Business Environment Examination Session Two: Business Management with Accounting for Business ● Diploma Examination Session One: Business Law in Practice with Marketing Examination Session Two: Business Finance with Business Strategy and Planning

Assessment The examinations reflect the practical approach which underpins the modules. Both the Certificate and Diploma examinations contain a mix of short questions from any part of the syllabus and longer questions based on a case study which will have been issued prior to the exam. Each examination paper is divided into two sections. Candidates can expect questions from any part of the syllabus. In section A, compulsory short-answer questions test your understanding and knowledge across the breadth of the syllabus, but not depth. You should aim to spend only a few minutes on each of these questions, and it is acceptable to give your answers in bullet points. It is not necessary in the shortanswer questions to provide essay style answers. Section B contains questions on a case study.

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Studying for the ibam Certificate and Diploma in Business Practice

Certificate The examination paper is two hours long, plus 15 minutes reading time. In Section A you are required to answer a set of compulsory questions which carry either 2 or 4 marks, making a total of 40 marks. In Section B you are required to answer two multipart questions, each worth 30 marks, from a choice of five. Each part is worth 5, 10 or 15 marks. Look carefully at the timing for the paper and take care that you allocate your time appropriately. You need only spend a few minutes on each of the Section A questions (2.5 minutes on a 2-mark questions and just over five minutes for 4-mark questions). In Section B we suggest you set aside approximately 35 minutes per 30-mark question as follows: 5 mark Section B question: 10 mark Section B question 15 mark Section B question

around 6 minutes around 11 minutes around 18 minutes

Diploma The Diploma examinations are three hours long. Each examination comprises ten short-answer questions in Section A and three questions from a choice of five in Section B. Section A questions are worth 2 or 3 marks each. You should aim to spend around 3.5 minutes on a 2-mark question and no more than 5.5 minutes on a 3-mark question. For questions in Section B, you should allocate 45 minutes for the whole question, split as follows: 5 mark Section B questions 10 mark Section B questions 15 mark Section B questions

around 9 minutes around 14 minutes around 22 minutes

Tackling case studies The case studies in Part B of the examination are based on real-life scenarios. This gives candidates the opportunity to demonstrate and apply their knowledge in business situations so that they can be assessed in as practical a manner as possible. The case study will be available on the website six weeks before the date of the examinations to enable candidates and tuition providers to research the case study and prepare to answer on any aspect across the entire syllabus. Additionally, the case study will be provided on the examination paper. When accessing the case study, candidates should bear in mind that the Chief Examiner attempts to ensure that the questions based on the case study cover the whole syllabus. When faced by a case study, many students try to predict the questions which will arise. This is unwise and can add to the stress in the exam room when the questions you have prepared don’t appear! A more reliable method is to consider the topics covered by the case study in relation to the study text and use this to try to identify the broad syllabus areas to which the Chief Examiner has referred. If you are familiar with and, most importantly, understand fully the study text, then you should be able to answer the questions in the case study. It is worth remembering that the Chief Examiner has made considerable efforts in producing the case study and the questions based on it. In practice, this means that you

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Studying for the ibam Certificate and Diploma in Business Practice

must remember to refer to the case study in each answer to each question. The Chief Examiner is looking to see that you understand the practical implications of the material you have learned from the text and any candidate who can bring relevant experience to an answer will gain marks. The relevant experience to which you refer can have been obtained in employment or in your private life, or it could be something you have read about and can relate to this scenario. However, you must always remember to relate your experience to the scenario outlined in the case study. In summary, examiners are looking for answers that are expressed in candidates’ own words, that demonstrate understanding and apply the relevant knowledge to the question being asked. Candidates should read all questions carefully and answer all parts. Do not reproduce everything you know about a topic. Tailor your answer to the context and requirements of the question. We hope you enjoy studying with ibam. Good luck!

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The Marketing Syllabus Position of the module in overall syllabus ● The module will equip the intermediate level administrator in the workplace with key skills relating to sound business practice. ● The module builds on the Certificate module ‘Business Communications’.

Aims ● This module provides an introduction to marketing. Knowledge of the principles of marketing is crucial for any company or organisation to operate effectively. ● Ethical considerations that affect marketing will be explored. The module looks at the environment in which marketing is undertaken, marketing strategy and planning, the marketing mix and communication issues. ● Overall the module aims to bring together theory and practice by setting out a logical framework that will allow you to develop your knowledge and understanding of marketing in a structured way so that you can then apply this to a variety of situations.

Learning outcomes On successful completion of this module candidates will be able to: ● Demonstrate a sound knowledge and understanding of marketing principles, marketing environments and marketing relationships. ● Demonstrate a holistic understanding of the marketing function, which will enable students to propose solutions to a range of marketing problems faced by organisations. ● Understand the marketing planning process and strategy choices and explain their importance in achieving company/organisational objectives. ● Explain the usefulness of marketing intelligence and describe and apply appropriate bases for market segmentation. ● Select and apply appropriate tools and techniques to determine the marketing mix. ● Demonstrate an understanding of the marketing communication activities of different types of organisation.

Syllabus content The Marketing Environment ● ● ● ●

15%

Matching customer needs/wants to organisational resources. Product, sales and marketing orientation. Development of marketing and growth of consumerism. Marketing in different environments and overseas.

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The Marketing Syllabus

● Social and ethical responsibilities of organisations in relation to marketing activities.

Market Identification ● ● ● ● ● ●

Role and scope of marketing intelligence. Overview of the marketing research process. Types of marketing research. Evaluation of the sources of market data. Bases for segmenting markets. Evaluation and choice of target markets.

The Marketing Mix ● ● ● ● ● ● ● ●

15%

30%

The marketing mix (four Ps) and the shift to the seven Ps. People, physical evidence and process management. Issues relating to the marketing of services. Issues in marketing to other countries. Product. Price. Place. Promotion.

Marketing Communications ● ● ● ● ●

15%

Communications process model. Building relationships with stakeholders. Understanding buyer behaviour. The promotional mix. The choice of promotional mix for different markets.

Marketing Strategy and Planning ● ● ● ● ● ● ●

25%

Marketing as part of an overall company/organisational plan. The marketing planning process. Marketing audit (including PESTLE, Porter’s competitor analysis and SWOT). Product/market strategies and risk (Ansoff matrix). Setting marketing objectives (SMART). Monitoring and controlling the marketing plan. Budgets and financial implications.

The syllabus explained The Marketing Environment

15%

● It is important to understand how marketing has developed from a focus on the product, to a focus on customer needs and wants which is now at the core of all

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The Marketing Syllabus

marketing activities. Alongside this focus on customer needs and wants is the growth of consumerism, with customers becoming increasingly critical of products and services which do not meet the expectations they have of them. ● Although most people identify marketing with ‘high street’ names, it is important to understand that marketing is important for all organisations, including charities and public services. Indeed in many developed countries, the government spends a great deal of money on campaigns to encourage healthier living, partly in order to reduce the amount of money it needs to spend on expensive health care for diseases primarily caused by smoking, excessive drinking or obesity. This part of the syllabus also highlights some of the main similarities and differences in marketing overseas compared to your home country. ● Needs and wants of consumers are continually changing and organisations can no longer ignore social and ethical responsibilities. Indeed some companies who have taken an ethical stance by, for example, refusing to use any products or ingredients that have been tested on animals, have found this has given them a competitive advantage.

Market Identification

15%

● Many organisations spend a great deal of money and time trying to meet the needs of their customers by providing them with the product/service they want, how, when and where they want it. There is a common misconception among people who have not studied marketing that in order to get the information they need to make informed decisions, organisations need to administer questionnaires and little else. This part of the syllabus gives a broad overview of the types of marketing intelligence that are available and evaluates their usefulness in making such decisions. ● You only have to consider a product such as a car to realise there are many reasons for purchase other than the obvious one of transporting conveniently from A to B. The days are long gone when Henry Ford said about cars ‘You can have any colour you like as long as it’s black’. Different makes and models will appeal to different groups of customers and market segmentation is about identifying and targeting groups who share the same characteristics and being able to satisfy their needs and wants better by this approach. You will need to make sure you understand the different ways in which markets can be segmented and to be able to apply this knowledge to a range of scenarios.

The Marketing Mix

30%

● This section can be regarded as the core of the marketing syllabus as it addresses issues that are largely within the control of an organisation i.e. product, price, place and promotion. Again you will need to keep in mind the fact that the needs and wants of the customer should be at the centre of the various decisions that need to be made in determining the most appropriate marketing mix. For example when deciding on the price of a product, a number of factors need to be taken into account, as well as ensuring that all costs have been considered. You will

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The Marketing Syllabus

need to be aware of how concepts such as the product life cycle can help in determining the marketing mix at various stages in the life of the product. ● Service industries have become increasingly important and the shift to the seven Ps with an emphasis on people, physical evidence and process management reflects this. You will be expected to be able to examine the importance of these elements and other issues involved in the marketing of services such as banking, health care and tourism where customers are not buying an actual physical product. ● You will need to be able to identify problems that organisations who market their product or service abroad may encounter and be able to suggest changes to their marketing mix to reflect the different environment in which they are operating.

Marketing Communications

15%

● The communication process model is the foundation of any relationship, business or personal. For effective communication to take place, the receiver of the message needs to have understood it in the way the sender intended. Once you have appreciated the many ways in which communication can break down, you will be in a better position to realise ways in which organisations can communicate successfully and build relationships with customers, suppliers and other important stakeholders. You will need to be aware that marketing communications is a broad area that involves more than merely communicating in order to sell a product or service and could, for example, be used to build a particular image, refute negative publicity or influence attitude. ● If you ask yourself questions like ‘Why do I buy a particular product or service?’ or ‘Who or what influences me to buy?’, then this is the basis of understanding buyer behaviour, which is critical for any organisation. You will learn that by understanding the many factors influencing customer choice, organisations are better able to communicate with and influence their chosen markets. ● You will need to understand the various steps in planning a promotional campaign and in particular the enormous choice of possible promotional methods including those associated with the Internet and other forms of new technology. You will be expected to be able to suggest and justify a suitable promotional mix for a wide variety of situations.

Marketing Strategy and Planning

25%

● This part of the syllabus builds on what you have already studied and draws it into an overall plan. There are several concepts you will need to understand, but above all you should be clear as to their purpose and where and how they fit in the marketing planning process. ● In its simplest form any plan can be broken down into ‘Where are we now?’ ‘Where do we want to be?’ ‘How will we get there?’ and ‘How will we know if we’ve been successful?’ In terms of marketing planning, the audit, PESTLE, Porter’s competitor analysis and SWOT help us to answer the first question. ‘Where do we want to be?’ is answered by setting marketing objectives that need to be Specific, Measurable, Achievable, Realistic and Timely. ‘How will we get

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there?’ is determined by strategies, initially broad product/market strategies (Ansoff), but then translated into strategies based around the 4Ps. Finally monitoring and controlling the plan will help in the assessment of the final question ‘How will we know if we’ve been successful?’ ● It is also important that you realise the financial implications of decisions made in the marketing plan and how these will affect the budget.

Excluded topics ● Questions are likely to be set in the examination in either section from any part of the syllabus. All aspects of the syllabus will be examined over time though naturally not all topics can be covered in a particular examination. In addition, to ensure that we test students’ understanding effectively, the case study will mean that individual questions will be set that require knowledge of material contained across a number of different syllabus areas. A narrow focus on selected areas of the syllabus is ill-advised.

Study hours ● It is recommended that students undertake approximately 200 hours of study for each module, including face-to-face tuition, self-study, examination preparation and reflection on work experiences.

Key areas of the syllabus ● Marketing is an essential activity for all types of organisation. It is therefore highly desirable that staff employed by business organisations understand why marketing is important to organisations and appreciate how marketing goals are identified and achieved. ● Marketing is in the front line of an organisation’s attitude to social responsibility. Society now expects organisations to ensure that their products are safe and to communicate any risks or problems clearly to the consumer. Organisations are expected to refrain from selling products in inappropriate ways to vulnerable groups. This means that marketers have to be creative and flexible, yet disciplined and ethical in everything they do. ● It is vital to realise that as well as knowledge of marketing terms and activities you will also need to understand a number of concepts, theories, frameworks and approaches and then be able to apply them in particular situations.

Assessment approach ● This module will be assessed by a closed book examination of 3 hours duration. Section A will comprise of 10 short questions, which will account for 25 marks, designed to test both breadth and depth of the syllabus. Section B will require

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candidates to answer 3 longer multi-part questions, from a choice of 5, which will account for 75 marks (3 x 25). The questions will be based on a pre-released case study, which will be circulated 6 weeks before the examination to enable students to research the case study.

Relevant study materials ● Students will be expected to use the ibam ‘Marketing’ study text as their primary study text. For those seeking to broaden their knowledge of the subject area, supplementary study materials are recommended below: ● Principles of Marketing, Brassington & Pettitt, Prentice Hall 2003 (3rd edn). ● Marketing Principles and Practice, Adcock et al, Prentice Hall 2001 (4th edn). ● www.cim.co.uk – The Chartered Institute of Marketing. The ‘resources’ section gives access to checklists on a variety of marketing topics and case studies of ‘superbrands’ from across the world. ● www.marketingteacher.com – gives free online ‘lessons’ on a wide variety of marketing topics. At the end of each topic, there are short exercises with answers and a quiz with multiple choice questions and feedback. ● Business sections from quality newspapers and the marketing press e.g. Marketing Week & Marketing.

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Syllabus Overview The Marketing module The Marketing module at ibam Diploma level is one of four areas of activity considered essential for those seeking intermediate level qualifications in business practice. The study of law, strategy and planning, finance, and marketing as applied to business organisations is essential in shaping business practitioners. The Marketing module provides students with a sound knowledge and understanding of key marketing principles, concepts, problems and solutions. Marketing is an important and exciting subject and students will appreciate the importance of marketing and marketing planning for all business organisations and environments and their importance in achieving business and organisational objectives. The aim of this module is to bring together theory and practice by setting out a logical framework that will allow you to develop your knowledge and understanding of marketing in a structured way, so that you can then apply this to a variety of situations.

Why the marketing module is important to business organisations Marketing is an essential activity for all types of organisation. It is therefore highly desirable that staff employed by business organisations understand why marketing is important, and appreciate how marketing goals are identified and achieved. Marketing concepts and approaches are constantly changing and developing, reflecting social change as well as economic and technological trends. It is challenging for organisations to find the right blend of ingredients to satisfy the needs and wants of customers whether in consumer, industrial or overseas markets. It is important to remember that not all organisations sell products or services; for example, in the public sector, the police service can use the techniques and skills of marketing when designing campaigns to promote safer driving or encouraging the general public to co-operate with them in reducing crime. Marketing is also in the front line of an organisation’s attitude to social responsibility. Society now expects organisations to ensure that their products are safe and to communicate any risks or problems clearly to the consumer. Organisations are expected to refrain from selling products in inappropriate ways to vulnerable groups. This means that marketers have to be creative and flexible, yet disciplined and ethical in everything they do.

Key elements of the syllabus There are five main areas within the Marketing syllabus. The weighting attached to each area of the syllabus aims to help candidates judge the importance of that particular area and the amount of time they should devote to it accordingly. They are as follows:

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The Marketing Environment ● ● ● ● ●

Matching customer needs/wants to organisational resources. Product, sales and marketing orientation. Development of marketing and growth of consumerism. Marketing in different environments and overseas. Social and ethical responsibilities of organisations in relation to marketing activities.

Market Identification ● ● ● ● ● ●

15%

15%

Role and scope of marketing intelligence. Overview of the marketing research process. Types of marketing research. Evaluation of the sources of market data. Bases for segmenting markets. Evaluation and choice of target markets.

The Marketing Mix

30%

● The marketing mix (4Ps) and the shift to the 7Ps (people, physical evidence and process management). ● Issues relating to the marketing of services. ● Issues in marketing to other countries. ● Product plus price, place and promotion.

Marketing Communications ● ● ● ● ●

Communications process model. Building relationships with stakeholders. Understanding buyer behaviour. The promotional mix. The choice of promotional mix for different markets.

Marketing Strategy and Planning ● ● ● ● ● ● ● ● ● ●

15%

25%

Marketing as part of an overall company/organisational plan. Marketing planning process. Marketing audit. PESTEL. Porter’s competitor analysis. SWOT. Product/market strategies and risk (Ansoff). Setting marketing objectives (SMART). Monitoring and controlling the marketing plan. Budget and financial implications.

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How to approach the study of marketing A good way to approach the study of marketing is to first question exactly what marketing is. Most people who have been asked the question ‘What is marketing?’ are able to hazard a guess even if the guess is incorrect or too narrow: for example, ‘It’s all about advertising and selling.’ It is important to realise that marketing encompasses many activities, as even a quick glance at the syllabus will confirm! It is also vital to realise that as well as knowledge of marketing terms and activities, you will also need to understand a number of concepts, theories, frameworks and approaches and then be able to apply them in particular situations. Questions like ‘Why do I need to understand this?’ and ‘How can I apply this to an organisation with which I am familiar?’ should help you in your studies.

How to succeed in the examination Prepare thoroughly First make sure that you cover and understand all parts of the syllabus. Set yourself a realistic revision timetable that best suits you and use methods that work for you. Few people can revise adequately by just reading notes or textbooks – most people need to write notes or discuss with others. Practise completing questions under examination conditions

Answer the question set Make sure that you read the question carefully and answer only the topic area(s) required. For example, in a question specifically about the choice of suitable distribution channels for a particular product, resist the temptation to write down everything you know about distribution, much of which will fall outside the scope of the question itself and will not gain you any extra marks. Do not repeat chunks of the study text or other sources verbatim, as this will not impress the examiner and may even be considered plagiarism. At the very least, by not focusing clearly on the question set you will give the impression that you cannot discriminate between what is relevant and what is not.

Plan your time wisely It is always disappointing to read an excellent answer that has been awarded high marks, only to find that this has led to short, inadequate answers to other questions because of poor time management. It is vital to apportion time carefully in relation to the marks available and to answer ALL of the questions. Most candidates would benefit from spending a few minutes planning their answers, perhaps by jotting down key words, phrases or headings that can be crossed through later. The final answer can then be properly structured and is much less likely to contain waffle or unnecessary repetition and will give a very good impression to the examiner.

Be prepared to be critical Marketing is a dynamic discipline and lends itself to a questioning approach. If you are asked for example to comment on the usefulness of the product life cycle concept, you

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should not automatically assume that everything you say must be positive. Although you should of course comment on all the positive aspects, you should not shy away from some of the criticisms, such as difficulties in determining at what stage in the life cycle a product has reached.

Use up-to-date study material Your primary source of study material will be the ibam ‘Marketing’ study text which is designed to support your studies, follow the syllabus set and provide guidance to see you through the examination which is the goal at the end of your studies. In addition, you should study from the most up-to-date textbooks and take the opportunity to read articles in the marketing press, quality newspapers and key websites whenever possible in order to keep your knowledge current. You only have to consider the rate of change in technology to realise that a textbook published say 10 years ago would not appreciate the importance of the Internet in marketing communications today. You will often have an opportunity to use examples to illustrate your answers and the examiner will be impressed (and you will gain extra marks) if these examples are both relevant and current.

Common pitfalls to be avoided Confusion between plan and method Often candidates appear to confuse the words plan and method. For example, if you are asked to describe promotional methods, then the examiner will expect you to cover a range of methods under the broad headings of advertising, sales promotions, selling and public relations. If, however, you are asked to describe a promotional plan, then the examiner would expect you to cover market analysis, objectives (which should be SMART), promotional methods and how you would control and measure the effectiveness of your plan. Clearly by confusing the two words you would severely limit the marks you could receive.

Market segmentation Although the concept of market segmentation appears to be understood by the majority of candidates, many seem to have difficulty in applying the bases of segmentation to particular scenarios. There is a widespread reliance on demographic factors such as age or income with little apparent thought for geographic, psychographic benefit or behavioural segmentation. If you consider the car market or the market for holidays for example, you should be able to identify many different ways in which these markets have been segmented. In order to gain good marks in questions about market segmentation, you will need to consider a range of possibilities before justifying your choice.

The scope of marketing research Marketing research is a very broad area, covering research into all aspects relating to the marketing of goods and services. Don’t make the mistake of thinking it only refers to gathering information from customers (the market) as it also covers research into the product, the price, how it is promoted and distributed, the competition, the outside environment and so on.

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SWOT analysis SWOT analysis is an important part of the marketing planning process and is used to match the organisation’s strengths and weaknesses with the external forces in the business environment. It should therefore follow on from an internal marketing audit and external PESTLE analysis. From the SWOT analysis an organisation should be in a good position to set its marketing objectives by building on its strengths, minimising its weaknesses, taking advantage of opportunities and taking steps to reduce any threats. You must not only understand the concept of a SWOT analysis, but also know how and where it fits into the marketing planning process – something that many students fail to appreciate. You must also be careful not to confuse internal strengths and weaknesses with external opportunities and threats saying, for example, that a threat is lack of marketing research when in fact it is an internal weakness.

Summary This syllabus overview is intended to give you some guidance about how best to approach the Marketing paper and the ways in which you can score highly in the examination. The Examiner has in the past had to take examinations similar to those you are taking now and wants to give you credit for good answers. It is disappointing when a candidate fails, particularly if the reason appears to be either poor time management or failure to answer the question set. These two issues of time management and not answering the question set are the two most probable reasons that otherwise good candidates fail. Make sure you are well prepared for the examination, that your answers are well written and use relevant examples where appropriate and you stand every chance of being successful. Good luck!

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Acronyms and Abbreviations B2B BCG CAPI CATI CIM DMU EPOS FMCG Four Ps GDP IBOs IPR MIS NPD OFT PESTLE PR R&D ROI SBU Six Ms Seven Ps SMART SWOT USP

business-to-business Boston Consultancy Group computer aided personal interviewing computer aided telephone interviewing Chartered Institute of Marketing decision-making unit electronic point of sale fast moving consumer goods product, price, promotion, place gross domestic product independent business owners Institute of Public Relations marketing information system new product development Office of Fair Trading political, economic, social/cultural, technological, legal and environmental public relations research and development return on investment strategic business unit market, mission, message, methods, money, monitoring four Ps plus people, physical evidence, process specific, measurable, achievable, realistic and timely strengths, weaknesses, opportunities and threats unique selling point/proposition

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Marketing: an overview Contents 1 2

Marketing in context The marketing domain

Overview The first part of this study text seeks to answer the question ‘What is marketing?’ The intention is to show what marketing encompasses, and to demonstrate that it applies to virtually any organisation and affects virtually everyone. Part One looks at how marketing has evolved from a production orientation to the marketing orientation widespread today, where the success of an organisation may depend on how well it markets itself and its products. It considers the impact of the outside environment on marketing decisions and how ethical considerations can influence the way organisations operate. Finally, it recognises that customers do not all have the same needs and wants; it demonstrates how marketing identifies and classifies groups of people who share similar characteristics in order to target them more effectively.

Learning objectives       

The objectives of the first two chapters are for you to be able to: describe the role and functions of marketing in a variety of organisations distinguish between various marketing orientations and approaches explain the importance of the growth of consumerism describe the components of the marketing mix and the extended marketing mix show the impact of the outside environment on marketing decisions assess how an ethical approach affects the way an organisation operates describe and apply different systems of market segmentation.

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CASE STUDY

Butlins In post-war Britain, Billy Butlin developed Butlins camps which provided holidays far removed from anything most people had experienced before. Butlin holiday camps were like small towns, with rows of chalets, shopping arcades, indoor and outdoor swimming pools, a whole range of sporting and entertainment facilities, bars and ballrooms; some even had miniature railways and water skiing. All the camps had an extensive system of loud-speakers that used ‘wakey-wakey’ (or wake-up) calls and music to get people out of bed, summon them to meals and tell them about various activities! The sporting and entertainment activities were free and families could spend their entire holiday without moving from the camp, enjoying all the facilities at no extra cost. By the 1960s, at some of the larger Butlins camps, it was quite possible for 10,000 people to be staying on site at any one time and all of these were fed three meals a day. Two sittings were arranged for each meal, usually an hour apart, with campers being allocated a time and table for either the first or second sitting. Billy Butlin was always against the idea of self-catering, as he insisted people went on holiday to escape the chores of cooking. After he retired in the late 1960s, and seeing the success of competitors who offered self-catering, this option was introduced. In the 1970s, in common with most other holiday companies in Britain, Butlins began seeing a major decline in bookings. People were beginning to travel abroad in record numbers, attracted by cheap flights and accommodation in the sun; holiday camps in Britain now looked very dated. The chalets in straight lines, the blaring loud-speakers, the barbed wire fences and communal bathrooms reminded people

more of a military camp than a place of fun; Butlins began losing some of its valued family custom. It now attracted hordes of unruly teenagers and became known as ‘Stag party capital of the world’; the rundown appearance of the camps further dented the image. In the 1980s, while Butlins had banned single-sex bookings, scrapped the loud-speaker system and toned down the regimentation, bookings and subsequent investment remained low. This forced the company to reconsider its strategy, and it made the decision to trim down its empire and focus on a smaller number of sites. In the late 1980s around £100 million was invested to try to make up for the years of neglect. The camps became known as ‘centres’, all received new ‘Holiday World’ identities and the Butlins name was dropped completely to try to distance the organisation from its past. Today, after more investment and a change of ownership to Bourne Leisure, the Butlins name has been restored to the three remaining sites at Bognor, Minehead and Skegness. There have been big changes. Standards of accommodation are high and food outlets include Burger King, Harry Ramsden’s and other similar names. West End choreographers have been brought in to direct lavish musical productions; there are concerts featuring top-name acts and plenty of appearances of children’s favourites such as Noddy, Hulk and Spiderman. Butlins continues to employ Redcoats as entertainers, but now gives them extensive training at their own ‘academy’ and insist they adhere to ‘grooming guidelines’, including no beards. Over one million people a year now stay at Butlins.

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Marketing in context List of topics 1 2 3 4

Marketing defined The nature of marketing The marketing process Marketing in different organisations

5 6

The development of the marketing approach The marketing mix

Introduction This study text is designed to help make marketing clear to anyone in any position within any organisation. It is directed particularly at those in non-marketing functions and might also be useful to those new to, or contemplating going into, the marketing area. It sets out to demystify the term marketing and the process it describes, to explain how the disparate elements of marketing work, and how they interrelate to create a cohesive whole. It highlights the fact that marketing is important to all types of organisation, and introduces the concept of the marketing mix.

1

Marketing defined

In order to understand what marketing is all about, we will begin with two widely accepted definitions:

1.1 Definition No 1 ‘Marketing is the management process responsible for identifying, anticipating and satisfying customers’ requirements profitably.’ (Chartered Institute of Marketing) It is worth looking more closely at key words and phrases in this definition:

‘management process’ By saying that marketing is a management process, the assumption is that it is similar to other business functions such as production or human resource management. This means that marketing, like these other business functions, needs planning, analysis, allocation of resources, control and investment (of both money and people), as well as implementing monitoring and evaluation of plans.

‘identifying, anticipating’ This implies research to enable an organisation to pinpoint exactly what the customer will want.

‘satisfying customers’ requirements’ This suggests marketing activities focused on customers’ needs and wants.

marketing mix The combination of marketing variables that affect customer choice, traditionally product, promotion, price and place (the four Ps).

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‘profitably’ This is a reminder that organisations are operating in the real world, and cannot please all the people all the time. The marketer has to work within the capabilities and limitations of the organisation. The main aim of a commercial organisation is to make a profit; if it is consistently failing to make profits, it won’t survive, and so marketing has a responsibility to sustain and increase profits. Even non-profit-making organisations such as schools, hospitals, charities or activist groups such as Greenpeace now use marketing activities and techniques to manage their dealings with their various publics. In this wider sense they too are operating profitably.

1.2 Definition No 2 ‘Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products of value with others.’ (Kotler et al 1999) This definition is similar to the previous one, but highlights the importance of the exchange process. The obvious exchange process is one where an organisation offers a product or service, and the customer gives a sum of money in return. For example, Coca-Cola offer a can of drink and the customer offers payment. The assumption is that both parties value what the other has to offer, and so an exchange takes place. This exchange process is true of a range of other types of organisations; for example: Public services Charities Political parties Pressure groups

People pay taxes to fund useful services such as a police force that in turn will protect them and their property. People donate money to charity and in return receive a ‘feelgood factor’ that they have benefited a worthy cause. People donate money hoping the party they have supported will be in power. People give money to organisations such as Greenpeace to support a cause in which they believe.

For all types of organisation, both profit-making and non-profit-making, it is the responsibility of the marketer to make sure that customers value what the organisation is offering so highly that they are prepared to give the organisation what it wants in return.

2

The nature of marketing

For any business, marketing describes five areas: 1 It describes a concept; the belief that the customer is of prime importance in business, that success comes from customer orientation, seeing every aspect of the business through the eyes of the customer, anticipating their needs and supplying what they want in the way in which they want it; not simply trying to sell whatever we happen to produce.

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CHAPTER 1 Marketing in context

2

3

4

5

In different organisations, ‘the customer’ can mean different things. Goods or services may be sold direct to the public, or to them through others (wholesalers, retailers etc.); other sorts of marketing involve other types of customer, for example, business-to-business (B2B) marketing where, as the term suggests, one organisation is selling to another. Marketing is also important in non-profitmaking organisations such as public services, charities and pressure groups. Marketing describes a function of business; to define it formally: ‘the management function that is responsible for identifying, anticipating and satisfying customer requirements profitably’, or in other words it is the process that implements the concept. Such must clearly be directed from a senior level and take a broad view of the business. More simply put, someone must wear the marketing ‘hat’. In smaller companies, this may not be someone labelled ‘marketing manager’ or whatever: the responsibilities may be with such people as a general manager or sales manager, promotion manager, or they may be – often are – spread around amongst a number of people. Whoever is involved and however it is arranged, the final responsibility must be clear and sufficient time must be found to carry it out. Marketing is an umbrella term for a range of techniques; not just selling and advertising but all those techniques concerned in implementing marketing in all its aspects: market research, product development, pricing and all the ‘presentational’ and promotional techniques, including selling, merchandising, direct mail, public relations, sales promotion, advertising and so on. Marketing is an ongoing process, one that acts to ‘bring in the business’ by utilising and deploying the various techniques on a continuous basis; and doing so appropriately and creatively, to make success more certain. Marketing is not a ‘profit panacea’. It cannot guarantee success, nor can it be applied ‘by rote’ – the skill of those in marketing lies in precisely how they act in an area that rightly is sometimes referred to as being as much an art as a science. Marketing has to operate as a system and involves variable factors that operate both inside and outside the marketing organisation. Many are restrictions. After all, an organisation cannot do just as it wants, ignoring the outside world; all sorts of factors, ranging from competitive activity to government action, may conspire to hinder their intentions. The marketing system positions the marketing process within a broader context and links the organisation to the world outside. It links the market (customers and potential customers) with the company, and attempts to reconcile the conflict between the two. A moment’s thought will show that the objectives of company and customer are not the same. For example, the organisation may want to sell its products or services for a high profit, whereas the customer wants the best value for money. The marketing system is looked at in more detail in Chapter 2.

B2B (businessto-business) marketing Activities directed towards the marketing of goods and services by one organisation to another.

advertising A paid form of nonpersonal communication directed at target audiences through various media in order to present and promote products, services and ideas.

public relations (PR) A planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its publics.

sales promotion An inducement, such as a free gift or temporary discount, aimed directly at persuading a specified target audience to achieve one or more defined objectives.

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1.1

Putting the case

Q

What do people who buy a Butlins holiday expect today?

A

Customers would expect a holiday that made them feel the organisation regarded their needs and wants are of paramount importance. They would expect good facilities and service, taking

3

into consideration the price they are paying and the information they received from the company about the holiday. They would expect the systems in place in the organisation to make their holiday a pleasurable experience – examples could be a well organised and run children’s club, efficient housekeeping, or a well practised emergency evacuation procedure.

The marketing process

So, what does marketing do to achieve its aims and lead an organisation through the potential minefield of external factors that may influence it? A little more about the continuous implementation of the marketing process will fit the range of techniques into the picture. This implementation, if it is to be successful, must be executed in a way that keeps a close eye on external factors. This cycle of activity is shown in Figure 1.1, and starts, unsurprisingly, with the customer. As the process goes on, we can see how some of the classic marketing activities feature and how they relate to the concept in carrying out their specific role.

Potential and actual customers Distribution

Market research

Selling

Sales forecasting

Advertising

Product/sevice development

Sales promotion Pricing Public relations Company

Figure 1.1 The marketing process

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Market research Market research attempts to help identify, indeed anticipate, consumer needs; what people want, how they want it supplied and whether they will want it differently in the future. As research can analyse the past and review current attitudes, but not predict the future, it must concentrate on trends and needs careful interpretation. Even so, it can have an important role in reducing risk and assisting innovation, and can be utilised throughout the marketing process, not just as a preliminary. Marketing research covers a broader area and also includes research that is needed for product development, pricing policy and choosing the ‘right’ types of promotion and distribution.

Forecasting Forecasting is used to try to ascertain what quantity of a particular product/service may be purchased in future. Identifying a clear need is of little use commercially if only a handful of people want it. This is not an exact science. Forecasting is not easy, but the best estimate possible needs to be made to aid planning and reduce risk.

Product development Product and/or service development is, for most businesses, a continuous process. Sometimes the process is one of evolution rather than revolution as a product gradually changes; sometimes it is more cosmetic than real (a new improved floor-cleaner with ingredient X), sometimes it is very rapid – for example, with computers. No company can afford to stand still, and innovation in marketing, rather than the slavish application of the status quo, must be the order of the day.

Price Price, and all aspects of pricing policy, is normally a marketing variable; price says a great deal about quality and must be set carefully. This is not only to ensure financial objectives are met, but also to create the appropriate image and feeling of value for money in the market place. Price is an inherent part of the product/service and must be used as an element of the marketing process. With these factors in place, we turn to external communications.

Promotion Any company must promote itself; that is, it must communicate, clearly and persuasively, to tell people what is available and encourage them to buy. A variety of techniques – including advertising, direct mail, sales promotion and personal selling – can then be used, together or separately. The impact of visibility is clear if you look at the history of many products which have grown from small beginnings to be market leaders in their field, a process most often driven by the promotional investment made in them.

Distribution Distribution is the process that allows products and services to be delivered within the marketplace. Marketing sometimes involves a direct relationship: you see an advertisement in the newspaper and reply direct to the company, who send you the product. More often there is a chain of intermediaries: consumer products go from a manufacturer to a retailer before being bought by a customer; other products, such as

7

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car components, may pass from a manufacturer to a wholesaler and then a garage before reaching the customer. The internet is also an increasingly important method of distribution.

1.2

Putting the case

Q

Is this model of the marketing process reflected in the reality of marketing Butlins?

A

Butlins holidays has needed to change over the years and will continue to need to do so; product development works to a continuous cycle, as does market research (you may have been asked to complete surveys when you have stayed in holiday locations). Forecasting is obviously necessary;

indeed the weather in the summer in Britain can influence demand for holidays the following year. Entertainment on offer must match the customers’ needs,as must other facilities such as the type of food outlets. Because of intense competition in the holiday market, pricing policy is an ongoing concern. Many people now buy holidays via the internet, and Butlins have a site (www.butlins.co.uk) where customers can view the facilities and book their holiday on-line.

Test yourself

1.1

List the series of sequential stages/activities that make up the marketing process.

4

Marketing in different organisations

4.1 Private sector/commercial organisations All commercial companies have three basic functions – though in a well-directed company they do not operate in isolation from each other – and two major resources, capital and labour. The three basic functions are: ● Production – this implies factories and tangible products, but anything has to be produced: for example, software is not really in the same category as, say, a motor car, but it surely has to be produced. Even the team of people who audit company accounts represent the production side of the accountancy firm who do the work. So both products and services are involved here. ● Finance. ● Marketing. Each function has different tasks and different objectives, often operates on a different timescale, attracts different types of people, and regards money in a different way. So, although they all contribute towards the same company objectives, there is inevitably internal conflict between, say, marketing and production (and thus the amount of product it is thought should be produced and what may be sold), or production and finance. Table 1.1 shows, in slightly caricatured form, how differences amongst people and functions affect the way things work.

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Finance

Production

Marketing

Objective

To ensure that the return on capital employed will provide security, growth and yield

To optimise cost/output relationships

To maximise profitable sales in the market place

Time period of operation

Largely past – analysing results plus some forecasting

Largely present – keeping production going particularly in three-shift working

Largely future – because of lead time in reacting to market place

Orientation

Largely inward – concerned with internal results of company

Largely inward – concerned with factory facilities for personnel

Largely outward – concerned with customers, distribution and competition

Attitudes to money

Largely ‘debit and credit’ – once money spent, it is gone, money not spent is saved

Largely ‘cost effective’ – hence value analysis, value analysis techniques and cost cutting

Largely ‘return on investment’ – money ‘invested’ in promotion to provide ‘return’ in sales and profits

Personality

Often introverted: lengthy training: makes decisions on financially quantifiable grounds

Usually qualified in quantitative discipline: makes decisions on input/output basis

Often extroverted: often educationally unqualified: has to make some decisions totally qualitatively

Table 1.1 How conflict arises between different company functions The table suggests how main activity areas of the company need to understand each other and work together; the same is true of individuals at every level. As an example, think of people you have spoken to on the switchboard of companies you have contacted. In a few sentences, even a few words, they can influence you – for good or ill – in terms of how you think of the organisation and the likelihood of your doing business with them. The company as a whole must be organised in a way that allows it to be marketingorientated. Customers care nothing for any internal inconvenience or confusion that may exist. They simply judge a company on its overall external image and how it meets their needs. Thus things done for internal reasons that do not benefit customers may dilute overall marketing effectiveness and thus be damaging.

4.2 Industrial markets This phrase tends to characterise a very different area of marketing: that of ‘heavy’ goods sold to industry rather than to the general public. Again the range is considerable. It may include involvement with engineering; the product might be machine tools or products necessary to use them (from spare parts to specialised oil), as well as a whole range of components: items bought to become part of whatever product the purchasing organisation makes and sells. This category includes complex items such as ships or space shuttles. It also includes a mass of products necessitated by what is called derived demand. For example, a fall in

derived demand The way in which demand for one product is dependent on demand for another.

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the demand for new cars would lead to a fall in demand for components such as bulbs, tyres, upholstery etc and thus adversely affect companies supplying these goods. Industrial product marketing is characterised by: ● an inherently smaller number of potential customers – everyone may need toothpaste, but there is a very limited market for industrial lathes ● long lead times as products are designed and engineered – a new car may take four or five years to produce, and a new airliner twice that time ● ‘professional buyers’ – often people paid to buy and trained to get the deal they want ● people working in it perhaps needing a technical background, qualification or understanding. Note: industrial marketing and the next category are not precisely separated. There is an overlap.

4.3 The business-to-business market This has much in common with the industrial market. The term business-to-business is self-apparent and came into use as a phrase more recently than industrial marketing. The difference is primarily that this category omits the heavy end of industrial marketing. So products here are those bought by offices and factories and by sub-groups such as what has recently become know as the SOHO (small office: home office) market. The products include telephones and telephone systems, office furniture, paperclips, computer disks, technical journals, stationery, business books, and cupboards (on the basis that even the business which has everything needs somewhere to keep it!).

4.4 Service organisations These organisations sell services, for example, dry cleaning, tax-free savings accounts and film processing to the consumer market, or industrial design, contract ploughing and staff training to the business market. Some services apply to either market, for example, accountancy, insurance and travel. How is service marketing different from marketing products? Services: ● are intangible – the fact that, unlike most products, they cannot be tested by potential customers in advance of purchase certainly makes for a different approach to marketing and selling ● are inextricably bound up with service itself – they are the ‘people businesses’, and marketing and the organisation of delivery of the service, overlap ● interface very directly with customers – much more closely than in some other businesses ● allow change and flexibility to be greater, and sometimes easier and faster, than in other kinds of business (producing a new insurance policy, say, is inherently easier than producing a new jet fighter).

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The immediacy of services, in customer service for instance, must be reflected in the way that their marketing is organised. It is also worth bearing in mind the way in which services have grown in importance in recent years. This is especially so in countries like the United Kingdom which have seen their manufacturing base decline.

4.5 Small businesses Small businesses by their very nature have less expertise and fewer resources than their bigger competitors. Although some small businesses are very aware of the importance of marketing, often the owner is focused mainly on the product or service he is offering and may see marketing as an unnecessary ‘extra’ that he has neither time, energy nor money to embrace. Many banks and government agencies offer practical help and guidance to those setting up in business for the first time and this includes advice on marketing activities.

4.6 Charities These days many charities are, by any definition, big business. Their aim is to raise funds for worthwhile causes, rather than to make profits, but they will need to use marketing methods in a number of different ways to achieve this (to change public or government attitudes, for instance). Marketing is real and important for them and they need marketing talent to achieve their aims and fulfil their charitable purposes. Such organisations are an interesting option for some of those wanting to pursue a career in marketing.

4.7 Government Both local and national government have marketing operations. These may be on a grand scale, as with the advertising undertaken to highlight the dangers of drinking and driving or the need to adjust to self-assessment taxation systems, or less major and more local, as with local authority schemes to help small business. Sometimes the target of such marketing is more bizarre. In Singapore, for example, government messages are much in evidence. At one time, when population increase was seen as being desirable, television advertising called for people to fall in love!

4.8 Quasi-government and others This category overlaps into a whole range of other bodies: government agencies, trade organisations (like the Wool Marketing Board), educational establishments and professional bodies (such as the Institute of Chartered Accountants, who promote the merits of working only with an accountant with the appropriate qualifications).

Test yourself

1.2

List three ways in which the marketing of services differs from the marketing of products.

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5

The development of the marketing approach

5.1 The history of the marketing approach At this stage, a word about the history of the marketing approach may put matters in perspective. Looking back some years, three clear stages can be recognised:

Production orientation

Sales orientation

Marketing orientation

Time 1945

1960

Figure 1.2 History of approaches to marketing

Supply

Supply

Demand

This is illustrated graphically in Figure 1.2.

Demand

target market The segment of a market at which an offer is directed.

Supply

An overall approach where the needs and/or wants of the customer are the focus for marketing activities.

Demand

marketing orientation

1 Production orientation (1945–late 1950s): Supply and choice were limited. An organisation’s major task in seeking profit was to pursue efficiency in production and distribution, because demand outstripped supply. 2 Sales orientation (the 1960s): As competition increased, an organisation’s main task in seeking profit was to stimulate the interest of potential customers in existing products and services, with demand and supply broadly matched. 3 Marketing orientation (the 1970s onwards): With demand outstripped by supply, and choice proliferating, the organisation’s main task became that of determining the needs and wants of target markets, and to satisfy them through the design, communication, pricing and delivery of appropriate and viable products or services – in the face of competitive activity. All aspects of competitiveness seem set to continue to intensify.

1970

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Since the 1970s the marketing approach has predominated; indeed, increasing competition has meant it has become more important, thus become more sophisticated, and companies are more concerned with the part of their activity designed to differentiate them from the competition.

5.2 More recent approaches to marketing Other more recent approaches to marketing that are part of the overall marketing orientation are:

Relationship marketing This has evolved from the 1980s to the present day and is concerned with building and keeping good customer relations. The emphasis is placed on the whole relationship between suppliers and customers, with the aim of giving the best possible customer service and therefore building customer loyalty.

Societal marketing This is the most recent development in marketing and focuses on the benefit or otherwise to society of marketing activities. Its aim is to curtail any harmful activities in either product, production or selling methods and to consider ethical issues in marketing.

5.3 The growth of consumerism The beginnings of consumerism can probably be traced back to US President Kennedy’s ‘Consumer Bill of Rights’ that identified four basic consumer rights: ● ● ● ●

relationship marketing A development in marketing concerned with building and keeping good customer relations. The emphasis is placed on the whole relationship between suppliers and customers with the aim of giving the best possible customer service and therefore building customer loyalty.

societal marketing A development in marketing that focuses on the benefit or otherwise to society of marketing activities.

the right to safety the right to be informed the right to choose the right to be heard.

Although there is no single agreed definition, consumerism is generally regarded as

Putting the case

Q

What is the evidence of a production-orientated approach in Butlins’ early years, and why was it successful at that time?

A

Originally Butlins appeared to be run on highly regimented lines with systems in place which dealt efficiently with large numbers of people, for example the two sittings for dinner. People were

1.3 told rather than offered any choice of meal time. Billy Butlin had decided that people didn’t want the option of self-catering – he certainly didn’t carry out any research! This approach was successful at that time as competition was limited and demand for holidays was high. After the war, people were desperate for a holiday and Butlins was offering a range of facilities that hadn’t been seen before.

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consumerism Organised group pressure on behalf of customers with the objective of influencing organisational behaviour to the benefit of the consumer. The rise in power of the consumer through better information and education leading to more competition, choice and greater buying power.

being any organised group pressure on behalf of customers with the objective of influencing organisational behaviour to the benefit of the consumer. Today many countries have a mix of groups all helping to ensure consumer rights. For example in Britain there are: ● Government-sponsored groups such as OFWAT and OFTEL that monitor the behaviour of legalised monopolies. ● Commercial pressure groups like the Consumers Association, which publishes the magazine Which that independently tests a range of products and services and recommends ‘best buys’ and also uncovers any ‘sharp practice’. ● Independent pressure groups such as CAMRA (Campaign for Real Ale) that successfully persuaded UK brewers to continue to brew traditional ales. ● Media campaigners/programmes such as Watchdog that report on unresolved customer complaints, poor service and ‘sharp practice’. The growth of consumerism has been an increasingly important factor for marketers. Its focus, like that of marketing orientation, is the satisfaction of customer wants and needs.

6

The marketing mix

6.1 The four Ps The marketing mix is a phrase which describes the variables available when formulating a marketing strategy. These variables must be organised in a way that creates an effective strategic approach: essentially, the mix describes the product (or service), the price, and how a message about what is offered is put over to potential consumers. It also encompasses place/location or how goods/services are distributed.

1.1

Making it work ‘Wish we weren’t here . . .’ A family booked a two-week self-catering holiday in Spain costing £1,600 through a package tour operator in the UK. When they arrived at their apartment in Spain, they found that their balcony overlooked a building site. They were subjected to noisy power tools, as well as dust and fumes from the site. Work would start early in the morning and continue till early evening. They were also disturbed by loud music from the swimming pool area which they could hear even when they closed the door and windows. The family escaped as often as they could, but that meant paying for meals and taxis. They

complained to the company representative whilst on holiday, but no action was taken. When the family arrived home they complained to Which who investigated and contacted the tour operator, pointing out that they were breaching various regulations by not properly providing the services contracted for. Which also stated that the tour operator was in breach of contract for not warning the family about the building works. As a result of the action by Which the family received compensation of £675 Source: adapted from Which magazine article.

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The marketing mix is often referred to as the ‘four Ps’: ● ● ● ●

product price promotion place.

The four Ps have been a useful framework for around 50 years to remember the four main categories of factors over which organisations have some specific control. It is important to remember that these categories need to be viewed in the widest sense, as they will throughout the study text. Product is the subject of Chapter 5, pricing of Chapter 6 and promotion is dealt with in Chapter 9. Place links markets and distribution and is dealt with in detail in Chapter 7.

Test yourself

1.3

The core marketing mix is usually described as four variables all beginning with the letter P; what are they?

6.2 The extended marketing mix In truth, the marketing mix could consist of any number of Ps (or any other suitable letter of the alphabet, for that matter), as it is merely an acronym for focusing on everything in the total marketing offering. More recently, with the growing importance of service marketing, the original marketing mix of the four Ps has been extended to the seven Ps. The ‘extras’ are all elements that have always been important but may not have been given sufficient attention in the past, particularly for service marketing. The ‘extra’ three Ps are: ● people ● physical evidence ● process.

People The importance of people within the organisation has already been touched on (the marketing culture). Here the concept is viewed more widely to encompass everyone at every stage of marketing activity, inside the company and outside; essentially customers, employees and suppliers. For instance, individual people – a waiter in a hotel or restaurant, for instance — can be a major influence, and can almost be considered part of the product or service. Similarly, chains of people all have to be satisfied and work well together if marketing is going to maximise its success. Here we might consider a manufacturer: materials are drawn from various suppliers, designers and the like may be involved, subcontractors used (for anything from finishing processes to packaging) and then various people are involved down the chain of distribution (see Chapter 7). Marketing must work actively with all such people and bear in mind:

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● individuals’ attitudes and how that influences performance ● the quality of the motivational environment that keeps them productive ● the skills they need and any training this may necessitate. Again clearly the people aspect is a variable: the nature and degree of influence marketing brings to bear can influence the level of market success enjoyed.

Physical evidence This describes the tangible aspects of the delivery of a product to its customers. One example of this is the merchandising and display that contributes to the convenience and visual impact of products on display in a retail outlet and helps to make purchase more likely. Other examples are the premises used by organisations offering services. For example, banks are traditionally housed in premises that reflect security and a solid structure. A person considering which estate agent to instruct for the sale of a house may be influenced by the general appearance and décor of the agent’s premises and the displays of houses for sale – the physical evidence of the service they expect to receive.

Process The actual procedures and mechanisms involved in the delivery of a product or service are also very important. For example, a person deciding to book an eye test will probably go through a number of processes, starting with a telephone call to book a convenient appointment. On arriving at the eye test centre, they expect to be greeted and made to feel comfortable, particularly if this is their first occasion. Part of the process might involve help and advice in choosing suitable frames, answering questions, dealing with payment and booking a follow-up appointment. There may be several different people involved in the process, and for a marketer the challenge is to make the process work seamlessly and to give the customer what they expect in terms of ‘good advice’, ease of payment etc. Bar codes are useful for product-tracking and identification or the processing of a customer’s credit card at the time of purchase. A bar code is the block of black bars of different thicknesses printed on a product or its packaging. These can be read by the computers at cash points and help track and identify products: they put the price up on the screen and link to stock control to record another product sold and the number in stock reduced. Two things are important here: ● accuracy – customers will likely be upset if they are billed an incorrect amount ● time – customers expect all processes that go with purchase to be quick, convenient and not to waste their time.

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1.4

Putting the case

Q A

What is the relevance of the extended marketing mix for Butlins today?

Butlins is part of a service industry and so the extended marketing mix is of great relevance. People are key to its success and this is recognised with the training of Redcoats at its own academy. Its website (www.butlins.co.uk) gives details of the kind of people they are looking for and the training they will be given. It is not only Redcoats who are important; any Butlins employee with whom the customer comes into contact, from the

time they are considering booking to the time they leave at the end of the holiday, will also contribute to their view of the holiday. For people considering booking a holiday at Butlins for the first time, physical evidence in the form of leaflets, brochures or even images on the website will help them to build up a picture of the experience they are likely to receive. The process needs to be efficient and userfriendly, including easy ways to make payment, so that there is nothing to prevent the booking from taking place. There should be efficient systems in place on arrival and throughout the stay to make the holiday experience as enjoyable as possible.

1.2

Making it work Argos and the extended marketing mix Argos is one of the UK’s largest non-food retail chains, with annual sales exceeding £3bn and more than 540 stores. It uses the extended marketing mix as follows: People Argos places great emphasis on training staff and ensuring they provide a good customer service. If staff are friendly, know what they are talking about and are eager to serve their customers, this can provide an important competitive advantage in retailing. Process In 2002, Argos recognised the growth of text messaging and introduced ‘Text and Take Home’, which allows potential buyers to text at any time to discover if a product is available in their local store and, if they wish, reserve to pick up later. Argos has improved the in-store buying process by introducing

‘Quick Pay’ – a system that enables customers in store to check availability, order and pay for goods themselves by credit or debit card, thereby avoiding the tills. This in turn helps to reduce the queues in store in busy periods. Argos has a telephone service and a website which helps to ensure the process of buying its products is as easy as possible. The success of these developments has been recognised with many top awards. Physical environment In retailing, the look and layout of stores can be an important factor for attracting customers. Argos has invested heavily in store improvements to ensure customers are attracted by their shops and walk in. Between 2002 and 2003 Argos refurbished over 100 of its stores. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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Summary ● The most widely accepted definitions of marketing highlight the importance of the needs and wants of the customer as the focus of marketing activities. Kotler’s definition also demonstrates the importance of the exchange process, which can be expressed in different ways for different types of organisation. ● Marketing is a concept, a function of business, an umbrella term for a range of techniques, a process, though not one that can be applied ‘by rote’, and a system involving variable factors operating both inside and outside the organisation. ● Marketing can be used in a variety of ways, depending on the type of organisation in which it is employed. ● Approaches to marketing have changed from the early production orientation to the current marketing orientation, relationship and societal marketing. The growth and importance of consumerism is also significant. ● The marketing mix (the four Ps, and the extended marketing mix, seven Ps) describes the variable elements of marketing that together need to be organised to create an effective strategic approach.

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The marketing domain List of topics 1 2

The marketing environment Analysing the external environment – PESTLE

3 4

Social and ethical considerations Market segmentation

Introduction If marketing happened in a vacuum it would be simple enough: find a product people want, make it and tell them about it. Of course, the reality is that there are many uncontrollable factors in the world that affect any particular organisation’s intentions and which must be taken into account. Such factors can, in fact, help or hinder but they must be recognised and worked with, if marketing is to be successful. Many consumers now expect more than products and services that satisfy their needs and wants. They look for the added bonus of companies that demonstrate ethical practices and social responsibility. In order to be successful, organisations need to decide which customers they intend to serve and to determine how to address the needs of those different groups within their market.

1

The marketing environment

This whole marketing system has to operate in an environment that may either restrict or assist it, but which certainly affects it. Such restrictions include: ● ● ● ● ● ●

total demand availability of capital and labour competition (including international competition) legal requirements supply of raw materials channels of distribution – e.g. overseas agents and conditions.

Any restrictions must be carefully considered, because of their effect on the business.

Total demand This is always finite. A greater number of people buy razor blades than rugby balls, and rugby balls last longer too. Discovering the potential for any product is part of market identification and research, and marketing plans must always reflect this area of ultimate restriction.

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Availability of capital and labour Marketing clearly costs money, as does producing a product, but the details of corporate finance are beyond our brief here. Similarly labour to an extent, though specialist staff may link very directly to marketing (a call centre is just one example here that may involve large numbers of people) – good people help make marketing effective, a lack of them restricts it.

Competition This is easy to recognise as a restriction: if competitor A sells more, then the market is reduced for competitor B. Few companies are monopolies, and if they are, many governments will try to stop that situation continuing – or starting, in the case of mergers. Competition comes from other companies making and selling the same product, but it is more than this. For example, a book will compete with other similar books, but also has to contend with other products aimed at filling leisure time, such as the theatre, records, movies, television, video and DVDs, magazines and newspapers. Developments in these areas affect this market. For example, how much has the advent of in-flight movies reduced the number of books passengers read, and thus the level of book sales at airport bookshops? But competition is broader still: book purchase comes from discretionary income; it is in fact not essential. So competition comes also from other products entirely: the socks or pullover that need replacing, perhaps. Expenditure may even be reduced in a month when there is a particularly high telephone bill in the home of a regular book buyer. In addition, many books are given as presents, so items with a similar price which may also make attractive or appropriate gifts also feature as competition: pens, ties, costume jewellery and so on.

Putting the case

Q

What competition does Butlins face?

A

Butlins faces competition from other companies offering similar types of holiday both in the UK and abroad. Holidays abroad in locations where good weather is certain will seem an attractive

Stop and Think

2.1 option if the weather in the UK has been poor! A holiday (particularly a family holiday) involves quite a large outlay of money and so Butlins is also in competition with other options for the sum of money involved. For example a family may decide to spend the money allocated for a holiday on a new widescreen television or a computer. Butlins will promote the benefits of a family holiday, knowing that the competition is broad.

2.1

Think about the extent of broad competition for a product with which you are familiar, or something your own organisation may produce. The likelihood is that competition is broader than an initial, perhaps superficial, look suggests.

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Legal restrictions We are all affected by legislation and legislative change. Marketers need to look ahead – for example, how might new health and safety legislation affect a business, and would new laws in this area provide opportunity for manufacturers of safety equipment?

Supply of raw materials This is a consideration beyond our brief in terms of the economics involved. One obvious example is the dependence of food products on the weather and harvest; thus the fruit available to make them limits the number of apple pies that can be sold.

Channels of distribution The lack of an overseas distributor in, say, Malaysia may hamper a firm’s exports, but it is easily recognisable and action can, potentially, be taken to correct the situation. Restriction means just that. Some factors are at least bound up with the business and comparatively easy to work with. Other factors are truly external, and some act long rather than short-term. All can have direct impact on markets and marketing opportunities – for good or ill.

2

Analysing the external environment – PESTLE

Any organisation needs to be aware of the market it is operating in, in order to remain successful and competitive. Although it is not usually able to influence or change aspects of the external environment, it needs to be aware of their impact. The influences of the external environment have commonly been referred to by the acronym PEST (and more recently, PESTLE): political economic social/cultural technological legal and environmental. Examples of these are considered in more detail below:

Political This is concerned with issues connected to government and pressure groups. Changes in government can affect business and consumer confidence, as well as attitudes to trade with other countries. Activities by lobby groups such as those that campaign against the use of animal fur can affect those in the clothing industry. Shell were adversely affected and lost revenue because of the activities of environmentalists campaigning against their proposed disposal at sea of the Brent Spar oil platform.

Economic This is concerned with issues connected to the economy. Demand for a whole range of goods and services will be affected by average earnings, the level of disposable income (the amount of money left after buying essentials), unemployment levels and the level of

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consumer and business confidence. Clearly, demand for non-essential goods will decline when unemployment rises and levels of disposable income fall. If an organisation is importing or exporting, the value of currency will be very important in influencing the relative cost of a company’s products.

Social/cultural This refers to trends in population (demographics) and behaviour. By studying statistics on the age breakdown, births and deaths in a population, it is possible to predict with reasonable accuracy the demand for a range of goods and services. For example, an ageing population will probably require more healthcare products, whereas an increase in the birth rate could initially mean an increased demand for baby clothes and equipment, followed a few years later by increased demand for nursery school places. In many developed countries, there has been a trend over recent years towards a healthier style of living which has created demand for foods low in sugar, fat and salt and demand for health clubs, personal trainers and other means of gaining fitness. All counties and communities have their own culture and knowledge of this is vital, particularly to those organisations operating in other countries. In 2004, HSBC bank, which operates worldwide, ran a series of amusing advertisements highlighting misunderstandings resulting from different practices in different countries.

Technological This is concerned particularly with innovation and covers areas such as the use of raw materials, production processes and finished products. Due to technological advances, the development of plastic materials has reduced the use of glass bottles in the soft drinks industry. Car production has benefited from the use of robotics, making the process faster and more efficient. The internet and e-mail have created new product opportunities worldwide, certainly prompting the sale of more computers and the opening of internet cafés (while e-mail has no doubt reduced the market for post and sent the fax machine market into decline). The internet has also resulted in an important new distribution method – many people now shop on-line.

Legal This is concerned with law and regulation. A change in quotas on foreign goods can either dramatically increase or decrease the ability of an organisation to trade successfully. Changes in the law can bring opportunities or threats to those providing particular goods or services. For example in 2002 a law was passed in the UK that before old fridges and freezers could be scrapped, they had to have all their ozone-depleting substances removed. Effectively this means that they have to be disposed of by specialist waste disposal firms – an opportunity of extra business for them. However, this law has created a problem for retailers selling new appliances who had previously disposed of old fridges and freezers as part of their service to customers; they now have to pass on the cost of this service to their customers.

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Environmental This is concerned as its name implies with environmental issues and is linked to societal marketing discussed in Chapter 1. There is increasing concern over use of the world’s natural resources and issues such as pollution and over-packaging of products. For example Procter and Gamble, who produce Pampers nappies (among other consumer goods), give the following information on their website: ‘The traditional chlorine bleaching process is not used. With smaller bags Pampers saves raw materials and energy: less packaging, less waste and fewer lorries for transport.’ There is an old adage that is relevant to an organisation’s approach to these external environmental factors: ‘There are three types of companies: those who make things happen; those who watch things happen, and those who wonder what happened.’

Stop and Think

2.2

To demonstrate the possibilities here, take a few moments to focus on just one of the headings above. If you consider social changes, for instance, focus on yourself and your family and consider how your way of life has changed in, say, the last five years and how such change has affected what you buy. If things that you experience are common to many people, then their impact may be substantial and widespread. For instance, if you have a computer connected to the internet, how has that changed your buying habits?

Making it work How United Airlines assessed and met challenges from the external environment United Airlines assessed issues facing them as follows: Political American politicians are under pressure to protect lucrative USA flights from overseas competition within the USA. Politicians are also involved in European/US negotiation of bilateral agreements and in many countries it is they who frame and enforce anti-trust legislation. Economic There is pressure to create ‘open skies’ as well as to force down prices on high-traffic routes such as Heathrow. In recent years, airlines have had to cope

2.1 with higher landing charges as well as additional taxes imposed upon the air travelling public. World events such as SARS and the Iraq war also have a direct economic influence upon airlines’ activities. Social/cultural The SARS epidemic and various acts of terrorism each caused a significant fall in numbers travelling to certain destinations, though over time travellers regain confidence in destinations and in modes of transport they had temporarily deserted. Technology Faced with rapidly advancing technologies, United is actively aware of an ongoing need to invest in aircraft and update its fleet, whilst at the same time providing more customer service benefits both in-flight and on the ground.

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2.1

Making it work (continued) Legal Like all airlines, United must observe the rules and regulations of the USA’s Federal Aviation Authority and the UK’s Civil Aviation Authority – this leads to heavier costs and more administration. European legislation focusing on opening up the market for direct flights between the USA and Heathrow could lead to increased competition. In response to changes identified through its PESTLE analysis, United has:

●

developed a route structure spanning five continents and offering the most non-stop flights from the Pacific Rim to the USA

●

developed the Star Alliance network, bringing together 15 carriers who offer services to over 700 airports in more than 120 countries

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set new standards for the comfort and safety of its aircraft fleet

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further developed and invested in its airport lounges

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simplified check-in procedures with its e-ticket service

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used changes in computer hardware to provide large-screen electronic display systems as well as gate readers and baggage scanners to improve the tracking of luggage.

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

Test yourself

2.1

Suggest two examples of factors in the external environment that influence marketing success; pick one that acts positively, another that acts negatively (it will help to make this specific to a particular product).

2.2

Putting the case

Q

What were the external environmental issues facing Butlins in the 1970s?

A

External environment issues can be categorised using the acronym PESTLE: political, economic, social/cultural, technological, legal and environmental. From the case study, it appears that the two major external factors facing Butlins in the 1970s were economic and social/cultural. Economic –in the 1970s people had more

disposable income that they could use on holidays, and unemployment was relatively low. Tour operators offered cheap holidays abroad. Social/cultural – People’s attitudes to holidays had changed since the post-war years and they no longer found the regimented look of the camps and the way they operated with the loud-speaker system and communal bathrooms attractive; these reminded people more of a military camp than a place of fun. People were becoming more adventurous and holidays abroad had the added attraction of good weather.

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3

Social responsibility and ethical considerations

3.1 The issues in question Marketing is a force in the world. By its actions it can do good, helping consumers, providing choice and, in its social responsibility role, literally aiming to right wrongs and change things for the better. But it can also do harm. Consider two examples: ● If a product’s packaging is, when discarded, causing harm to the environment, should the company concerned feel a social responsibility to tackle the problem? ● Is it ethical for a company’s advertising to use images that offend some people, even though sales are increasing? Should they change this even if it risks losing sales? In the last case things are not straightforwardly black and white. Taking the moral high ground poses many questions, for instance: ● ● ● ●

Will customers notice such a change? What will customers think of a change being made? What costs and effect on profitability will be involved? What will the competition do?

and, ultimately, what will be the effect on the business of one course of action rather than another? Perhaps it is worth considering matters at three levels here.

Seriously unethical behaviour This is still difficult to define, but much of it will be so bad that it attracts legislation. It would be wrong to sell untested medicines, for instance, and in most countries there are stringent measures in place to prevent it. Alongside this kind of thing, there are matters that are not actually illegal, but which are subject to voluntary codes. While a poor medicine may kill people, a bad estate agent may only inconvenience (though they can cost their customers money if they behave unprofessionally), so here, as in many cases, there are voluntary codes administered by the industry. Some people might feel this is insufficient, indeed there are regularly moves to obtain legislation here. The lines between such things are ultimately a matter of opinion. An unsafe product may not actually be illegal, but it is likely to attract regulation if it continues to be sold and do damage.

Borderline activity There is a middle area of marketing activity which stretches from practice that is, or has become, accepted, to practice that is not acceptable, if not over the edge into the first category. Some individual marketing practices span this range of themselves. One such, to give an example familiar to us all, is what is called confusion pricing. Essentially this is what happens now with such things as mobile telephone tariffs. The complexities have piled up and customers now find it almost impossible to make a true comparison between competitive offers – which of us can put our hands on our hearts and say we know we have the best deal? This has become accepted as the norm, though it still

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annoys many and there is always the chance of one operator appealing to the annoyed with a different arrangement and creating an edge on competition. The terms used to encourage people to switch credit cards are another example.

Welcome ethical behaviour This term describes things that customers, indeed the wider public, approve. Again there is clearly a balance involved, but we all probably think it is right for companies to be environmentally friendly as much as possible, using recycled paper and promoting their cosmetics without unnecessary animal testing being involved. What is regarded as ethical or unethical may be difficult to nail down, but much is recognised by many people as clearly on one side of the line or the other. Part of the motivation here for ethical and caring behaviour is personal. It would be nice to think most of those in charge – and in marketing – want to run their business that way simply because that is what gives them satisfaction. But the profit motive is strong and the amount of legislation and comment suggests that there are plenty of exceptions. Even so, some businesses are motivated in this way; a recent example is OneWorldHealth, the first non-profit-making pharmaceutical company, an American enterprise aiming to provide low-cost medicines to the Third World. Perhaps there is a trend here that will develop.

3.2 The effects of ethical/unethical marketing In practical terms, it is true to say that the way an organisation conducts itself has a direct effect on consumer views of it; this is also true of the media. If things are regarded as sufficiently bad then the ultimate effect is a boycott. This has happened many times, and though it may have only gradual effects, like tinned tuna being boycotted because of the way in which certain fishing methods killed dolphins, sometimes a long-term campaign is set up which can result in radical and permanent change. Started in the US, the group United Students Against Sweatshops is now a global force. Any dissatisfaction can result in some potential customers voting with their feet and sales being reduced. Looking at ethical problems directly stemming from marketing, it may be useful to flag some examples. The key here is less whether such things are ‘unethical’ in some measurable sense (some things are wrong however you look at them), but whether a sufficient number of consumers feel they are bad for their subsequent actions – predominantly not buying – to affect sales. For example:

Bribery Normally this is frowned upon, and there are regularly scandals linked to planning permission and thus to the marketing of new homes. In international circles some compliance with local practice seems acceptable; in Mexico, for instance, international companies pay an illegal ‘extra’ charge to the post office to guarantee the proper delivery of their mail. Gifts and money can be involved here.

Pricing Often we see prices stated as from a particular amount. If a store advertises this, and only one product is for sale at such a price, is this unethical? Certainly it can annoy customers.

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Images Advertising that offends or presents an unsuitable stereotype may be best avoided. Many people will remember Benetton’s startling images of people dying of AIDS or on death row causing problems, and campaigns involving children or elderly people can present difficulties. Sexual images too are permanently in the news and, while sex does seem to sell, too much in this direction can prevent some people from buying and cause resentment amongst others.

Clash with culture Nestlé ran into problems promoting baby milk in the developing world; its advertising was felt to put people off breast feeding and the cost meant that some mothers diluted the feed and caused nutritional problems for their babies. There are many other issues too: deception in selling, industrial espionage, wasteful packaging, confusion pricing, clashes with the environment and more; and it would be wrong to leave this topic without mentioning tobacco and alcohol. Is advertising some products simply ‘wrong’? It is not illegal (though there are certain restrictions), but it attracts much criticism. Without going into the details – and it is a confused picture – it makes the point that marketers always need to exercise responsibility and that judging the mood of the market on such things is very important. What does all this mean? It is another given, another area that marketers must take into account in deciding how they do things. It is not always easy to judge; certainly breaches of advertising codes are sometimes a case of sailing too close to the wind and the line is not easy to judge (except perhaps with hindsight). The effects of getting it wrong are clear: ● Illegal action will result in legal sanctions. ● Breaching industry and other codes can result in sanctions. ● Any action that consumers disapprove of can result in bad publicity, reduced sales or worse, like a boycott. The reverse is also true. Organisations who get this right, certainly those making striking attempts to be socially responsible and/or ethical, can attract good publicity and see sales rise as a result. For example, many products are now promoted by stressing their ‘green’ credentials (though if such claims are spurious, this can do more harm than good). A growing number of organisations now overtly embrace manifestly ethical approaches as a main platform of their offering; certain banks and investment funds are just one example. Because of the many ways that this area impinges on consumer attitudes, it is an important area for marketers to work at; besides, as has been said, one would hope that those involved in business would prefer not to cause problems of this sort, indeed to contribute positively where possible.

Test yourself

2.2

Again with a product in mind, suggest a marketing practice that is of questionable validity, i.e. that might arouse customer disapproval and thus be counterproductive.

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2.2

Making it work Nestlé’s social responsibility

EcoLink (an education Trust) in providing reliable sources of clean water in South Africa.

Nestlé is the largest food and drink company in the world, with brands such as Kit Kat, Perrier and, of course, Nescafé.

●

One of Nestlé’s responsible targets is for sustainable development. This means producing products today without compromising the needs of future generations. The increased world demand for food means that there is more pressure on land. With other food manufacturers, Nestlé created the Sustainable Agricultural Initiative (SAI). This group of manufacturers is co-operating to make production more sustainable on a global basis, and is particularly concerned about the responsible use of water, as water that is used for industry is not available for drinking. Nestlé only uses a small proportion of the world’s water, but still feels it should limit its use. Water is used in:

From 1997 to 2001 Nestlé’s volume of production increased by 32%, but its water usage actually fell. This is due to new wastewater treatment plants and upgrades and better management of evaporation and leakage. Nestlé invests over £43 million per year for protection of the environment, with 30% of this targeted at water. It also employs a team of auditors to check that each part of the company is fulfilling its obligations under its corporate business principles. Whilst these involve costs, Nestlé also benefits in dealings with its partners, suppliers and consumers, who are happier to work with a responsible business.

●

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

Agriculture – 70% of all water is used this way; as a major producer, Nestlé invests in environmental protection and water education. It partners

Manufacturing – Nestlé limits the use of water in manufacturing operations and/or recycles waste water.

2.3

Making it work Cadbury Schweppes’ ethical business practices Cadbury Schweppes is a leading international confectionery and beverages operation with worldwide brands such as Dr Pepper, Trebor, Halls and, of course, Schweppes and Cadbury. One of its stated goals is ‘To be admired as a great company to work for and one that is socially responsible to its communities and consumers across the globe’. This is called corporate social responsibility (CSR).

●

Manufacturing — The company is aware of responsibilities to communities and the environment. For example it tries to improve energy efficiency, treats waste water and controls the release of gases.

●

Distribution — Reducing fuel consumption is important to the company – drivers are trained in the most fuel-efficient ways to drive.

●

Consumers — Cadbury Schweppes is aware of the changing needs consumers have, such as a desire for a range of healthier products, and tries to provide choices. It believes in being truthful and labels its products clearly.

●

Employees — Vacancies are advertised worldwide on the company’s websites and the business believes it treats its employees in a socially responsible way through high levels of consultation, good levels of pay and rewards such as share options, training and development and a good working environment free from harassment.

Cadbury Schweppes believes that ethical behaviour can benefit businesses by attracting:

●

more customers

●

the best people to work for the business – and keeping them loyal and motivated

●

investors to buy the company’s shares.

Cadbury Schweppes treats ethical behaviour as a core part of its practice and it has an effect in the following areas:

●

Suppliers — It checks potential suppliers to ensure they are behaving ethically and helps its current suppliers to behave ethically.

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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2.3

Putting the case

4

Q

Is it unethical for Butlins to advertise a very low price that is only available for one week in the most basic accommodation?

A

This would not necessarily be considered unethical and is fairly common practice in a number of

industries, particularly where there is intense price competition. However, any company needs to bear in mind the attitudes of its customers to this sort of practice. A company such as Butlins would suffer if customers felt they were being misled by the information they were given.

Market segmentation

Before an organisation can make any decision associated with marketing, it must ask and answer two fundamental questions: ● Who are our customers? ● What markets are we operating in? Historically, organisations treated their markets as though all the people in them were homogeneous (i.e. similar) and provided them with a single product. Now it is recognised that people in markets have different needs and wants, and the idea of a single product being equally acceptable to all is unrealistic. People going on holiday do so for various reasons and the vast range of locations and types of holiday demonstrate that there are numerous market segments within the holiday market. If a company is marketing to other organisations, rather than the end consumer, then these organisations are the company’s customers. A company needs to clearly identify those market segments (people or organisations) that are actually interested in their products/services. Once a company has done this it can use an appropriate marketing mix for each identified segment.

4.1 Approaches to market segmentation Mass (undifferentiated) marketing Here all buyers are considered as the same. This has the advantage of economies of scale and reducing costs. However, the concept of ‘one size fits all’ is difficult to sustain in today’s drive for mass customisation and differentiation. Many organisations are now moving away from mass marketing. Even Coca-Cola, which was originally only available in one size of bottle, is now available in a number of types and sizes of container as well as a number of different formulations, spreading its appeal into different sectors. The earlier concept of only offering one product is not now in keeping with the requirements of the market place.

Differentiated marketing This approach targets distinct customer groups, using marketing efforts appropriate to each segment. This may involve developing different products or offering different mixes

market segmentation Helps companies identify and understand the characteristics of potential customers for their products and services. There are various bases for segmentation which can be used in a number of ways, depending on the market and the product or service on offer.

market share The percentage of the total market that is using a particular product or service.

market segment A discrete group of consumers sharing common characteristics (e.g. buying habits, patterns and preferences), who with other groups of consumers (segments) comprise the total market for a product or service.

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of pricing, promotion or distribution arrangements. This approach should result in customer needs being more closely matched. The potential disadvantage of additional costs in developing new products and implementing different marketing programmes to match individual segments should be offset through additional sales. It is important that the segments are large enough to generate the additional income. The majority of larger organisations adopt this approach to market segmentation.

Niche marketing Niche marketing is seen as targeting a more narrowly defined group, typically a small market segment. Smaller companies with limited resources often choose to operate in a niche market, and can be very successful; often consumers will pay a premium price for the benefits they receive. However, there are risks in total reliance on one segment of the market, for example, from an economic downturn or a larger organisation deciding to enter the market segment.

Individual marketing (also known as one-to-one marketing and micro marketing) This offers customised products or services to meet an individual potential customer’s exact needs and is most likely to be found in business-to-business markets. This type of marketing approach can also be found in the automotive industry For example, Volvo can customise a car from their range, with the choice of about 4,000 options of colour, engine, trim and so on (other motor manufacturers offer similar approaches).

4.2 Bases for segmenting markets In order to describe market segments there are a number of different categories/ approaches that can be used as follows:

Geographic This can be defined by country, areas of a country, urban/rural etc.

Geo-demographic People with similar economic, social and lifestyle characteristics tend to live in the same neighbourhood and can therefore be considered as a market segment. For example in the UK every postcode in the country is classified under a particular type of housing.

Demographic This is the most widely used method of classifying consumer market segments, and covers: ● ● ● ● ● ●

age gender social class, occupation income level of education family characteristics.

For example, Lego has successfully produced ranges to suit different age groups. Many magazines are targeted specifically at different age groups and males or females. People

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with higher incomes can afford to buy expensive cars. The better-educated tended to be the first to buy healthier and more environmentally friendly goods.

Lifestyle/psychographic segmentation Lifestyle is concerned with grouping people according to their attitudes, interest and opinions. Psychographics seeks to group people according to their personality traits. Research is carried out asking people to agree or disagree with a number of statements, such as ‘I am worried about the possible effects of GM food’, ‘I like to take part in extreme sports’, in order to build up a picture of different types. This may then be used in promotional material.

Benefit segmentation As the category name implies, this focuses on segmenting the market according to the benefit the customer is receiving. The different types of phone and tariffs offered by mobile providers are a good example of this approach. For some the benefit of a mobile phone is just to talk to friends; others want a fashion accessory; others want all the extra functions available; some only want it for emergency use.

Behavioural segmentation This is concerned with usage rates and brand loyalty. Heavy users may well need a different marketing mix from light or occasional users. The Pareto 80/20 rule often applies here, e.g. 80% of your organisation’s profit may come from the 20% of customers who are heavy users of your product. The buying occasion is important for volume and price; e.g. compare wine bought for a special occasion meal to wine bought for a party.

4.3 Segmentation in industrial markets Geographic, benefit and behavioural segmentation is most likely to apply to industrial markets. In addition there may be the following types of segmentation: ● by industry – for example a manufacturer of alarm systems developing different systems for retail shops and warehouses ● by size of company – large companies often buy direct from the manufacturer and have more power in negotiating price. Small companies often buy via a middleman whom they may rely on for technical support/product education. Ideal market segments should meet the following four criteria: 1 Homogeneous (similar) within. Consumers within each segment should be as similar as possible with respect to the criteria used to segment them. 2 Heterogeneous (different) between. Each segment should be as different as possible with respect to their likely responses to the marketing mix variables and their segmenting dimensions. 3 Substantial. The segment should be large enough to sustain costs and be profitable. 4 Accessible. It must be possible, and cost-effective, to communicate with the group

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that constitutes the segment. It is perfectly possible to identify very small segments that fail to be useful in marketing because there is no good way to access them. There are many examples of incorrectly defined businesses. If we consider the vast leisure industry, sports shops selling running shoes, track suits and associated athletic wear have been known to define their business in terms of providing athletic apparel and would appear to be trying to aim their business at athletes. Yet much of the apparel sold by this type of shop is worn not by athletes, but by people who wish to be fashionable, or who simply want good general leisure wear. Even an apparently simple market consists of segments, in this case at least two: athletes and a more general sector. Therefore it is important for organisations to identify correctly the business they are in, and relate it to the characteristics of the market. Thus they can correctly identify their potential customers. This will ensure that all their marketing efforts can be directed at potential customers so that resources such as time, money and effort are used efficiently. By carefully considering the make-up and characteristics of the potential markets, there is a greater chance of the organisation being successful.

Test yourself

2.3

Name and describe the several characteristics that a market segment must have in order to be viable in marketing terms.

4.4 Advantages of segmentation Segmenting markets requires thought and analysis. This uses the organisation’s resources, so the work must be financially justified. The benefits of undertaking such work must therefore be identifiable and shown to be of value.

Ability to compare marketing opportunities The major benefits can be considered as being able to see and compare marketing opportunities that exist within the marketplace. These could be in the form of gaps in the market where a particular benefit is not readily available from other suppliers. Therefore the attributes required could be offered to that particular segment to fill the perceived gap. Care must be taken to ensure that the segment is sufficiently substantial to allow an adequate return on the investment.

Effective allocation of marketing budget Targeting segments can also help guide the effective allocation of the marketing budget. The aim is to concentrate expenditure on markets that will provide the highest return, and hence be the most profitable. It helps to ensure that the marketing effort is not wasted on products and services that cannot be effectively, or competitively, offered by the organisation.

Ability to make adjustments Segmentation also allows an organisation to make fine adjustments to the marketing mix to specifically suit the market. It may only be necessary to modify one aspect of the

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mix to change the effect or perception of the offering, and therefore make it more appealing to a chosen segment. The concept of segmenting markets should ensure that marketing can achieve the specified objectives of the organisation and maximise the profit potential. This can only be done if: ● ● ● ●

the characteristics of the individual market are known the influence of specific buying groups upon those markets is understood promotional activity is directed to the specific market segments these segments are exploited to achieve the defined marketing objectives.

2.4

Making it work How BIC segments its market

virtually every room. Everyone is allowed to use any available pen, so there’s no great problem if one is misplaced Households tend to seek lower prices and regularly make new purchases of assortments of writing instruments based on current needs.

BIC is a global brand whose name in associated with its products, for example BIC biros. It has two main sets of customers:

●

retailers to whom it sells directly

●

end consumers that retailers supply.

2

Seeking specific benefits. Here consumers are looking for a more personalised item; something they regard as ‘my pen’ which they are reluctant to let anyone borrow. Buying decisions will typically take longer and involve careful consideration over choice. Key features looked for will include the pen being comfortable to hold and able to produce writing that reflects the individual, e.g. by colour or handwriting style. Marketing activity therefore needs to focus on these more sophisticated individual needs.

3

Impulse buy. Impulse buys are unplanned; purchasing in this segment is far more emotional and consumers are likely to be attracted by innovative design. Attention-grabbing point of sale displays are essential to stimulate impulse buys.

The following are examples of how BIC segments its market: Demographics: BIC uses this approach to some extent, recognising that different retailers appeal to different types of customer based on age profiles and income and that different groups of end consumers seek different products, for example male and female shaver requirements. Promotion, advertising and presentation of products are therefore tailored to these differences. Behavioural: Based on usage, in addition to its worldleading range of pocket lighters, BIC introduced BIC ‘Megalighter’, designed to light barbecues and BIC ‘Megalighter for candles’ in 2004. Benefit/lifestyle: BIC’s research into its stationery product category showed that there are three distinct types of writing instrument shopper: 1

Best value for money. Typical of offices and households that have writing instruments in

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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Putting the case

Q

In the years up to the 1960s, how would you describe the Butlins approach to market segmentation?

A

Approaches to market segmentation fall into four broad categories: mass (undifferentiated) marketing, differentiated marketing, niche marketing and individual marketing. It is clear that there was no attempt at individual marketing, and the market served by Butlins was too large to be considered niche. There is no evidence in the case

2.4 study to suggest that Butlins offered different groups of people different marketing mixes – indeed everyone was given three meals a day and there was no opportunity for self-catering, as Billy Butlin insisted people went on holiday to escape the chores of cooking. The loud-speaker system, the rows of chalets and way in which the sittings for meals was organised suggests procedures that would benefit the organisation in terms of convenience and costs. These points suggest an undifferentiated approach, more common then than now!

Summary ● Marketing is complex and dynamic, and factors affecting business are constantly changing. ● Frameworks such as PESTLE are useful in helping to analyse relevant external environmental issues so that organisations can take advantage of opportunities and minimise the effects of any threats. ● Increasing numbers of consumers are concerned about ethical issues, how businesses use scarce resources and the impact on the environment of various business practices. This is challenging for organisations, but also provides opportunities for marketers who show themselves to be genuinely socially responsible.

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Part One Practice Questions Section A 2 mark questions: 1.1

1.2

1.3 1.4 1.5

Explain what is meant by the exchange process for: a) a shop selling a suit b) a charity. In a commercial organisation, for example a car manufacturer, which two main functions of the business are likely to be in conflict with the marketing department? Explain what is meant by ‘derived demand’, using an example to illustrate your explanation. Which two approaches to marketing have evolved from the marketing orientation approach? Explain, using an example, what you understand by borderline unethical behaviour.

3 mark questions: 1.6 For any business, the term marketing can be used to describe five different areas. Two of these areas are marketing as an ongoing process and marketing as a system linking the market with the customer. What are the other three areas? 1.7 What are the three extra Ps in the extended marketing mix for services? 1.8 What does the acronym PESTLE represent? 1.9 What are the main differences between mass marketing, differentiated marketing and niche marketing? 1.10 Name three criteria for successful market segmentation.

Section B 25 marks each: 1.11 a) Outline the main differences between production, sales and marketing orientations and explain which approach is appropriate for Butlins and why. b) Explain what you understand by the term ‘consumerism’, and discuss whether Butlins should view the growth in consumerism as a threat. 1.12 How could an analysis of the external environment help Butlins remain competitive in the future? 1.13 a) Explain what is meant by market segmentation and why it is important to Butlins. b) Using recognised bases of segmentation, suggest how Butlins could segment its market.

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Market identification Contents 3 4

Marketing intelligence International marketing

Overview The second part of this study text begins by looking at the role of marketing intelligence in helping any organisation to make informed decisions. It looks at a wide range of techniques of marketing research and their applications and limitations. It considers the marketing research process and how all the elements of marketing information can be best managed to give meaningful information. Part Two also looks at the reasons why organisations enter overseas markets and some of the methods they use to do this. It builds on information from Part One by looking at the impact of the outside environment on international marketing decisions for a variety of organisations and identifies what changes may need to be made to the marketing mix.

Learning objectives         

The objectives of these two chapters are for you to be able to: describe the range of marketing intelligence distinguish between different sources of marketing information assess the benefits and limitations of primary and secondary information explain the steps involved in the marketing research process identify the components of a marketing information system describe reasons for entering international markets explain means of entering international markets use methods to assess the viability of international markets identify changes needed in the marketing mix.

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CASE STUDY

Coca-Cola The Coca-Cola company is the world’s leading supplier of soft drinks. Along with its most famous brand which accounts for about 70% of its sales, the company has developed a product range to meet the different needs of its consumers. In soft drinks alone, this means a range that includes fizzy drinks, juice, water, energy drinks, sports drinks and cordials. In order to establish successful patterns of distribution to its global customers, Coca-Cola has a network of bottling franchisees across the world. To find out what consumers want, Coca-Cola carries out marketing research. For example, an analysis of the demographics of consumers in Great Britain revealed a growth in smaller households, plus a change in the way people shop. The research identified a need for a bottle size that was ideal for ‘top-up shoppers’ – people who buy extra bottles for example from petrol stations, in addition to their regular weekly shop – or one or two-person households to share over a meal. Research showed that 2 litre bottles are used mainly by families, and smaller 500ml bottles are consumed ‘on the move’. A study of occasions when people drink sports drinks highlighted the importance of making them available at leisure centres. Other research showed that the original Coca-Cola glass bottle is best targeted at restaurants and special party occasions. After Coca-Cola had successfully launched Coca-Cola Vanilla in the USA, they decided to test its potential in Great Britain by carrying out taste testing to identify the best formula/flavour for the British market. They also conducted research to determine which of a number of alternative pack designs to use. The results of their research helped them launch Coca-Cola Vanilla successfully in the UK.

Secondary research carried out by Coca-Cola in the UK identified an opportunity to offer mothers a new product suitable for children aged 2–5 years and linked to Winnie the Pooh characters. The product and its packaging appealed both to mothers and children, as the product was pure juice with no added sugar, colourings or preservatives combined with well-loved characters. Because of the difficulties in conducting research with very young children, CocaCola carried out group interviews with mothers and children to identify preferred flavours and packaging. The market for bottled water is still increasing. CocaCola introduced Ciel water into Mexico after research showed that Mexicans drink a lot of bottled water – 142.8 litres per person in 2002, compared, for example, with Japan where only 11.5 litres per person were drunk in 2002. However, even a worldwide organisation can make mistakes. In the 1980s, Coca-Cola launched ‘New Coke’ in the USA after spending $4million on marketing research. The main basis of the launch was the results of 200,000 blind taste tests. In these tests, where consumers are unaware of the brand they are tasting, ‘New Coke’ outperformed both Pepsi and the existing Coca-Cola. On the basis of this information, the company decided to replace Coca-Cola with ‘New Coke’. The launch of ‘New Coke’ created a public outcry, with Coca-Cola receiving over 40,000 letters of complaint and over 6,000 calls a day to the company’s 0800 free phone number. After only 87 days the company responded to the public’s demands and reintroduced the original Coca-Cola formula. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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Marketing intelligence List of topics 1 2 3

Information and research Sources of information Reliability

4 5

Marketing research process Marketing information system

Introduction Information is vital if organisations are to make informed decisions. Such information can come from a variety of sources, some more reliable than others. Marketing information does not always need to be in the form of statistics; indeed much valuable information can come from opinions of consumers, sales people, managers and the business and marketing press. Often companies can feel overwhelmed by the sheer amount of information at their disposal and so they need to have a system in place to manage it effectively and the means to identify what information is valuable and what is less so.

1

Information and research

Marketing intelligence is a term that encompasses a broad range of information and sources that help in the decision-making process. It is synonymous with the term marketing information.

1.1 Information Successful organisations must meet the needs of their customers and in order for this to happen managers need information to make informed decisions in a number of areas. The main areas where information is needed are as follows.

Customers The type of customer information an organisation needs will depend on the type of business it is in and the market in which it operates. For example, in a business-tobusiness or industrial market, decisions are usually reached by a group of people rather than just an individual on his or her own and it is important to identify the key people to influence. All organisations will need information on their customers and potential customers and their buying patterns, to be able to meet their needs. Different types of customer and methods of communicating with them will be dealt with in more detail in Chapter 8 on buyer behaviour.

marketing intelligence A term that encompasses a broad range of marketing information and sources that help in the decisionmaking process and is synonymous with the term marketing information.

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The market and competition An organisation will want to know the size of the market by value and volume and what the trends are. The type of competitor information an organisation needs will depend on the type of business or industry it is in, and the type of competition it faces. However, most businesses will need to know: ● who their competitors are, including new entrants to the market and any businesses offering a substitute product or service ● what product range or service portfolio the competitors offer, who their customers are and what their marketing mix is ● what their strengths and weaknesses appear to be.

The environment As outlined in Chapter 2, all organisations need to analyse the external environment (PESTLE) to determine possible effects on the marketing of their products or services. They need to gather information on trends and possible changes in the political, economic, social/cultural, technological and legal environments, and possibly also environmental issues such as pollution.

The marketing mix

marketing research The systematic gathering, recording and analysing of information relating to the marketing of goods and services.

market research The systematic gathering, recording and analysing of information relating to markets. It has come to be seen as an important subset of marketing research.

An organisation needs to know what customers think of its product and may want information to help it decide whether to extend its range or launch a new product. It will want answers to questions on pricing, for example how should it set its prices, and should it charge different prices to different customers. It will want information on the best ways to promote its products and the costs involved and the best distribution policy; for example, how the internet could be used as both an alternative distribution system and in promotional activities. Answers to questions like these will help it determine its marketing mix.

1.2 Research Marketing operates in a dynamic arena. The net effect of this can be summed up in one word: risk. Business is an uncertain undertaking. For example, launch a new product and, with a possible success rate of only one in ten, the risk is all too obvious. In some businesses, with the long lead times and massive capital undertakings of, say, manufacturing an airliner, this effect is maximised. Management must assess risks in all its decision-making and, while there may never be one, provable right answer, what is decided always matters and there may regularly be a great deal hanging on the decisions that are made. Decisions are assisted by knowledge and in this context information really is power; this leads to the role of marketing research. Marketing research covers the broad scope of marketing activity, whereas market research refers to research into markets, and has come to be seen as a subset of marketing research.

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The key factors characterising marketing research are: ● It encompasses a range of different kinds of research and these can be deployed to help in a variety of ways. ● While research may employ ‘scientific’ methods (statistical techniques, amongst others) it is not infallible; it provides guidance and this supports and enhances the management judgement that is always necessary. ● Despite its ultimate fallibility, it is a valuable aid in determining marketing strategy, the marketing mix and identifying marketing opportunities. ● It is a means to an end and can help improve marketing effectiveness and reduce business risk. Five key uses for marketing research are to: 1 Identify the size, shape and nature of a market, so as to understand the market and marketing opportunities. 2 Investigate the strengths and weaknesses of competitive products and the level of trade support a company enjoys. 3 Test out strategic and product ideas, which help to define the most effective customer-led strategies. 4 Monitor the effectiveness of strategies. 5 Help to define when marketing expenditure, promotions and targeting need to be adjusted or improved. The variety of purpose listed above makes it clear that marketing research is important in the planning stage as well as providing a means of checking and refining actions as operations proceed. Companies, especially those for which budgets are tight, are always concerned to ensure research is a worthwhile investment. Best results come when their marketing and sales planning is influenced by the results of research. In other words, when research pays for itself by providing a basis for change and improvement in operational matters. It is not possible to research the future. Research is of course very helpful in predicting future behaviour, but research is essentially different from prediction; and this is something that must always be borne in mind. When attempts are made at prediction (e.g. political opinion polls, or asking consumers to predict whether they are likely to buy a particular new product), serious errors can be made. The role of research, therefore, is to improve the basis on which forecasts and decisions are made. It must be made to work hard and accurately to focus on information that does help. So in summary, the two basic purposes of research are: ● to reduce uncertainty when plans are being made, whether these relate to the marketing operation as a whole or to individual components of the marketing mix such as advertising or sales promotion ● to monitor performance after plans have been put into operation. In fact, the monitoring role itself has two specific functions: it helps to control the execution of the company’s operational plan and it makes a substantial contribution to long-term strategic planning.

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Although research can certainly be extremely useful, it shouldn’t be regarded as an end in itself, or something guaranteed to give the ‘right’ answer.

Test yourself

3.1

What are five key uses for marketing research and what are the two main purposes of marketing research?

3.1

Putting the case

Q

Has marketing research always given Coca-Cola the ‘right’ answer?

A

The case study shows that marketing research has been very important to Coca-Cola’s success. Coca-Cola used research to identify changes in demographics and the way people shop and this led to them providing different sized bottles and packs for different occasions. It shows that CocaCola successfully launched Coca-Cola Vanilla in the UK after carrying out marketing research to find out preferred flavours. Other examples from

secondary (desk) research Information or data that already exists as it has been collected for another purpose, for example government statistics.

primary research Original research, collected to solve a particular problem.

continuous research Research which is carried out at regular intervals to enable organisations to monitor trends or patterns.

2

the case study of the successful use of marketing research include the launch in the UK of a new children’s drink, and in Mexico the introduction of Ciel bottled water. However, the fact that marketing research cannot guarantee success is shown by the failure of ‘New Coke’ in the 1980s despite a spend of $4million on research. In blind testing people preferred the taste of ‘New Coke’ to both the original CocaCola and Pepsi; perhaps the research didn’t cover important questions concerning people’s views on replacing Coca-Cola with a new product, as the volume of complaints resulted in the reintroduction of the original Coca-Cola.

Sources of information

There are three broad areas of sources of information a business can use: ● within the organisation ● secondary (desk) research ● primary research. Some research is continuous. For example, many large organisations commission annual surveys to gather information on their corporate image. Customers are asked to rate the organisation on a number of factors and this information is used to give a picture of the organisation’s corporate image. As this is continuous research, the organisation has the opportunity to address any issues that appear to be giving it a negative image and then to monitor whether these changes have brought about an improvement in the corporate image. A good deal of primary research is ad hoc. For example, a college may be considering developing a new course, and commission ad hoc research among potential students and employers to find out exactly what is needed.

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2.1 Information from within the organisation Use of the customer database is a major marketing tool for many companies. The research and information an organisation can generate from it will be determined by what information is recorded and the degree of expertise in identifying what is needed. Many large organisations such as supermarkets and main dealer garages use the customer database to research into their customers’ buying patterns as well as identifying the market segment more closely. Many marketing activities such as the generation of direct mail rely on an accurate and meaningful database.

ad hoc research Research which is a ‘one-off’ and designed to answer a specific problem.

3.1

Making it work How Wal-Mart increased sales of nappies and beer The US supermarket chain Wal-Mart analysed their customer database and discovered some interesting buying habits. In particular they discovered that there was a significant link between purchases of beer and purchases of nappies. It was decided that the reason for this was that

fathers were stopping at Wal-Mart – on instruction – to buy nappies for their baby. Since they could no longer go down to the pub as often, beer was being bought as well. As a result of this finding, the supermarket chain supposedly rearranged the store to have the nappies next to the beer – resulting in increased sales of both! Source: www.mediaweek.co.uk.

The sales force is close to the customer and can supply valuable information concerned with attitudes and opinions of the customer particularly to new goods or services. It may also be possible to identify gaps in the market from as yet unfulfilled needs. To be of maximum use there needs to be some systematic way of gathering the information; otherwise when a sales person leaves, valuable information leaves at the same time. It is possible to identify both overall trends and compare trends of different products and services from past sales. These trends can then be compared with national or industry trends to see whether the organisation needs to take action. Many large organisations keep a file of press cuttings. These can be used to monitor coverage of the organisation’s products or services and can give insight into competitor activity. Possible opportunities for the future can be gathered from enquiries, perhaps from exhibitions. This information is often organised into what is known as prospect files. It could be possible then to research into why opportunities weren’t converted to sales.

Stop and Think Think about the last time you completed an application form for membership of a club, or filled in an application form for any other purpose. What use could the organisation make of this information for marketing purposes?

3.1

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2.2 Secondary research (desk research) It is possible to gather large amounts of marketing information from secondary sources either free or at a price, which can give very helpful marketing information. The following are examples of sources.

Competitors’ sales literature and websites Both sales literature and websites of competitors can give useful information on the range of products/services on offer, prices and company information. The website will also give an indication of the extent to which the competitors are engaged in internet selling and distribution.

Competitors’ advertisements and mail shots Advertisements are particularly useful for finding information on how competitors are communicating the benefits offered by their product or service. Mail shots can provide an insight into any particular offers or incentives used to attract new customers.

Government statistics In many countries, a major source of information is from government statistics. For example, in the UK the Office of Population, Censuses and Survey issues many useful publications based on the 10-yearly census returns. It is also responsible for the Family Expenditure Survey and the General Household Survey. The Office’s publications such as the Annual Abstract of Statistics and the Monthly Digest of Statistics contain data about manufacturing output, housing and population.

Non-government readily available sources of information ● ● ● ● ●

The business sections of ‘quality’ newspapers and magazines. Specialist magazines, both consumer and trade. Professional institutes and specialist libraries. Trade associations, trade unions and chambers of commerce. Current affairs and consumer programmes on TV and radio.

Bought-in information There are a great many commercial sources of secondary information that are published regularly. Usually these take the form of reports that give the kind of information that marketers need for a quick preliminary scan of the market, such as market size, projected growth, main competitors, market share of main products, advertising spend of main brands and any other significant trends.

3.2

Making it work Using Snapshots International Ltd

 market size by volume,

Snapshots International Ltd is a market research company that specialises in international market research overviews. They cover the major industry sectors in nearly 30 countries worldwide. Their reports are designed to provide an instant overview of a market, and the data is supplied in both graphical and tabular format for ease of interpretation and analysis.

 market segmentation by volume,

For example a company interested in the Hong Kong beer market could buy a report that covers

 market ranking by volume,  the company websites of main players,  market forecast by volume for 2004–08,  socio-economic data for Hong Kong,  sources for further research. Source: adapted from market research information on www.snapdata.co.uk.

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Retail audits Retail audits record sales to consumers through a sample of retail outlets, usually at two-monthly intervals. In the UK, Nielsen is probably the best known. Retail audits are useful because of their detailed tracking of sales. These data enable both retailers and manufacturers to work out matters such as market share, the performance of new products, the effect of a price change, a sales promotion or a new advertising campaign.

EPOS EPOS stands for electronic point of sale. It describes a process carried out by scanning the bar codes at the checkout, typically at retail outlets. This allows researchers to measure quickly and accurately which goods have been sold and at what prices. EPOS is an extension of the retail audit. It is an excellent means of tracking product data, as well as giving researchers a basis for predictive modelling.

3.2

Stop and Think

What types of secondary research are used by an organisation with which you are familiar (e.g. an organisation you or a family member work for)?

Strengths of secondary research ● It is cheap or free of charge, and useful information can be gathered on competitor activity. Costs vary but very often a full report on markets or market sectors can be put together very quickly and cheaply. ● It may provide an answer to the problem – this will save enormous time and effort. ● It can provide historic or comparative data.

Weaknesses of secondary research ● Data/information may not answer the specific problem the marketer is seeking to solve. ● Often information is out-of-date (it can take a long time to collect and publish data – this is particularly true of government statistics). ● Sometimes the way in which information has been collected may be suspect (e.g. Who collected the data? Are they independent? Are they trained? How and why was the data collected?) ● Sometimes the meaning or interpretation of certain words like ‘low alcohol’ or ‘unemployment’ varies. ● On occasions, information is compiled by someone with a particular view or purpose, for example, to sell a service.

Test yourself

3.2

Give three possible weaknesses of government data and explain why, in spite of this, it can still be a useful source of information.

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3.2

Putting the case

Q

What sources of secondary information does Coca-Cola use?

government statistics or bought-in information from a market research company like Mintel or Snapshots International. The analysis of demographics of consumers in the UK is again likely to be from government statistics.

A

It is stated in the case study that secondary research carried out by Coca-Cola in the UK identified an opportunity to offer a new product for children. Although the source of the information isn’t mentioned, it is likely to be from

In addition to government statistics and bought-in information, a worldwide organisation like CocaCola is likely to make use of other types of secondary research, such as retail audits and consumer panels.

quantitative research This is research that produces ‘hard’ data that can be measured and provides answers to questions such as ‘who’ and ‘how many’ rather than the depth of insight into why.

qualitative research Qualitative research aims to discover attitudes and opinions and give insight into why people behave in the way they do; it is highly subjective.

2.3 Primary research If the required information cannot be found from within the organisation or from secondary research, then primary research is undertaken by, or commissioned by, an organisation. The main advantage of primary research is that it is exactly tailored to the problem in hand, but it can be expensive and time consuming to undertake. Primary research can be quantitative or qualitative. Questionnaires are the usual means of gathering quantitative data. In theory, questionnaire design should be easy and yet it is one of the most difficult tasks to get right. Questions which draw out accurate information from everyone, which can be completed easily by the interviewer, that flow well and leave respondents feeling that they have contributed something worthwhile should be the aim. The techniques used in qualitative research are often less like interviews and more in the nature of conversations or discussions. They require considerable skill to draw out relevant information, and to analyse the significant facts from them afterwards. Qualitative research can produce rich data, probing into people’s unconscious attitudes and needs. Because the samples are small, there is no attempt to measure responses.

Methods of primary research

Face-to-face interviewing The market research industry has been built around the core technique of face-to-face interviewing – in the street and in the home, and industrial research in the office. It is still the bedrock of many studies as it allows the interviewer to use personal skills to elicit the information in a way that enhances accuracy. In recent years, CAPI – computer aided personal interviewing – has given the traditional technique technological advancement and efficiencies. Advantages of face-to-face interviews: ● They allow more depth. ● Physical prompts such as products, pictures and words can be used. ● Respondents can be ‘observed’ at the same time.

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Disadvantages of face-to-face interviews: ● They are relatively expensive because of the cost of the interviewer’s time. ● They can take a long period of time to arrange and conduct. ● Some respondents will give biased responses when face-to-face with a researcher.

Telephone interviewing The telephone rose in popularity as a market research tool in the 1980s, as it allows interviews to be carried out speedily and under close supervision through central control. Now that almost all households in developed countries have a telephone, this means of contact allows the researcher to easily sample households anywhere in the country; indeed it is a technique that can allow prompt contact internationally also, albeit at higher cost. CATI – computer aided telephone interviewing – has enhanced the technique so as to increase quality and provide more detail from the interviews. Advantages of telephone interviews: ● Ideal for collecting information from a wide geographic spread. ● Can be set up and conducted relatively cheaply. Disadvantages of telephone interviews: ● Respondents can simply hang up! ● Visual aids cannot be used.

Postal surveys In many countries, the mail survey is the most appropriate way to gather primary data. However, mail surveys have become less popular with the advent of technologies such as the internet and telephones, especially call centres. Advantages of postal surveys: ● Ideal for collecting information from a wide geographic spread. ● Can be set up and conducted cheaply. Disadvantages of postal surveys: ● Low response rate typically around 5% unless incentives or follow-up mailings are used. ● Respondent may misunderstand/misinterpret questions.

The internet The internet can be used in a number of ways to collect primary data. Visitors to sites can be asked to complete electronic questionnaires. Responses will increase if an incentive such as free newsletter or free membership is offered. Other important data is collected when visitors sign up for membership. Advantages of the internet: ● Relatively inexpensive. ● Internet can use graphics and visual aids. ● Visitors tend to be loyal to particular sites and are willing to give up time to complete forms.

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Hall tests There are many occasions in market research when it is necessary to have people look at (or touch or taste a product). For all sorts of reasons it may not be possible for this to take place in consumers’ homes. When this is the case, hall tests are set up. Target consumers are ‘recruited’ from busy streets and invited to a nearby hall where the test takes place. A variety of techniques may be used in this context, including questionnaires, but all have in common using the product itself as part of the enquiry, for example by taste tests or comparisons of different types of packaging.

Mystery shopping Many service organisations, such as those in banking, retail, travel, cafés and restaurants, will commission this type of research, as well as some operating in the public sector. Mystery shoppers, posing as real customers, will collect data on customer service and the customer experience. Mystery shoppers should present facts rather than opinions and these may include the shopping environment as well as interactions between the researcher and staff – this is designed to reduce researcher bias. There are issues surrounding the ethics of this approach to research, as the mystery shopper is acting like a ‘spy’.

Making it work Measuring customer satisfaction with the Pension Service The Pension Service is keen to ensure that information and advice given by their staff is accurate and that they operate in an efficient and friendly way. They commissioned an independent market research organisation to undertake mystery shopping. Interviewers, posing as genuine customers, were given a number of questions to ask (either in person at local

3.3 offices or over the phone) and asked to record information on such issues as the accuracy of the information they received, how long they had to wait to be attended to and the manner in which staff answered their questions. The results were then used to improve the service the Pension Service is giving and to monitor progress by carrying out more mystery shopping in the future.

Omnibus research Omnibus studies are targeted at certain groups of respondents and are run at regular intervals. They provide the facility for an organisation to buy space for a limited number of questions in a large interview survey that could include questions from companies in sectors as diverse as health care and tobacco. Because the cost of the interviewing and analysis is shared among a number of organisations, it is a particularly cost-efficient means of collecting data.

Diaries Diaries are used by a number of specially recruited consumers. They are asked to complete a diary that lists and records their use of goods and services over a period of time (weeks, months or years) This demands a substantial commitment on the part of the respondent. However, by collecting a series of diaries with a number of entries, the researcher gains a reasonable picture of purchasing behaviour.

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In-depth interviews Using open-ended and unstructured interview guides, the researcher carries out indepth interviews to ‘get beneath’ the superficial responses. The in-depth interview permits the researcher to be flexible in the order and style of questioning so that avenues of interest and relevance to a particular respondent can be explored. This can be a valuable technique, but time equals money in all such contexts, so expenditure is increased.

Focus groups

focus group

Focus groups are made up from a number of selected respondents gathered together in the same room. Highly experienced researchers work with the focus group to gather in depth qualitative feedback; groups tend to be made up of from 6 to 12 participants. Discussion, opinion and beliefs are encouraged, and the research will probe into specific areas that are of interest to the company commissioning the research.

In marketing research, a technique where a small representative group (typically between 6 and 12) are brought together to discuss freely a concept or problem. The aim is to gain insight into attitudes and opinions.

Projective techniques Projective techniques are borrowed from the field of psychology and will generate highly subjective qualitative information. There are many examples of such approaches, including: ● ● ● ●

cartoons – complete the ‘bubbles’ on a cartoon series sentence or story completion word association – quick (subconscious) responses to words psychodrama – imagine that you are a product and describe what it is like to be operated, used or worn.

3.3

Putting the case

Q

What types of primary research do Coca-Cola use?

A

Coca-Cola will need to use a wide range of primary research, particularly in order to determine the most appropriate marketing mix, as this information could not be gathered from secondary sources. There is mention in the case study of blind taste tests and these were most likely to have been undertaken as hall tests where consumers in the target market would have been recruited from the street and asked to try different cokes and give their opinion on the taste.

Another type of primary research mentioned was group interviews with mothers and children. This is likely to have been conducted as a focus group so that the company could gain valuable insight into the preferences of the mothers (and children) as they discussed the product and packaging with their peers. Other research, which appeared to be quantitative rather than qualitative in nature, is likely to have been carried out by questionnaires using face-toface, postal, telephone or internet or indeed as part of an omnibus survey. The method(s) used would depend on the trade-off between cost, accuracy and speed.

Test yourself Outline four different methods of collecting qualitative information.

3.3

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3

Reliability

It has already been stated that research should be seen as an aid to decision-making and that it cannot necessarily provide the ‘right’ answers. Some of the limitations of secondary research have already been discussed. In the areas of primary research it is important that results should be as reliable as possible and issues relating to sampling and bias are very important.

3.1 Sampling The aim of sampling is to research small numbers with the confidence that they are truly representative of the population as a whole (whatever the group is). This is the basis of all quantitative research. It is beyond the scope of this study text to discuss all the techniques of sampling, but the method that is used by most market researchers today is quota sampling. This involves looking at the characteristics of the total group under investigation (often in terms of variables such as age and income) and choosing a sample that mirrors the characteristics of the total group. For example, if an organisation wants to find out if people are aware of its new sports drink, it needs first to define its target market, as not everyone in the population will be interested in a sports drink. In this example, the characteristics of the target market are defined by different age groups and different levels of participation in sport. The organisation then needs to determine the percentage of people in different age groups and how to define different levels of participation in sport in order to arrive at a meaningful quota sample. Interviewers will be given a quota of people to interview (i.e. a certain number of people in different age groups and with different levels of participation in sport). The sample size needs to be large enough to allow various statistical techniques to be performed (again, these techniques are outside the scope of this study text). When using secondary information that is based on quantitative information it is important to know the sample size and how the information was collected in order to determine its usefulness. Care needs to be taken as, in the press, the term ‘survey’ or ‘research’ is often used very loosely to describe what amounts to little more than opinion based on dubious sources.

3.2 Bias There are many possible ways in which bias can occur, including the following: ● Sampling ● The sample may be too small. ● The sample may not be representative of the total population. ● Interviewers ● They may be inadequately trained and lead respondents into certain answers. ● They may falsify results.

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● By their manner or body language they may unintentionally influence respondents. Questionnaires ● ● The questions may be ambiguous or phrased to lead to a particular response (leading questions). An organisation commissioning research needs to be aware of these possible pitfalls and should choose a company that is a member of the Market Research Society. The Market Research Society has its own code of conduct that involves the use of trained interviewers; it checks on interviews that have taken place, to ensure they have been carried out properly.

4

The marketing research process

There is, as we have seen, a good deal of complexity about research, perhaps particularly in the area of methodology. The marketing research process refers chiefly to ad hoc research – i.e. research carried out for a particular purpose to solve a particular problem. The overall structure of a marketing research process follows a pattern and the following encapsulates the key stages involved: 1 2 3 4 5 6

Identify and define the problem. Research objectives. Research plan. Fieldwork. Analysis and interpretation of information. Presentation of final report.

Identify and define the problem This is a necessity if the research is to have a clear focus and not get out of hand, either trying to look at everything or looking too selectively and not at what will produce the information required. For example a book publisher may be concerned at the level of sales of certain textbooks and may think that it is not just students’ attitudes to the textbooks that needs to be investigated. It may feel that research needs to be undertaken into how they rate the textbook compared to competitors’ products and who might influence them to buy.

Research objectives These are vital in providing a clear focus for the research. For example, in studying the reasons for the disappointing level of sales of certain textbooks, the objectives of the research could be: a) Identify the main factors students consider when selecting a textbook. b) Assess the importance of the tutor in influencing students’ decisions. c) Assess the importance of the availability of textbooks in making a final selection.

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Research plan An organisation needs to decide what information it needs to gather to cover the research objectives and the methodology to use. Before any primary research is carried out, it should look at what background information it might need (for example, size and share of the market, sales figures, profile of customers) and how it might obtain such information from either within the organisation or secondary sources. Primary research will involve gathering quantitative or qualitative information, or more often a combination of the two. For example, focus groups of students could help to identify their attitudes towards the choice of textbook and important factors in their choice. This information could then be used to develop a questionnaire to be used with a much larger sample to give more reliable statistical information. Timing and costs of different methods will also be a factor in the choice. All primary research should be piloted or tested to see that the data collection methods are sound. For example, a questionnaire can be administered to a small representative number of people to help identify any problems with the interpretation of the questions or the pilot may identify areas of questions that have not been considered. Piloting is more difficult with some forms of qualitative work, but a basic run-through is very important.

Fieldwork This is the term given to the collection of primary data and covers both qualitative and quantitative methods and should be carried out after a pilot study. The administration of a major quantitative study may involve serious logistical considerations, whilst qualitative work may involve highly skilled and qualified researchers.

Analysis and interpretation For any quantitative research this is the ‘number-crunching’ element, most often involving computer analysis. The captured data need to be sorted, for example tables produced showing the total response and that of individual groups within the total. Precision is necessary here and at the end an accurate picture must be able to be set out. Analysis and interpretation of qualitative research is by its nature less objective, but it is still important to present an accurate picture.

Presentation of final report Any research project of any size is likely to result in a written report. This should include: ● presentation of the findings clearly, concisely and in a way that links specifically to the original objectives ● conclusions based on the findings ● suggested courses of action (if these were asked for). While projects vary in nature and scale, this broad approach would be descriptive of many and shows the process involved.

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4.1 The brief A brief is essential when using an outside marketing research agency and forms the basis of discussion between the agency and the organisation on the exact nature of the research that needs to be carried out. Even if the company is doing the research in house, the brief will help to focus thoughts and keep the research on track. The brief should state clearly: ● Background ● Information about the company and its products and the market in which it operates. ● Factors leading to the need for the marketing research. ● Problem ● A definition of the problem and the objectives arising from it. ● Constraints ● Any constraints such as the budget, timescale or degree of secrecy necessary.

Test yourself

3.4

Outline the key stages of a marketing research process.

5

Marketing information system

A major challenge facing businesses is how to manage the information they gather. Too much information is often as bad as too little. Avoiding information overload means thinking carefully about the type of information that is needed and how to manage it. One way of managing the information is by a marketing information system. A marketing information system is required for the collection, organisation and analysis of marketing information. It uses information from within the organisation, and from both secondary and primary sources. A typical marketing information system has four interlinked components (Figure 3.1).

The internal database

The external database

Figure 3.1 Marketing information system

The marketing research system

The decision support system

marketing information system A system responsible for the collection, organisation and analysis of marketing information. It uses information from within the organisation, and from both secondary and primary sources.

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The internal database This includes information from within the organisation outlined earlier in this chapter, as well as costs, production schedules, orders, sales and some types of financial information relating to customer (such as credit ratings). Much of this information may be numerical, such as sales figures. Data have no value in isolation; it is the implications of data that really matter – what the data show or suggest. This means that it is important to identify only the data that are relevant to the information the organisation needs, and to simplify the data so that the user can quickly and easily see a pattern. The data must be presented in a form that the user can understand and, hopefully, use in a meaningful way. This part of the process may be automated and conducted largely by computer, but the job of setting up the required analysis is skilled and important.

The external database This includes all types of information collected from external sources, from press cuttings to market research reports from independent market research organisations to government statistics.

The marketing research system Generally such a system involves the process of information search undertaken on an ad hoc basis to provide answers to specific questions. Sometimes organisations carry out their own research, but larger companies often commission outside marketing research agencies to carry out research for them.

The decision support system This refers to a set of analytical techniques that enable marketing managers to make full use of the information provided by the other three sources. This analysis may range from projections of sales patterns to more complex projections such as those needed in the launch of a new product. Computers have enabled researchers to get more out of their data than ever before. For example, programs now exist for testing the prices that people will pay for a product. They can show the degree to which consumers will trade off some features such as quality or design against price. Simulated test markets can be set up. Missing data can be inferred by ‘fusing’ together sets of data. Data can be analysed to map or segment consumers to show their different characteristics or attitudes to brands and models can be used to forecast a course of action. This is an area of considerable complexity and as such it may be beyond the remit of many small organisations, but technological change is making it more accessible all the time. Although only larger organisations are likely to have the resources to manage a sophisticated marketing information system, even the smallest business can benefit from giving thought to what information it needs and how best to manage it.

Summary ● Organisations need information on customers, competitors and the market in which they are operating as well as on all aspects of the marketing mix. Marketing

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intelligence encompasses a broad range of information and sources used to help organisations make informed decisions. ● There are three broad areas of sources of information a company can use: – information from within the organisation – secondary sources – primary sources. It is important to be aware of the many different methods of gathering marketing information and the benefits and limitations of them. Issues of sampling and bias are important in seeking to ensure the information is as reliable as possible. ● The marketing research process is a series of systematic steps used when solving marketing problems, culminating in the presentation of a research report. ● In order to deal effectively with large amounts of information, it is important for a business to have an effective marketing information system. This should be capable of delivering information in a form that will aid marketing decisionmaking.

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International marketing List of topics 1

Reasons for entering international markets Methods of entering international markets

2

3 4

Assessing international markets The international marketing mix

Introduction Most organisations start by meeting the needs of markets that are basically local, but opportunities often present themselves to supply markets abroad. Companies then have a number of decisions to make, beginning with how best to enter the market. Just as they would if marketing within their own country, organisations will need to carry out research to consider the impact of the external environment and to determine the most appropriate marketing mix. Working in international markets will bring added challenges, particularly in understanding and dealing with different cultures and ways of doing business and adapting the marketing mix to ensure it meets the needs and wants of the customers it is seeking to serve.

1

Reasons for entering international markets

Nations encourage their businesses to export their goods and services as a means of earning foreign currency to pay for necessary imports. The smaller and less prosperous a nation, the greater is its need for foreign trade. But even the more powerful economies in the world, such as the USA, still need exports and positively encourage their business communities to generate them. However, for an individual organisation, entering the international market place for the first time, or possibly considering adding new overseas markets, it is a major decision that has many implications. The following list gives some of the reasons that companies commonly cite for developing international markets: ● ● ● ● ● ●

to increase sales to benefit from more profit potential overseas to counter a depressed or declining home market to exploit (new) products with world potential by invitation through unsolicited business to follow key customers abroad.

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If the domestic market is limited in size or has become saturated (in that there are too many suppliers chasing too few customers), the organisation might look towards international markets. For example an Irish producer of specialist furniture has a domestic market of only around 3.5 million, and this figure might be too few potential customers to maintain a viable business. The potential domestic market for a similar manufacturer in Spain or France is more than 10 times as great. Many organisations that operate worldwide supply goods or services that are universally needed, for example food, drink, clothing and hotel accommodation – names such as McDonald’s, Pepsi, Nike and Hilton spring to mind. The world is becoming smaller with the use of technology and international travel. Some businesses, particularly smaller organisations, have entered other markets almost by accident, possibly as a result of enquiries from abroad for their products. Unless there is proper planning, this can result in many problems for the company, including dealing with different laws and regulations and demands of foreign customers.

Test yourself

4.1

Give five reasons an organisation might decide to operate internationally.

2

Methods of entering international markets

There are many possible market entry methods, and the choice depends on the following factors: ● how quickly the organisation wants to get into the market ● what it is prepared to invest in terms of time, money and long-term commitment to do so ● its willingness to take risks ● its financial objectives.

2.1 Exporting Exporting means that the organisation operates from its home base and supplies customers in a country other than its own. Some organisations begin their international operation by direct exporting, selling to a foreign customer through their own sales force. The main advantage of exporting using company sales staff is that they will have a thorough knowledge of the company and its products and, because they are employed by the company, are likely to have more loyalty than foreign agents or distributors, who may work for a variety of organisations. The main downside is that they won’t have local knowledge, though this could be acquired in time. Nowadays, with the growing importance of the internet, many smaller companies who previously were unable to consider exporting abroad have this option without incurring the costs normally associated with exporting. The internet allows small businesses to compete on an equal footing with much larger competitors. The company can set up an on-line brochure or catalogue and associated payment and delivery

exporting The means by which an organisation supplies customers in a country other than its own while operating from its home base.

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options; the customer need have no immediate knowledge of the size of the organisation or its provenance.

2.2 Using agents and distributors The main advantage in using overseas agents or distributors rather than the company’s own sales force when exporting is that they will know the local market and be able to generate orders and sales. The exporting company should select and recruit carefully, ensuring that the chosen intermediaries have local market knowledge, credibility (including financial probity), customer contacts, sales coverage and market experience as well as facilities such as storage, transport, service and support back-up as necessary. It is important that companies are proactive and supportive, taking care to treat agents or distributors as business partners if they want to get the best out of them. joint venture Co-operation between organisations for mutual benefit.

2.3 Joint venture This is co-operation between organisations for mutual benefit. There will be an agreement that may be limited to a certain length of time. The main benefits to an organisation seeking a joint venture abroad is that it will allow access to new markets and distribution networks, though a downside is that it can be difficult to reconcile different cultures and management styles between organisations in different countries. Success in a joint venture depends on thorough research and analysis of aims and objectives.

4.1

Making it work NPL succeed in joint venture abroad NPL are a UK organisation founded in 1962 and now one of the world’s largest pattern and toolmakers. They specialise in the provision of high-quality patterns, models and tools for the automotive, motor sport and aerospace industries. Initially their business was entirely in the UK, but as both the car industry and foundries began to decline with no prospect of revival, the organisation realised it would have to go abroad to look for new business in order to continue growing.

NPL recognised that Ditemsa already had a toehold in the American automotive industry, which had been moving production to Mexico. They realised this could mean a lot more business for them as they had capacity and technological know-how which was lacking in Ditemsa. The joint venture, after some initial teething problems due to cultural differences, has been very successful for NPL and they have now entered another agreement with ARRK Corporation, a multinational development group with headquarters in Japan.

It went into a joint venture agreement by taking a 51% stake in Ditemsa , a pattern and toolmaker in Mexico.

2.4 Licensing and franchising If an organisation is selling expertise or knowledge rather than goods and services, then available options include franchising or licensing. This is an attractive option promising the potential for fast expansion for an organisation which is already well established with a well-known product or service.

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For example many McDonald’s restaurants are franchised. Franchisees pay McDonald’s an initial sum of money and a small percentage of the profits for the exclusive rights to operate a McDonald’s restaurant in a particular area; allowing them to keep most of the profits encourages them to make a success of the venture. The franchisees receive initial training and benefit from the worldwide reputation and advertising undertaken by McDonald’s. They agree to serve only products supplied by McDonald’s, and to operate under the terms and conditions of the franchise contract. This can be an attractive option to the franchisee as it brings many of the advantages of starting and running their own business, but with fewer risks as they have the backing of a well-established organisation. Licensing operates in a similar sort of way to franchising and brings many of the same benefits both to the licensor and licensee. It often applies to manufacturing processes – a company is given a licence to operate.

2.5 Manufacturing abroad Where an organisation wishes to make a long-term commitment to a market or region, then investment might be appropriate, acquiring or setting up manufacturing or sales subsidiaries abroad. By having such a strong local presence in the market, an organisation might be able to overcome any political hostility to importers and might gain a better understanding of how best to adapt the product and its marketing to suit local needs. However, this is the riskiest option as there needs to be heavy investment and it is only likely to be undertaken after careful thought and after the company has already established a presence in the market with its products.

Why has Coca-Cola used bottling franchisees as a means of entering many of its overseas markets? Franchising is one of the principal ways of running modern large business organisations. The franchisor (in this case Coca-Cola) grants to a franchisee the exclusive right to bottle and can the product using their name in a particular geographic area.

A commercial agreement that allows a business to deal (under strict controls) in a product or service controlled by another.

licensing An arrangement under which an organisation (the licensor) grants another organisation (the licensee) the right to manufacture goods within a defined market. Often used as a way of entering international markets.

4.1

Putting the case

Q A

franchising

The main advantage to Coca-Cola of setting up a franchise is that responsibility for producing the product is delegated to a dynamic local enterprise, determined to make a success of the venture because most of the profit will be retained by the franchisee. It would cost Coca-Cola a great deal of money to set up their own bottling/canning plant, whereas the franchisee already has the necessary manufacturing equipment and local know-how.

Test yourself What are the advantages to an organisation of using an overseas agent or distributor?

4.2

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Assessing international markets

Before assessing international markets, the company needs to ensure it has sufficient resources within the organisation to cope. Financially it should ensure it has sufficient working capital to finance overseas activity and that it will it cover the anticipated payback period. It needs to have adequate systems in place to deal with order-taking, credit control and debt collection. It also needs staff within the organisation who have the necessary knowledge and skills to deal with overseas customers – or it needs to consider the cost of recruiting such people. There are many other questions to consider, such as the requirements of any necessary documentation, decisions on how export prices will be quoted, arrangements to secure and insure any export cargoes against damage, theft and delayed or nonpayment. Payment terms will need to be negotiated that are acceptable to customers and cost effective for the organisation.

3.1 Marketing research If the organisation appears to have the necessary resources, the next step in assessing international markets is to consider what market research is needed in order to determine whether to enter a particular market. Many of the sources of secondary information outlined in the previous chapter are relevant here and the same strengths and weaknesses in using the information applies. Primary research may also need to be carried out, particularly in determining modifications to the product and promotional aspects of the marketing mix. Again, methods of gathering primary information, outlined in the previous chapter, are relevant here, as are the benefits and limitations of such research. The two basic questions that need answering are: ● Is there a market for the product? ● How far will it need to be adapted for the overseas market? Answering these two questions will involve considering the external environment and the marketing mix.

Test yourself

4.3

What types of research would you use to decide whether to enter an overseas market and to determine the marketing mix?

3.2 External environment (PESTLE) Assessment of the external environment is vital if entry into an overseas market is to be successful. PESTLE factors have already been considered in Chapter 2, and these are equally important influences when considering foreign markets; the following list shows some of the questions that may need to be addressed.

Political ● Is the country politically stable? ● What pressure groups might be operating in the country?

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Political unrest in countries can be a problem not only for the country itself, but also for organisations operating within it. For example in the 1990s, a massacre at a popular tourist site in Egypt meant that tourism stopped virtually overnight. This was a problem for all tour operators offering holidays in Egypt, but a particular problem for any who specialised in operating in that country. There is still tight security today around tourist sites in Egypt, as consumers need to be reassured that the Egyptian government is doing all it can to ensure such a tragedy is unlikely to occur again and of course Egypt needs the foreign currency that tourists bring to the country.

Economic ● What is the level of economic development (GDP), i.e. how rich or poor is the country? ● Who are the main competitors in the market? ● What is the level of disposable income? ● Are there compatible banking and payment systems? ● How good is the infrastructure? The level of disposable income in a country will determine the likelihood of a market for luxury goods. Even in Third World countries with high levels of poverty, there may be pockets of wealth. For example, Boosey & Hawkes, who make top-of-the-range musical instruments, have been successful in selling to governments in the Third World who want prestigious musical instruments for their military bands.

Social/cultural ● What are the cultures and customs of the country? ● What is the profile of the population in terms of age, sex, family set-up, level of education etc.? ● What are the ‘normal’ ways of doing business? ● What is the attitude towards overseas goods? Understanding the social/cultural environment is probably the key to any successful penetration of a foreign market, particularly values and attitudes that can affect reaction to a product or to its origins. Not surprisingly, many organisations prefer to trade initially with countries that are culturally similar to their own. Some companies manage to trade successfully using their country of origin as a major international selling point; for example, IKEA emphasises its Swedishness because in most countries Scandanavian design is much admired. Other products seek to obscure their origins, for example Haagen Dazs ice cream is not a name that would be associated in the minds of most consumers with the US, where it originated. Ways of doing business vary from country to country. Behaviour that might be regarded as unethical in some countries (for example, gifts or bribes) could be common practice in another when doing business. Gestures and body language can easily be misinterpreted due to differences in culture.

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4.2

Making it work International research into colour An international research study of nearly 13,000 consumers in 17 countries on attitudes to colour is the first in a series examining global market brands. This type of research is important for companies with worldwide brands, as they need to be aware of the associations there are in different cultures and countries to various colours. Researchers analysed responses from consumers in Australia, Belgium, Brazil, Canada, China, France, Germany, Italy, Japan, Korea, Mexico, Netherlands, Russia, Sweden, Spain, the UK and the USA. Globally they found the world’s favourite colour is blue, though there were differences in how the colour

blue is regarded. For example, in the UK blue is associated with coldness and royalty, whereas in France and Germany it is strongly associated with positive attitudes – fresh, friendly and reliable. The brand most consumers relate to blue is Pepsi, while in Europe Levi’s comes to mind first. When it comes to the world’s second favourite colour, Europe does not agree with other regions. Latin Americans chose black as their second favourite, green is very popular among consumers in Asia/Pacific countries, whereas Europeans favoured red or purple. Source: www.creativematch.co.uk.

Technological ● What is the stage of technological development? (e.g. What percentage of the population has access to the internet?) Internet use reveals big differences between nations. In 2002, France had penetration of 30% whereas in Scandanavia it was around 65%. Germany and the UK had the largest number of users, with 20 million each. Overall in Europe the average for internet use was 39%, with the majority of users being young and well educated. Asia is likely to be a major growth market over the next few years, especially in China and India, as more people acquire PCs. In 2002, China only had around 2% internet penetration, but it is predicted that eventually China may well overtake the West in terms of e-commerce. This will have implications when developing a foreign market, but could also mean that any e-commerce lead that the West has, especially in the USA, may disappear over the next decade.

Legal ● Do the legal and tax systems discriminate against non-national businesses? ● What are the buying systems and regulations? ● Are there any restrictions by the state on personal choice? An organisation trading in the European Union (EU) has to exercise care when providing distributors with extra incentives if it already has a market share above 40%. The EU is investigating large EU and US companies such as Coca-Cola and Microsoft to ensure that their dominant positions have not led to what might be considered anticompetitive practices. The European Commission has the power to fine companies up to 10% of their global sales revenue if they are found guilty of abusing their position of power.

Environmental ● What are the views on environmental issues?

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People and countries across the world are becoming increasing concerned about the use of natural resources and the impact of business on the local environment. For example, some countries have limited the building of hotels in tourist areas after concerns about the impact on the local population and way of life.

4.1

Stop and Think

Consider the Nike brand and what research it might undertake before deciding whether to enter a new overseas market.

4.2

Putting the case

Q A

What particular aspects of the external environment are most like to be of concern to Coca-Cola when considering entry to a new overseas market? For Coca-Cola, understanding the social/cultural environment, the population profile, how and where they buy is probably the key to successful entry to a new overseas market. This understanding would help them to determine the most appropriate marketing mix. The economic environment is unlikely to have a great deal of impact, as Coca-Cola products are relatively inexpensive and only countries with a very low income per head would be unable to afford them. The political environment could be an issue if the overseas country is hostile towards the US and the

4

product being marketing by Coca-Cola is perceived as being ‘American’. Coca-Cola uses bottling franchisees in most overseas countries, and clearly the technological environment is relevant here as this type of manufacture is most efficient when making use of the latest technology. Some overseas countries may have laws or regulations that could affect the marketing of Coca-Cola products and so the company would need to be aware of the legal environment. For example the EU is investigating companies like Coca-Cola to make sure their dominant position has not led to anti-competitive practices. Coca-Cola should be aware of concerns about the environment and the impact that their manufacturing or marketing methods might have.

The international marketing mix

If an analysis of the external environment appears favourable, then the organisation will need to turn its attention to the extent to which the marketing mix will need to be adapted for the overseas market. It is worth noting that some products might require a high degree of customisation, regardless of where they are sold. This is likely to be particularly true in some business-to-business and industrial markets where the product and its associated marketing are designed and tailored for the specific customer, for example the supply of engineering components or large capital projects for bridges, tunnels or major public buildings. However, many organisations, particularly those operating in the consumer market, are interested in the extent to which they can standardise their offering for an

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international market. Standardisation is attractive, in that it can lead to economies of scale and easier marketing administration, which in turn can save money. Nevertheless it is highly unlikely that the marketing mix used in the domestic market can successfully be transferred to international markets without some modifications in product, price, place or promotion; some of the issues are discussed here.

4.1 Product Any organisation must think of customer needs and wants and whether these are different in international markets. For example, a food or drink product may have to be flavoured differently, be more or less sweet, be more or less salty, contain less fat or be a different colour to meet the preferences and expectations of the local market. Clothing may need to be adapted and be produced in different colours and size ranges to suit different markets. Benetton produces garments centrally to the same designs for all its worldwide markets in undyed yarns and fabrics. Batches of garments are then dyed on demand to meet the colour requirements of different markets. Sometimes the climate in another country necessitates an adaptation in the product. For example the paper used for printing postage stamps has to be adapted for use in countries with a high level of humidity such as those in the Far East; if this wasn’t done, the stamps would simply go gooey and be unusable. The paper used to wrap soap in hot humid climates has to be treated with a mould inhibitor. Some national products are difficult to transfer across boundaries. For example Kellogg has a cereal, ‘Hoshi No Yasaibatake’ (‘The vegetable garden of star’) which is popular with Japanese children. It contains dehydrated carrot, spinach and pumpkin in brown sugar and honey – unlikely to be to the taste of children in the UK! However, it is entirely possible that this product could be successfully exported to some other Asian countries. It might be possible to define some standard products that can be sold across a number of international markets, for example consumer electronic goods, kitchen appliances or some toiletries.

4.2 Price A price level that might represent excellent value for money in the domestic market could seem very expensive in a foreign market. If an organisation is exporting goods, it potentially faces higher logistics costs, for example in terms of insurance and transportation, especially if the goods are being sent to quite remote markets. Price might also have to reflect a ‘cushion’ against fluctuations in exchange rates to avoid losses. Selling costs can also be higher, especially if sales representatives are being sent abroad on sales trips or the organisation is attending international trade fairs and exhibitions. There is also the cost of preparing sales literature and other sales aids, and these costs will have to be recouped somewhere. If an organisation has decided to set up a manufacturing plant abroad this will require a heavy investment. Although in the longer term there should be a saving in costs, initially this will not be the case.

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The growth of online trading is removing some of scope for companies to offer different prices in different markets, as it is possible for the consumer to compare prices, allowing for exchange rates. Customers’ price perceptions still play a major role when setting prices. For example, international hotel chains such as Hilton or Marriott charge different room rates in different countries, even though the facilities offered may be broadly similar. Most customers would understand why this is so, as they would recognise the different market conditions and costs involved – they would probably expect to pay more for a room in London than in San Jose, the capital of Costa Rica.

4.3 Place The organisation should develop an appreciation of what is ‘normal’ in the local market for distributing products similar to its own. This includes an understanding of how customers purchase, where they expect to find the goods and what support services they expect from intermediaries. Unless the organisation is prepared to invest heavily, its distribution strategy needs to be built around available intermediaries and their capabilities, including their stock control systems, online ordering capacity, goods handling capacity and storage conditions.

4.3

Making it work Hertz and the Chinese car rental market Hertz would like to be able to open up the Chinese car rental market, but faces many difficulties in the short term. Firstly, only Chinese nationals may drive, so the potentially lucrative international segment is not available. Secondly, driving on Chinese roads can be quite an experience for the unsuspecting traveller. Whether it’s the unreadable road signs, the standard of driving, attitude to road safety, the condition of

some of the roads, or the congestion in the larger cities, there is much to deter the unwary and indeed to deter a car rental company. Nevertheless, Hertz is trying to overcome some of these problems by opening up offices in Beijing, Shanghai and Guangzhou, where customers who give 48 hours’ notice can rent or lease chauffeur-driven vehicles. Source: adapted from Brassington et al., Principles of Marketing, 3rd edition.

4.4 Promotion Promotion is highly likely to have to be adapted to suit the needs of the market in which the organisation is operating. Any business must take care when designing messages to avoid causing offence and alienating consumers through approaches that do not transfer easily across international markets. The following examples demonstrate how easy it is to make mistakes when translating into another language: ● Pepsi’s slogan ‘Come alive with the Pepsi generation’ translated into ‘Pepsi brings your ancestors back from the grave’ in Chinese. ● The Coca-Cola name in China was first read as ‘Ke-kou-ke-le’, meaning ‘bite the wax tadpole’ or ‘female horse stuffed with wax’, depending on the dialect. ● Coors put its slogan ‘Turn it loose’ into Spanish, where it was read as ‘suffer from diarrhoea’.

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● Clairol introduced the ‘Mist Stick’ a curling iron, in Germany, only to find that ‘mist’ is German for manure. Not too many people had use for the ‘manure stick’. ● When Parker pens marketed a ball-point pen in Mexico, its advertisements were supposed to have read ‘it won’t leak in your pocket and embarrass you’. Unfortunately, the company thought that the word embarazar (to impregnate) meant to embarrass, so the advertisement read: ‘it won’t leak in your pocket and make you pregnant’! There are many other issues to consider, other than problems in language translation. For example, when Gerber started selling baby food in Africa they used the same packaging as in the US, with a beautiful Caucasian baby on the label. Later they learned that in Africa, companies routinely put pictures on the label of what’s inside, since most people can’t read! Advertising has to conform to local regulations, for example there are different laws regulating the advertisement of cigarettes and tobacco in different countries. An advertising campaign has to take account of available media and their costs as well as the target market’s preference for different media. Thought has to be given to the best ways of stimulating sales. In some markets coupons on the product pack would be the best method; in other markets it would be preferable to distribute coupons through print advertisements. Personal selling in a foreign market might mean training sales staff in language and culture, including negotiation styles, business etiquette and social interaction.

Test yourself

4.4

Which aspects of the marketing mix are likely to need modifying when considering marketing internationally?

4.4

Making it work How HSBC communicates across the world HSBC is a global organisation that has purchased a number of banks across the world. Initially it kept the familiar local names, like the Midland Bank in the UK, largely in order to reassure customers. By 2002 HSBC operated 7,000 offices in 81 countries, still using the local bank names, though mention was always made to ‘Member of the HSBC Group’. However, in 2002 it decided that with rapid international communication, retaining separate names could reduce the impact of the overall brand and so it launched a global advertising campaign using a single advertising agency to establish an HSBC umbrella brand, featuring the red and white symbols.

The campaign aimed to show HSBC as a bank that understands different cultures around the world and is therefore the world’s ‘local bank’. The advertising campaign demonstrated the ‘importance of local knowledge’ by exploring distinctive national customs and practices in a series of amusing advertisements. The advertising was successful in demonstrating that anyone who banks with HSBC can benefit from services and advice from a company with international experience delivered by people sensitive to the customers and the needs of their community. Source: adapted from Brassington et al., Principles of Marketing, 3rd edition.

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4.3

Putting the case

Q

Why does Coca-Cola need to modify its marketing mix in different countries?

A

Coca-Cola needs to meet the needs of customers from across the world and it cannot do this unless it modifies its marketing mix. For example, the case study shows that Coca-Cola Vanilla was only launched in the UK after carrying out taste testing to determine the best formula/flavour for the market, thus modifying the product element of the marketing mix. Different markets across the world will have different preferences for flavour and bottle/pack size depending on the demographics and usage habits.

Testing alternative pack designs for Coca-Cola Vanilla to decide which one to use is an example of a modification in the promotion. Coca-Cola will also need to be aware of the use of words and not make the same mistake as Pepsi when translating into unfamiliar languages such as Chinese or Japanese. Coca-Cola should develop an appreciation of what is ‘normal’ in the local market for distributing products similar to its own. This includes an understanding of how customers purchase and where they expect to find its products. The price of Coca-Cola will vary in different overseas markets, reflecting the costs of producing and marketing together with consumers’ price perceptions in that country.

Summary ● There are many reasons an organisation may decide to operate in international markets. ● Methods for entering an overseas market will depend on a number of factors, such as how quickly it wants to get into the market, what it is prepared to invest in terms of time, money and long-term commitment, and its willingness to take risks. ● An organisation will need to undertake research into external environment factors – political, economic, social/cultural, technological legal and environmental to assess what problems there could be in entering a particular overseas market. ● The marketing mix used in the domestic market will need to be modified to take account of the particular needs and wants of the overseas market(s) in which the organisation will be operating.

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Part Two Practice Questions Section A 2 mark questions: 2.1 What is the difference between quantitative and qualitative research? 2.2 What is the difference between marketing research and market research? 2.3 What are the two basic purposes of research? 2.4 Give two ways in which an organisation using a sample can ensure its results are as accurate as possible. 2.5 What is the difference between a joint venture and a franchise? 3 mark questions: 2.6 Give three types of information an organisation is likely to want to know about its competitors. 2.7 What are the three broad areas of sources of information an organisation can use? 2.8 Give three ways of entering overseas markets. 2.9 Give three factors an organisation would consider when deciding its method of entry into an overseas market. 2.10 Give three factors an organisation would take into account when assessing the social/cultural environment of a potential overseas market.

Section B 2.11 a) What primary research methods could Coca-Cola use to determine the flavour and packaging of a new sports drink it wishes to launch in your country? (Assume secondary research has already determined the market for such a drink.) b) How can Coca-Cola ensure the results they get are as accurate as possible? 2.12 a) What information would Coca-Cola need to assess whether to enter a new overseas market? b) What use could Coca-Cola make of secondary research? 2.13 a) Explain what is meant by a marketing information system. b) How could Coca-Cola make use of such a system?

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The marketing mix Contents 5 6 7

Product Price Distribution

Overview This is a core area of marketing, involving as it does consideration of three of the four Ps of the marketing mix – product, price and place (distribution). The needs and wants of the customer in any market need to be the focus when deciding on the product and its distribution methods and price cannot be determined without consideration of what the customer expects to pay. There are many influences acting on each of these three variables and many approaches to managing them that are explored in the following three chapters. It is a challenging task for any organisation to achieve a balance between satisfying its own organisational objectives, usually related to profit, and satisfying the needs of its customers.

Learning objectives The objectives of these three chapters are for you to be able to:           

describe what the word product encompasses distinguish between different approaches to branding explain the different stages of the product life cycle assess the uses of a product positioning map explain the different stages in developing a new product describe the various influences on price identify and explain different approaches to pricing assess the role of intermediaries in distribution describe different distribution strategies select appropriate distribution channels for different products and markets assess the impact of the internet on distribution channels.

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CASE STUDY

Sampat cards Sampat Cards is a small company, set up a year ago by two friends after leaving Art College; the name Sampat was chosen because it is a combination of their first two names. The two friends set up the company after experiencing difficulty in finding welldesigned cards for birthdays and other special occasions at a reasonable price. After talking to a number of other people, they realised that they weren’t the only people with this difficulty. They felt that with their expertise in art and design and also some knowledge of marketing (which they studied as part of their course), they could build up a successful business. They began by contacting a local printing company and as a result of their discussions decided to outsource the printing work to them. The printing company was at the time looking for extra work and so this was an ideal arrangement for them. Sampat rent a small storage unit where the cards are kept before despatch. Sampat Cards decided to keep its cards as simple as possible, leaving the space inside blank for any special messages and relying on the innovative design and quality artwork to ‘sell’ the card. They also decided to keep the pricing structure as simple as possible. They only had two different types of card: deluxe and novelty. The difference between the two was that deluxe cards relied entirely on the artwork and quality of printing, whereas novelty cards had extra features that could give the appearance of animals or people coming to life. This type of card was particularly popular with children. Novelty cards were priced at 50% more than the deluxe cards and for both types of card there was a small discount for any orders in excess of 10.

Sampat Cards did not have great financial resources and so they decided the best way to sell and distribute the cards was via a number of part-time sales agents. Most of the agents working for them are women with young children, looking for a little extra income without too much commitment. They keep a small stock of cards as samples and Sampat have produced a simple catalogue with details of their complete range of cards for their agents to give to prospective customers, usually their family and friends. Sampat only have to pay their agents commission on cards sold. So far, the business is proving successful and the two friends are making a modest profit. They now employ someone full-time to deal with all the administration and payments from and to the agents. It is clear from sales and feedback from their agents that the design and quality of the cards is fulfilling a need in the market place. However, some of the agents have commented that the name Sampat is hardly suitable in reflecting the innovative design and quality of the cards! They have also remarked that many of their customers have asked if the company is planning to offer any complementary products like wrapping paper, tags, ribbons, cuddly toys and so on. These remarks have set the two friends thinking. They have considered designing wrapping paper and matching tags and the printing company they use for the cards have assured them they have the capacity to cope with this. Sampat Cards might be able to find sources for ribbon and other items like cuddly toys, though they would then need to expand their storage capacity. Also they have been approached recently by a chain of high-quality art reproduction shops that are interested in stocking a range of their cards.

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Product List of topics 1 2 3

The nature of the product Branding Product life cycle

4 5

Product positioning New product development

Introduction It is important to realise that the word product has a much broader meaning than might at first be apparent, and that most organisations are concerned with managing a mix of products that will deliver the benefits customers need. Building a brand is crucial to the continuing success of a company, as is the identification of a unique selling point that helps differentiate the product from its competitors. All products will go through a life cycle similar to our own, and will need different attention at different stages. Introducing new products into the market is a hazardous process and needs careful planning and handling for it to be successful. At the other end of the life cycle, different decisions will need to be made – should products be phased out or updated? It is also important for an organisation to be aware of how its product is positioned in the market in relation to the competition and to take steps to reposition it if this is felt necessary. Later chapters, concerned with marketing planning, will explore various means of determining an organisation’s balance of products.

1

The nature of the product

1.1 Different meanings of product When considering the marketing mix it is necessary to look at the product component first. Decisions about price, distribution and promotion all revolve around the product. A product can be: ● a physical product, for example, a washing machine, a car or a stereo system ● a service, for example, banking, insurance or hairdressing ● an idea/cause, for example a group like Friends of the Earth. Throughout this text, when the word product is used, it is meant in this general sense.

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1.2 The total product offering The basic product is not enough in itself to guarantee marketing success. It must be added to, to create an entity – the total product offering. Three layers are involved here, and the more a product is in competition with others, the more these layers must be worked on:

The core layer The basic product itself.

Layer two

augmented product The total product – what makes it different from similar products. It may be an aspect of design, or the means in which the product is delivered to its customers. Brand name (q.v.) is also part of the augmented product as this is another way of distinguishing it from its competitors.

This adds elements to the product designed to make it more appealing: so here we might include packaging, a brand name, a level of quality, design or style features, and all the things the product does or means (the benefits) to actual and potential customers. For example, the main benefit many people get from using a camera is a visual record of an event or scene, hence the large market for compact, ‘idiot proof’ simple-to-operate cameras. Think of a special occasion like a wedding, where most people employ a professional photographer, hopefully to ensure an accurate record of the event, but there are usually still plenty of informal ‘snaps’. For some products, packaging can help to keep the product safe from damage during transit, and safeguard against tampering, for example the lids of many medicines or baby food. Different ways of packaging often reflect the needs and wants of customers, for example the different ways of packaging wine – conventional bottles of different sizes and with different closures (cork, plastic or screw-top), wine boxes and individual cans of wine. Particularly with the importance of environmental issues, some packaging is designed to be reusable or easy to dispose of.

Layer three This adds more, and adds things that might be described as less inherently part of the product itself. Such things include warranty arrangements, delivery (and perhaps installation) arrangements, training in use, after sales service and financing. Some of these factors just add to a product’s appeal in the way that an attractive container can, in part, influence what is chosen (to match the décor in a bathroom, perhaps, for a consumer product like a shampoo). They can also become a significant part of the product package: for example, hire purchase and leasing arrangements are almost as important as the car in that market; such things influence both what is bought (a Ford or a Mazda, say) and where it is bought from (two different distributors will deliver identical cars, but arrangements such as finance may vary considerably).

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5.1

Putting the case

Q

How would you describe Sampat’s product?

case it is the quality of the artwork and innovative design – the feedback from agents, mentioned in the case study, reinforces this point. The method of selling the cards through agents can also be considered part of the augmented product.

A

Sampat’s core product is greetings cards.

The brand name is also part of the augmented product as this is another way of distinguishing Sampat from its competitors, though the choice of name in this case might not be entirely appropriate, judging by feedback from agents.

The total product (augmented product) is what makes it different from other greetings cards and is the reason customers buy Sampat Cards rather than those of other card manufacturers. In this

product mix

1.3 Product mix Very few organisations have only one single product. Most have a variety of different products and perhaps a number of variations to meet the needs of different market segments. The product mix is the total range of products or services that an organisation offers. Within this product mix there will be distinct product lines, which are groups of closely related products; for example all the Focus cars manufactured by Ford would constitute one of Ford’s product lines. Within each product line there are a number of product items, that is to say different specifications of the product; in the example of Ford Focus cars this is likely to be variation in engine size or additional features such as CD player or heated seats. Clearly the right product mix is very important for any organisation – too broad a mix may overstretch the company’s resources, whereas too narrow a mix may not be giving the customers the choice they need.

The total range of products or services that an organisation offers.

product depth The number of products in each product line.

product width The total number of lines offered by the organisation.

5.1

Making it work Nissan’s product mix The car manufacturer Nissan, with its headquarters in Japan, has a number of different models of car to meet the needs of different market segments across the world. The car market is extremely competitive and so it is important for Nissan to have both depth and width in its product lines if it is to compete successfully with other car manufacturers internationally. Overall, Nissan has 28 product lines and the product lines offered in any particular country are a reflection of the needs and wants of the target market.

In the UK, Nissan has eight different product lines; these are the Micra, Almera, Almera Tino, Primera, Terrano, Patrol, 350Z sports car and Xtrail. Each product line has a number of variations in terms of engine capacity, number of doors etc. and in total in the UK market there are 113 product items. In Hong Kong, Nissan has more product width than the UK with 13 product lines, only two of which, the 350Z sports car and the Xtrail, are also found in the UK, reflecting the different needs of these two markets. Source: www.nissan.co.uk.

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2 brand A name, sign, symbol, logo or any combination of these used to identify a product or service. A brand should uphold certain values and beliefs.

Branding

The term brand derives from the past when it referred to the mark made on cattle to signify identification and ownership. Nowadays, organisations recognise the importance of a brand to identify their product in the market place. Some people buy brands in order to reflect a certain image or status. The popularity of cheap fake items such as Rolex watches or Prada purses demonstrates how important brand names are to many people. It also demonstrates how important it is for an organisation to protect its brand name from fraud. The Levi brand has been in existence for well over a hundred years but during that time it went from being associated with THE jeans to own, to being overshadowed by fashion brands such as Calvin Klein, Gap, DKNY and so on. This forced Levis to reevaluate not only its products but also its brand image and to reposition the product and thus the brand as modern and sexy. Finding the right brand name can be very expensive. Standard Oil reportedly spent six years and millions of dollars developing and finally settling on ‘Exxon’. Other companies have found brand names by accident, as Procter and Gamble did when they took a name from the phone book for their snacks – ‘Pringles’.

5.2

Making it work What’s in a name? The Spastics Society was a charity formed in the UK in 1952 to help sufferers from cerebral palsy, a medical condition characterised by weakness and spasms of the muscles. Over the next few decades, the word ‘spastic’ came to be used as a term of abuse in the UK – to call someone ‘spastic’ was offensive and meant you regarded them as weak, feeble and incompetent. The Spastics Society suffered as a result of this change in the meaning of the word. In 1994 it decided it

needed to change its name and rebranded the charity as ‘Scope’; it mounted a promotional campaign to make people aware of the change. On the first anniversary of the name change and the subsequent change in perception of the charity by potential donors, Scope had 40,000 new donors. It was also in talks with 25 potential corporate donors and sponsors, many of whom had steered clear of the charity when it had been called ‘The Spastics Society’. Source: www.scope.org.uk.

2.1 Advantages of branding The advantages of branding for an organisation are as follows: ● ● ● ●

It helps to differentiate its product(s) from competitors. It helps to create loyalty. It allows for premium pricing. It can create a certain image and help in targeting/positioning.

The advantages of branding to customers are: ● It can act as a guarantee of a certain level of quality. ● It makes identifying products easier (for example in crowded supermarkets). Haagen Dazs ice-cream is a good example of clever branding. It was developed in the

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USA and was based on real dairy cream. It was given a made-up name that sounded foreign and conveyed the impression of quality.

2.2 Approaches to branding There are two main branding strategies for an organisation with a number of products: 1 umbrella branding 2 portfolio of brands.

‘Umbrella’ branding This branding makes maximum use of a well-established brand name by using it on all the organisation’s products. It has two main variations: 1 Use of the company name on all products, often with more descriptive, individual product names e.g. Kellogg’s Cornflakes, Kellogg’s Frosties, Kellogg’s Rice Crispies, Kellogg’s Fruit ‘n’ Fibre, etc. 2 Use of one brand name for all products or a group of products which is different to the company name e.g. Marks & Spencer’s use of the St Michael label for their own products. The main advantage of this branding approach for a company is that marketing costs are lower both for established products and when introducing new products, as the umbrella brand name is already well known. The main disadvantage is that if the company name suffers it will have a bad effect on all the products.

‘Portfolio’ of brands This approach means using different brand names for different products, not associated with the organisation’s name. It has two main variations: 1 Different brands for products in different markets; for example, Reckitt & Coleman markets both Veuve de Vernay sparkling wine and Harpic toilet cleaner. Clearly consumers could be alarmed to see the same name (Reckitt & Coleman) associated with both sparkling wine and toilet cleaners and so it is only sensible for the organisation to market such different types of product under completely different names. 2 Different brands in competition in the same market, for example Procter and Gamble owns Ariel, Daz and Bold washing liquids. The advantage of this approach is that consumers are usually unaware of the ownership of brands and will appear to have more choice. The organisation can also aim different products at slightly different markets and if one product is not doing well or receiving bad publicity, it will not affect the image or reputation of the other brands. A major disadvantage of this approach is that it will be very costly in terms of marketing (particularly promotion) and there is a danger of unnecessary overlap or cannibalisation – this means that one of the brands might take customers from another brand owned by the same company!

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5.3

Making it work Celebrities as brands A few celebrities can achieve brand status, one of the most famous of these being the former Manchester United football player David Beckham, whose global appeal goes far beyond football – he is said to be a ‘one-man brand’ – a sportsman, a teenage fantasy, and the face of Marks & Spencer’s schoolwear. Beckham’s £25 million transfer deal to the Spanish club Real Madrid followed years of market research in the Far East, an enormous and rapidly growing market. This research indicated that Beckham was the

only individual player not currently with Real Madrid, who had the power to significantly affect consumer preferences and behaviour in this part of the world. The president of Real Madrid football club made no secret of the fact that the decision to buy Beckham was based as much on his international marketing power as on his footballing talent. Beckham’s first game with the club was not in Spain, but in China, followed by a team tour of the Far East, taking in Japan. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

Test yourself

5.1

Give two advantages to the customer of branding.

Stop and Think

5.1

What type of branding strategy would be appropriate for a manufacturer who wants to introduce a new lower priced range and is concerned about the possibility of damaging the image of the existing brand? USP (unique selling point/ proposition) A feature and/or benefit of a product or service, which makes it different from that offered by the competition and helps to give competitive advantage.

2.3 Unique selling point As well as a distinctive brand, an organisation should be able to differentiate its offering to consumers in a way that makes it unique from others in the market place. The USP (unique selling point) gives a product an edge in its chosen sector and answers the consumer question: ‘Why should I buy your product rather than anyone else’s?’ It can be as applicable to image, and to communications elements such as advertising, as it is to tangible factors about the product; and it is often a mix of disparate factors. Ideally a USP should be difficult, if not impossible, for a competitor to copy, for example the formula for Coca-Cola or a reputation for particularly outstanding service.

Putting the case

Q

Does Sampat Cards have a USP?

A

The USP is what sets a product apart form its competitors and answers the question ‘Why should I buy this product?’ It appears from the case study that Sampat Cards USP is its high-quality innovative artwork. This is a

5.2 feature that would be difficult for a competitor to copy, particularly as it is likely that the company will be continually producing new designs. The company is still very young and will still be building its image, but it should be seeking to ensure a strong brand name in the future, associated with this image, so that in time the brand will be the USP.

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3

Product life cycle

product life cycle

All products have a limited life because of changes in the social, economic and technological environment; however, the length of time a product is on the market will vary enormously. For example, some toys are fads and only last a matter of months or even weeks before disappearing for ever; the life cycle of computer software games is also very short as new competitors quickly enter the market, upgrading graphics. The life cycle of a more basic and less technical product is likely to be much longer, for example Heinz baked beans have been on the market for very many years. The product life cycle chart shows the sales of a product over its lifetime; Figure 5.1 shows a typical product life cycle.

3.1 Stages in a typical product life cycle Introduction This is when the product is launched into the market after research to test its acceptability, possibly in a test market before a national launch. There is usually a limited product range and limited distribution. If it is a completely new type of product that has needed a good deal of research and development, then at this stage the price is probably set high. This is partly to help recoup the development costs, but also to take advantage of its uniqueness before competitive products come into the market. The product needs a good deal of promotion to create awareness, perhaps with sales promotion incentives to encourage trial. It is highly unlikely that companies will make profits on products at the introduction stage. Products at this stage have to be carefully monitored to ensure that they start to grow, otherwise the best option may be to withdraw them. Examples of products currently in the introduction stage include third generation mobile phones, e-conferencing, and iris-based personal identity cards. £

Introduction

Growth

Maturity/saturation

Decline Time

Figure 5.1 Typical product life cycle chart

The typical stages through which a product or service passes from its introduction onto the market to its eventual decline.

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Growth In this stage, sales should grow rapidly as there is general acceptance of the product by consumers. Production costs should be falling because of the growth in sales and economies of scale in production and the product range may be increased. Distribution tends to be more widespread and the company will invest heavily in promoting the brand. The product should begin to show profit but success will always attract competitors and so it is important to stay one step ahead of the imitators. Examples of products currently in the growth stage include portable DVD players, email, and smart cards.

Maturity/saturation At this stage there is intense competition between brands as companies fight to maintain their market share. Because of the competition there is typically widespread distribution and this is when price is likely to be at its lowest for consumers. Spending on promotion has to be monitored carefully, since any significant moves are likely to be copied by competitors and any expenditure on research and development is likely to be restricted to product modification and improvement and perhaps to improve production efficiency. However because of high sales this is also the stage where most profit is made for the company. Examples of products currently at the maturity/saturation stage include personal computers, faxes, and credit cards.

Decline In the decline stage, the market is shrinking, reducing the amount of profit that can be shared amongst the remaining competitors. Typically sales begin a rapid decline and it may become necessary to withdraw the product. However as the organisation is not investing money at this stage it is not necessarily unprofitable and can be kept on until it becomes so. The greatest threat of a declining product is if a company has no replacement product(s) to take its place; in the most extreme case the product and company could die together. Examples of products currently in the decline stage include typewriters, fountain pens and cheque books.

Test yourself

5.2

What are the main stages in the product life cycle?

3.2 Extension strategies If a product is in the maturity stage and the organisation believes it is going into decline, perhaps because it is outdated or because of increased competition, it may decide to employ one or more extension strategies. These are designed to prolong the maturity phase and avoid the decline stage and are as follows:

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● Updating or revamping the product by adding various technical specifications and promoting it as ‘new’ or ‘improved’. ● Adding variations to the core product, for example cream cheese having a low calorie alternative. ● Finding new uses for the product, such as built-in televisions in the kitchen or as Lucozade did when they successfully marketed their drink for athletes rather than its original purpose as a drink for people recovering from illness. ● Finding new market segments. For instance, an established but declining product could aim at a younger market segment by redesigning and marketing the ‘fresh young’ nature of the product.

5.4

Making it work Kellogg’s use of extension strategy Kellogg’s is the world’s largest producer of cereal products and convenience foods, including Corn Flakes, Nutrigrain and Rice Krispies. These are brands that are recognised all over the world. One of its brands, Special K, was recognised as being at the maturity stage of its product life cycle and Kellogg’s believed it wasn’t being developed to its full potential and was therefore ready for extension strategies. The particular strategy Kellogg’s decided on was product variants. Before taking the decision to invest in variants, Kellogg’s undertook market research. This looked at

current trends such as changes in society, technology and future markets. This research led it to develop Special K with fruit. The first variant, introduced in France, was Special K with red berries. Special K red berries performed well, without reducing the sales of the core brand and after more extensive product development research, Kellogg’s launched Special K Peach and Apricot in 2003. Kellogg’s research had shown that women were keen to eat more healthily, but throughout the day, not just at breakfast. Research suggested that cereal bars offered the strongest opportunity in this area. These were launched successfully in 2001, with the Peach and Apricot variant being added in 2003.

3.3 Uses and limitations of the product life cycle The concept of product life cycle is useful for the following reasons: ● It can help management identify when changes are necessary, particularly in introducing new products. ● It can help identify priorities relating to products/departments. ● It can highlight areas for research and development. ● It can assist in the timing of the re-launch of a product. Main limitations of product life cycle: ● It can be extremely difficult to assess at what stage a product is in the product life cycle. For example a fall in sales could be a temporary blip or it could mean the product is entering the decline stage. ● Not all products follow the ‘typical’ life cycle.

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5.3

Putting the case

Q

At what stage of the product life cycle is Sampat Cards?

A

The product life cycle has four main stages and these are introduction, growth, maturity/saturation and decline. Although greetings cards in general are in the maturity stage, Sampat’s Cards has only been in the market for a year and is therefore a relatively new product. The introduction stage is characterised by a limited product range and limited distribution,

both of which apply to Sampat Cards. However, we are told in the case study that Sampat Cards is making a modest profit and this is unusual at this stage. It is also clear that customers are satisfied with the product and that sales are increasing, which tends to indicate the product has successfully completed its introduction phase and is in the early stages of growth. Assuming this is the case, Sampat Cards would now be advised to consider the options available to it for extending its range and/or distribution methods to enable the company to continue to grow successfully.

Test yourself

5.3

Give four uses of the product life cycle model.

4 product positioning How an individual product/brand is perceived in relation to other competing products/brands in the same market.

Product positioning

Another tool of marketing that can affect the life of a product is product positioning. For example, in the car market, the makes and models available range from city runabouts to luxury saloons and sports cars, yet all cars get you from A to B. In introducing a new car, a manufacturer must be clear how it will be positioned in the particular market in which it is operating; it needs to consider how the target market will perceive it against competing products. To understand how product positioning works in practice means that an organisation has to think about the product in terms of the space it occupies in the market. This space is defined in terms of attributes (in the case of cars this could be price, style, comfort, safety, luggage space and so on). These attributes must matter to the target market and this means that the organisation needs to carry out some sort of research to determine what attributes are important to them. Clearly the attributes that are judged to be important will vary depending on the product and the particular market segment.

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4.1 Drawing a product positioning map The process for finding out the information to enable an organisation to draw up a product positioning map is as follows: 1 Carry out research among the target market to find out what attributes are important to them for the particular type of product under investigation – often price and quality are two important ones. 2 Carry out more research to identify existing products/brands that offer these attributes (this is the competition!). High price Brand D Brand A

Brand B

Brand C Not very stylish

Very stylish

Brand E

Brand F

Low price

Figure 5.2 Product positioning map

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3 Find out from the target market what they consider to be the ideal level for each attribute they have identified as important. 4 Finally find out from the target market how they rate each product/brand’s attributes in relation to the ‘ideal product’ and to each other. This information then needs to be drawn as a map to make comparisons easier. The diagram on page 81 shows a simple two dimensional map, but with the aid of computers it is possible for much more sophisticated multi-dimensional mapping of products.

4.2 Uses of a product positioning map The map can show an organisation the following: ● How the target market perceives its brand in relation to competitor brands. (This in turn can help a company decide whether to meet the competition head-on or try to differentiate its brand.) ● How far away from the ‘ideal product’ the company’s product is. ● Whether there are any gaps in the market that the company can exploit. The point is that it is the customer’s perceptions of products/brands that are important. These perceptions as shown on the product positioning map can then provide insight into appropriate competitive action. Broadly speaking, the company will seek to emphasise attributes its product has that are also important to the target market and to seek to improve any attributes that at present are seen to be weaknesses. Even a small company with very limited resources and unable to carry out detailed research will benefit from thinking through the process and determining where it is positioned in the market.

Stop and Think

5.2

Think of a consumer product you buy regularly and what factors are important to you. Make a list of competing products in the same market and then draw a simple product positioning map (for example a map of price/quality if these are the most important factors for you). Think what use the producer of the product you buy regularly could make of a product positioning map like yours.

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5.4

Putting the case

Q

Why is product positioning important to Sampat Cards?

Cards clearly doesn’t have the resources to carry out detailed research, but it will benefit from considering what other attributes are important to customers when buying cards and where it is positioned in relation to these.

A

Product positioning is about how an individual product is perceived in relation to other competing brands in the same market and is an important question for Sampat Cards to consider.

Product positioning will also help it to assess where its competitors are placed and how close (or distant) they are perceived to be in the eyes of the customer. It is this perception that is particularly important, and may help Sampat decide how to differentiate itself further from the competition by concentrating on the attributes that are important to customers.

It might start with a simple price/quality product positioning map as these two attributes are relevant for most markets in showing how customers perceive competing products. Sampat

The product life cycle and product positioning are both important tools in planning product strategy. Another important tool in planning, the Boston Consultancy Group (BCG) matrix, will be discussed in detail in Chapter 10.

5

New product development (NPD)

The words ‘new product’ can mean anything from a totally new idea, through adaptation of an old idea to a mere ‘copy-cat’ product. New product development (NPD) is important to organisations for many reasons, including the need to maintain competitive advantage through innovation and better serving the customer’s changing needs and wants. There are two types of approach to NPD: 1 The first is to be reactive, to wait and see what others do and then follow or imitate. 2 The second is to be proactive, set the pace and standard and be the one whom others follow or imitate. Those who are successful in a proactive approach are likely to be the market leaders. However, whatever the approach, NPD is not an easy activity and there are many potential problems that can arise.

5.1 The new product development process In order to minimise the risks, any organisation needs to plan and manage the new product development process (NPD) carefully. Each of the stages in the new product development process will be considered; they can be summarised as follows:

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1 2 3 4 5 6 7 8

idea generation idea screening concept testing business analysis product development test marketing launch monitoring and evaluation.

5.2 Idea generation Any new product has to start somewhere as the germ of an idea and as there is a need for an ongoing flow of ideas; at this stage anything goes because you never know what potential an idea could have. Sometimes a new product is born from a mistake. This is what happened in the case of Post-it notes – someone forgot a vital ingredient in the glue, resulting in a surface on the paper that when applied to another surface adhered, but not permanently. Someone recognised a need for this type of product and today Post-it notes are used in offices and homes across the world to leave messages on pieces of paper that can’t blow away. Nevertheless, most ideas come from one or more of a variety of different sources. These could include: ● The research and development (R & D) department of the organisation – after all, this is what they are paid to do! ● Employees – particularly those who are in direct contact with customers or suppliers and have insight into their needs. ● Customers – perhaps as the result of customer complaints or suggestions for improvement. ● Competitors – this is often imitating or improving a competitor’s offering. ● Outside agencies such as those who specialise in new product development. ● Others in contact with the organisation, perhaps suppliers or joint venture partners or overseas contacts.

5.3 Idea screening The second stage of NPD is where a preliminary scan of the ideas is conducted, in order to eliminate those that are unlikely to prove successful. This means undertaking an assessment of the idea’s potential, using information that is already available within the organisation. Most large organisations undertake this screening by listing criteria that are important to the organisation, for example: ● ● ● ●

fitting with corporate strategy market growth size of the target market access to the market

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● profitability potential ● compatibility with existing products ● compatibility with existing skills and assets and so on. Each criterion the organisation identifies as important is then given a weighting to indicate its relative importance. The total score for each idea is then calculated by adding up the scores given for each criterion and multiplying them by the weighting factor. The measurement here sounds very scientific, but some care needs to be taken as the scores (and to some extent the weightings) are basically subjective. Although it helps to identify what appear to be very good or very bad ideas, it could be difficult to decide whether or not to reject those on the borderline. Nevertheless the whole process is useful in creating discussion on why particular criteria have been included or excluded and why certain criteria deserve more points than others.

5.4 Concept testing Once this stage is reached, the concept needs to be tried out on the potential target market. Concept testing is a printed or filmed representation of a product or service. It is simply a device to communicate the product’s benefits, strengths and reasons for being. There can be surprises at this stage of the process. Sometimes an idea that scored highly in the previous section might be rejected by the consumer, whereas an apparently borderline idea may emerge with hidden appeal. Whatever the outcomes, management should have a better picture of each idea, reject some more, with just a few going through to the next stage.

concept testing A printed or filmed representation of a product or service or idea. It is a device to communicate the product’s benefits, strengths and reasons for being and is used to test consumer reaction.

5.5

Making it work Hypothetical concept testing for a self-chilling lager can

What problems do you find with the temperature of lager served from a can?

Concept statement:

Do you understand the benefits of the new can?

‘A can of lager that cools itself, whatever the outside temperature. When the sealed can is opened by pulling a tab, the pressure releases a special capsule that can chill a can from a room temperature of 23C down to 5C in 30 seconds. The taste of the lager is unaltered and it will feel as if it has come straight from the fridge. The can will still be fully recyclable and requires no special storage. The price of the drink may rise by around 5%.’

Do you believe in the benefits offered?

A group of consumers may then be asked the following questions to establish such factors as need, perceived value, the impact on trial, how to communicate the benefits and likely usage rates:

Would the new can increase your total purchases of lager or would they remain the same?

Will these benefits be important to you? Would you require any more evidence to support the claims made? Do you think the new price of the lager is fair for the value offered? Would you certainly/probably/not sure/probably not/certainly not buy lager in these cans?

Source: adapted from Brassington et al., Principles of Marketing, 3rd edition.

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5.5 Business analysis At this stage some of the issues that were considered earlier may be looked at again, but this time in more depth as after this stage it can be very expensive to drop an idea. It is important that this stage should be thorough and that management should be fully convinced and committed to any idea carried further. It is particularly important to look at the size, structure and competitive activity in the market along with any customer feedback from the previous stage. All aspects of the marketing mix for the product will need to be looked at in detail (including production costs if these are applicable) and fully costed. The organisation will need to ensure it has the necessary staff and resources and that the proposed new product will not adversely affect the sales of existing products. Last, but by no means least, the company will need to carry out a financial analysis to provide information about the return on the investment in development, the likely payback period and the projected sales and profit. These figures should be realistic and in the case of sales and profit give both the best and the worst case scenarios.

5.6 Product development After everything possible has been done theoretically, now is the time to commit significant investment to produce the actual product. If the new product is truly innovative and will need new equipment and technology to produce, the investment could be very great. Even the introduction of a new service, for example a new insurance product, will require some investment in brochures, leaflets and the like. test marketing Testing a new product or service on a limited basis in a defined geographic area, under conditions that are as realistic as possible. It is used particularly in consumer markets, before a decision to go ahead with a full launch.

5.7 Test marketing Particularly in consumer markets, before a decision to go ahead with a full launch, the potential product can be offered on a limited basis in a defined geographic area, under conditions that are as realistic as possible and should be seen as a trial run before the full launch. Within the UK, a test market for a consumer product is likely to be a geographic area that corresponds with a regional TV area to allow advertising to run only within the boundaries of the test market. This enables an assessment to be made of the likely outcomes of a full national launch. The main benefits of test marketing are: ● It is a real test in a real environment. ● It offers a last chance to iron out any minor problems. ● It gives an opportunity to change some of the marketing mix variables and assess their impact, for example research could be carried out after two different types of packaging are used. ● It allows assessment of things that are difficult to predict on paper, such as the level of repeat buying. The main disadvantage of test marketing is that it gives the competition a chance to see what you are offering, but the advantage in consumer markets far outweighs this disadvantage.

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5.8 Launch Assuming a successful test marketing stage, with only minor adjustments necessary, the full launch can go ahead. The main consideration then will be whether to make the product available in all target markets at the same time or whether to operate a rolling launch, building towards full coverage. The approach taken will to a large extent depend on the finances of the company and whether it can cope with the logistics of a major launch in all its markets.

5.9 Monitoring and evaluation This final stage is common to any planning process. Time has to be given to reflect on how well the process has been managed and critically whether the sales and profit targets are being met.

Test yourself

5.4

What are the stages in the new product development process?

5.6

Making it work The development and launch of ‘Fuse’ Cadbury Schweppes is a global business that manufactures, markets and distributes confectionery products in over 200 countries. In the 1990s, Cadbury Schweppes developed the concept of ‘Fuse’ after market research had identified a growth of snacking and a gap in the market for more chocolate confectionery, particularly in the 16–34 age group. A number of ingredients were devised and tested following a survey that questioned consumers about their snacking habits and preferences. The research and development team were asked to develop a number of product recipes and more than 250 ingredients were tried and tested in various combinations before the recipe was finalised. The product’s USP was that Cadbury’s chocolate was used to ‘fuse’ together a number of popular snacking ingredients such as raisins, peanuts, crisp cereal and fudge pieces. Fuse went through two extensive ‘in home’ placement tests among the target market and results from these

tests helped the company to estimate the volume of Fuse needed for the launch and post launch. It also carried out further research into the pack design. Before the launch, Cadbury Schweppes had one-toone meetings with over 70 of their key trade customers – the people who would stock Fuse – as it was vital to build their awareness and get their commitment to the launch. Because of their confidence in the product, it was decided not to test market; this was very unusual and was in fact the first completely national launch by Cadbury Schweppes for 20 years. The monitoring and evaluation after launch showed the success of Fuse. Within one week it had sold 40 million to the trade and within eight weeks it had become the UK’s favourite confectionery line. The success was down to a great deal of planning and investment. Fuse took five years to go from the initial concept to launch, there was £10 million invested, a new plant to cope with the production and an advertising spend of £4 million for the launch! Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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Summary ● In marketing the word ‘product’ is a broad term that is concerned with not just the core product, but all features of the offering to customers, including the use of a brand name. Branding is important in helping to build an image and differentiate the product from competitors. ● Products go through different stages in their lifetime and an understanding of these stages makes it easier to plan and manage appropriate marketing mixes. ● One of the ways of ensuring that products get the most out of their life cycles is to think about how they are positioned in the market in which they are operating. Drawing a product positioning map can help to make this clearer and identify possible opportunities for further product differentiation. ● In order to remain competitive, organisations need to consider how to develop new products. There are many examples of the failure of new products and the process needs to be carefully planned and managed if it is to be successful.

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Price List of topics 1 2

Pricing in different markets Influences on price

3

Approaches to pricing

Introduction Setting the right price is an important part of effective marketing. It is the only part of the marketing mix that generates revenue; product, promotion and place are all about marketing costs. The view that a low price automatically attracts high sales is no longer prevalent. Many companies are now finding that pricing lower than competitors is not the way to be successful, as it doesn’t offer a sustainable competitive advantage. Instead they need to understand the meaning of price from the customer’s point of view and to price products in accordance with the ‘value’ that the customer places on the benefits offered. Pricing is a very complex part of the marketing mix. This chapter will look at pricing in different markets, the main influences on pricing and the many different approaches that need to be considered when deciding on price.

1

Pricing in different markets

Price is the marketing variable that can be changed most quickly, perhaps in response to a change in a competitor’s price. For a customer, price is the monetary expression of the benefits they will gain from purchasing the product, as compared to other available items. How significant price is to the customer will depend on a number of factors, including the market in which they are operating.

1.1 Consumer market In the consumer market, customers are usually buying to please themselves, whether it is for low-price everyday items such as those found in supermarkets, or goods that are only occasionally purchased, such as televisions. Normally these prices are fixed and set and controlled by the seller and there is no negotiation from the customer, although there are differences in cultures where bargaining is common. In this market, assessments of what to buy are often informal and irrational and price is frequently regarded as an indication of quality. This is particularly true when the purchaser is comparing brands of a product they know little about. For example a

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consumer buying a digital camcorder with no knowledge of the technology is likely to rely heavily on price as a measure of assessment – believing that the higher the price, the better the camcorder. Branding is important in this market and many consumers will pay significantly more for a particular brand.

1.2 Service market There are two key factors affecting price in this market.

Intangibility The first relates to the intangibility of services that in turn leads to more reliance on price as a measure of quality. For example, someone arriving in a new town, needing a haircut and faced with two similar looking hairdressing shops on opposite sides of the road will have difficulty in knowing which is likely to give the better service. The intangibility of the service means that it is not possible to see the outcome before committing to one of the shops. If one is charging more than the other, the assumption is likely to be that the experience at that shop would be superior.

Perishability The second factor that is important in affecting price is the perishability of the product; the fact that it is lost for ever if it is not used at a particular time. For example the lost revenue from unsold theatre tickets can never be recovered. This helps to explain why it is often possible to get unsold theatre tickets cheaper at the last minute – and this applies to many other services.

1.3 Business to business (B2B) market The approach to price in this market is more analytical and rational than is usually the case in a consumer market. There is likely to be more negotiation on price, particularly on major purchases where a great deal of money is at stake. However price will be only one of the factors considered – the purchase will be considered from many angles. The lowest price may not represent the lowest cost if the item purchased is less reliable or the running costs are greater. For example, an organisation purchases a large number of good quality low-priced printers from company X. It then finds that only Company X’s expensive ink cartridge replacements are compatible with the machine. Company Y’s printers were more expensive than company X’s, but their machines could take much cheaper ink cartridge replacements and so in the long run the overall cost of purchasing Company Y’s printer is less.

1.4 Retail and wholesale markets These markets are looking in two directions; they are intermediaries between the customer and the manufacturer. As such they need to be realistic about the prices they charge their customers and the price they have to pay the manufacturer, where there is likely to be price negotiation. How the price paid to a manufacturer

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is determined will depend to a greater or lesser extent on the power balance between the manufacturer and the intermediary. For example, many large supermarket chains are able to negotiate a very competitive price with smaller manufacturers or suppliers as they have the power. On the other hand a small corner shop would be unable to negotiate price with a manufacturer or supplier as they have little or no power. Using the same example, customers will expect to pay more for the same product in a small shop compared to a supermarket and will be prepared to do so under certain circumstances, for example convenience or personal service.

6.1

Making it work A wholesaler/retailer attitude to pricing Travis Perkins is a wholesaler/retailer and one of the UK’s leading builder’s and plumber’s merchants. It buys products from a wide range of manufacturers or direct from primary sources (for example sand and gravel from pits) and negotiates to get the best price and quality of materials.

Some customers are more price sensitive than others. Customers who have an account with the company are given preferential rates depending on their product requirements and purchasing habits – volume and overall spend are two key factors in creating the correct price levels for a specific customer. Goods can also be delivered from Travis Perkins’ yard or direct from the manufacturers to produce the most competitive rate.

Travis Perkins does not aim to be the cheapest, its aim is to provide value for money and a service customers can rely on. It supplies different sizes and types of business within the building industry, including large national house builders. It recognises that many of its customers may have tight deadlines and need a reliable supply to finish the job.

Travis Perkins’ attitude to pricing can be summarised as offering:

Travis Perkins provides account facilities for larger businesses as long as they pay their bills on time. Small businesses have to demonstrate financial stability before getting an account.

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

value for money and an excellent service standard prices for one-off customers differentiated discounts for accountholders/frequent purchasers.

1.5 Public services In the UK and elsewhere the contracts to supply many products or services in this sector are by tender. A tender is the firm’s guaranteed price for supplying the goods or services requested and is often based more on what price the organisation believes its competitors will tender, than on a strict calculation of costs and demand. Because the firm is competing for the contract, it usually tries to set the price at a level below that of other bidders; this sometimes results in a price below cost, simply to keep plant and equipment occupied. This in turn encourages some suppliers to ‘cut corners’ in order to keep costs as low as possible, resulting in inferior products or services. Historically, in the UK, contracts for work in the public sector went to the lowest bidder, although in more recent years the move towards ‘best value’ has meant that the

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emphasis has shifted from price to a more detailed examination of precisely what is being offered by the various competing tenders. This has meant that it is not necessarily the cheapest price that now secures the contract.

Test yourself

6.1

What are the two distinctive factors affecting price in the service market?

6.1

Putting the case

Q

Sampat Cards is operating in a consumer market. How does this affect the price it charges customers?

A

Sampat Cards sets the prices of its cards and does not negotiate on price as is usual in this market.

2

In consumer markets, assessments of what to buy are often informal and irrational and this is likely to be the case for Sampat Cards. Its customers are likely to pay less attention to the price of the card (within reason) than to the quality and innovative design which has attracted them in the first place.

Influences on price

There are many influences on price and the following are discussed in this section: ● ● ● ● ●

demand and price elasticity the competitive market legal and regulatory framework organisation and marketing objectives costs.

2.1 Demand and price elasticity This influence on price may be explained by considering some basic economic theory. Demand is the quantity customers want to buy at a particular price and can be illustrated by an example – the following is a simple hypothetical example of the demand for T-shirts, with the total revenue the company would get at each price level. Price

Quantity demanded

Total revenue

£12

8,000

£96,000

£10

11,000

£110,000

£8

15,000

£120,000

Price and quantity (the demand) can also be represented in a diagram as in Figure 6.1.

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£ price

12

10

8

0 8

11

15 000s Output (units)

Figure 6.1 Demand curve In the example, you can see that as the price decreases, the quantity demanded increases, which is what, in general, you would expect to happen. Organisations are naturally very interested in the relationship between price and the quantity demanded and the response of customers to a change in price – how price sensitive customers are likely to be. This leads to the concept of price elasticity. Price elasticity of demand can be measured by using the formula: Percentage change (%) in the quantity demanded Percentage change (%) in price There are three forms of price elasticity, as follows.

Elastic demand Where demand is elastic, a small change in price will produce a large change in the quantity demanded. This is often the case with luxury goods or in competitive markets where one product/brand can be easily substituted for another. When demand is elastic, using the formula above, the price elasticity will be greater than one and the effect on total revenue is that a rise in price would lead to a reduction in revenue, and conversely a fall in price would increase total revenue. This is what has happened in the example of the T-shirts above. As the price has decreased there has been a more than proportionate increase in the amount demanded, leading to an overall increase in revenue for the company. In this situation customers are price sensitive.

price elasticity of demand The change in the quantity demanded in response to a change in the price.

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Inelastic demand Where demand is inelastic, a small increase in price will produce an extremely small reduction in the quantity demanded. This is usually the case when there is no close substitute for the product, or it is seen as a necessity. When demand is inelastic, using the formula above, the price elasticity will be less than one. In total revenue terms, total revenue increases as the price increases and falls as the price falls. In this situation customers are not price sensitive.

Unitary demand This is an unlikely, but theoretically possible situation, where the percentage change in price leads to an identical change in the quantity demanded. If this happens, then using the formula above, price elasticity would be exactly one, and total revenue for the organisation will remain the same at the two different price levels. The concept of price elasticity is important, but it must be remembered that, like other factors, it cannot be looked at in isolation. Taking the example of the T-shirts, it could be that as the price is lowered, consumers start to believe there is something wrong with them and so after a certain point demand might decline with a lower price.

Stop and Think

6.1

The price of petrol in general is likely to be inelastic, whereas the price of a particular brand of petrol is likely to be elastic. Why is this?

2.2 The competitive market The level and intensity of competition and the pricing decisions that other organisations make in the market will influence any company’s own pricing. The influence of competition on price will depend on the nature of the product and the number and size of competitor’s within the market. These are the different types of market competition.

Monopoly This is where one organisation dominates the market and in theory has the power to set the price as it has no competition. In practice, the government or independent watchdog bodies may impose regulations. Traditionally, in the UK, monopolies have been large state-owned enterprises providing public services such as gas, electricity and telecommunications; however, the move towards privatising these organisations has created competition that has benefited the consumer in lower prices.

Oligopoly This is where a small number of major suppliers dominate the market; examples here include long-haul airlines and oil companies. Each player in the market is very conscious of the rest and makes no move on price without due consideration of the likely competitive response. Pricing is a very sensitive issue in these markets and as oligopolists tend to be fairly evenly matched, a price war is probably something they

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would all prefer to avoid as it would be difficult for any one of them to be sure it could win.

Perfect competition This is where there are a large number of sellers, all with products that are indistinguishable from each other. If one supplier (‘X’) increases his price, either the rest will follow or customers will change suppliers until ‘X’ is forced to charge the same price as the other suppliers. This is the opposite of monopoly and only really exists in theory – the nearest you are likely to see to perfect competition is a local fruit and vegetable market where there are many suppliers of similar items and the prices are clearly displayed, allowing buyers to make direct comparisons.

Monopolistic competition/imperfect competition Most markets fall into this category, where there are many competitors, but each has a product differentiated from the rest. Price is not necessarily a key factor in these markets, as product features and benefits serve to differentiate a product. The emphasis in these markets is on branding or adding value so that the customer is prepared to accept a different price from its competitors.

6.2

Putting the case

Q

How does the type of competitive market Sampat Cards is operating in affect its approach to pricing?

A

There are four main types of competitive market and these are monopoly, oligopoly, perfect and monopolistic competition/imperfect competition.

Sampat Cards operates in the last of these market types, characterised by many competitors, each with a product differentiated from the rest. Price is not necessarily the key factor in this market. Hence it is important for Sampat Cards to make sure its customers continue to value the innovative design and quality of the cards and see it as clearly differentiated from any competition, which in turn will help them to maintain the price.

2.3 Legal and regulatory frames Most countries have laws or regulations that can affect the prices an organisation can charge if these are considered to be unfair or against the public interest. For some products, manufacturers and retailers may also be obliged by law to include duty or tax as part of their pricing. Alcohol and tobacco in particular are targeted by many governments for high rates of duty, partly as a public health measure (keep the prices high to discourage over-consumption) but also as an excellent revenue earner.

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6.2

Making it work Stopping unfair price discrimination In the UK, the Office of Fair Trading (OFT) can require firms to refrain from practices that are against consumers’ interests. One of the areas it investigates is any abuse of market power, such as charging excessive prices to a captive market, or forcing out competitors through predatory pricing. In the UK, it is not illegal for a business to be a sole supplier or to dominate a market. The test is whether a firm is abusing its market power. The OFT investigated a dominant UK pharmaceutical company (Napp) that supplied, in tablet form, a drug for cancer patients. It

found that Napp was operating a highly discriminatory pricing policy. The price of tablets sold privately to cancer patients was around ten times higher than the price charged to UK hospitals, where the firm kept its price artificially low in this huge market in order to make it almost impossible for rival firms to compete. As a result of this practice, Napp was fined more that £2 million and was ordered to reduce the price it charged private consumers and to limit the discount offered to hospitals. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

2.4 Organisational and marketing objectives Organisational and marketing objectives are closely related, with marketing objectives arising from organisational objectives. Organisational objectives can change over time as the organisation and its markets evolve. A new business, or a new entrant to a market, may have initial problems of survival and decide to use low price (or discounts) in order to attract business. Organisational objectives will often include target volume sales, target value sales, target growth in various market segments and target profit figures. All of these can be more or less attainable through the deployment of the marketing mix and particularly through price. Marketing objectives are achieved through the use of the whole marketing mix, not just the price element, and so it is important that all aspects of the marketing mix are in harmony. Companies with different products serving different market segments need appropriate pricing approaches for each by using other elements of the marketing mix to support the price or provide a rationale for it. For example the Tesco supermarket chain have different price levels for many of their foodstuffs – its low-priced ‘value’ range, its regular price range and its higher-priced ‘finest’ range. Some of the difference in price is explained by the exceptional quality of the ‘finest’ range, but some of the differential pricing is due to the packaging; the ‘finest’ packaging is higher quality and more descriptive than the ‘value’ range. Another product concept that might influence the pricing of a particular product over a period of time is the product life cycle concept, discussed in the previous chapter. In the introductory stage, a lower price might be necessary as part of a marketing strategy to encourage trial (alternatively in this stage a high price may be set to benefit from little or no competition). As the product becomes established through the growth and early maturity stage and gains loyal buyers, the organisation may feel confident enough to raise the price (depending on the positioning of the product and the competitive situation), whereas in the decline stage there might be price reduction to squeeze the last breath out of a dying product.

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6.2

Stop and Think

How might an organisational objective such as ‘Never knowingly undersold’ affect how a company prices its products?

2.5 Costs No organisation can afford to ignore costs and this includes not only the cost of the product, but all the associated marketing costs, such as those involved in promoting and distributing it. In addition to this, there are many other costs in running a business that will need to be covered. The bottom line is that no product can be sold profitably at a price lower than the cost of producing it. However, defining cost is not always straightforward, particularly in the service market as often the majority of costs are fixed in the short term and thus represent the bulk of the cost of providing the service. For example in a hotel these fixed costs – the staffing costs, facilities and maintenance costs – are the same regardless of the room occupancy. The only variable costs are those associated with an actual guest, i.e. the costs of laundry and any consumables and these are relatively low. In deciding on the price to charge for a room, the hotel needs to cover not just the variable cost, but also decide the level of price that will also cover all the fixed costs. One method of doing this is by break-even analysis. The formula for calculating the break-even quantity is: Break-even quantity 

Fixed costs Price minus variable costs

Changing the formula around, break even price can be calculated if the quantity is known: Break even price 

Fixed costs Quantity

plus variable costs

At a given price, a firm would need to sell a quantity greater than the break-even in order to make a profit. Alternatively a company could look at different prices to determine what quantity needs to be sold at the different prices in order to break-even. The following example illustrates how this technique might work in practice:

break-even analysis A technique to determine the level at which an organisation has covered all its costs and is making neither a profit not a loss – breaking even.

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6.3

Making it work Determining the price of a hotel room using break even

This example is based on a fictional hotel, ‘The Royal Palace’, which has 20 rooms and is open 365 days a year giving a total of 7,300 rooms available per year (20  365). Costs for the year: Owner’s salary and staff wages

£150,000

Rent, rates and utility bills

£140,000

Insurances

£8,000

Promotional costs

£2,000

Maintenance costs

£20,000

Total costs for the year

£320,000

The total costs for the year can be regarded as fixed costs as they will remain the same regardless of the room occupancy. The owner estimates that the variable costs per room per night (the cost of laundry and consumables) is £10. Using the formula above to calculate the break-even price £320,000 (fixed costs)  £10 (variable cost per room) 7,300 (total number of rooms per year)  £43.84  £10  £53.84 This means that if the owner sets a price lower than £53.84 per room he will make a loss, and this assumes he fills every room for every day of the year, which is highly unrealistic! The owner could use the formula to calculate how many rooms he would need to fill in a year at different prices, for example if he sets a price of £110 per room the calculation would be: £320,000 (fixed costs) £110 (price of the room) minus £10 (variable cost)  3,200 This is 3,200 rooms per year which as the total rooms available per year is 7,300 represents an occupancy rate of well under 50%, which would be highly achievable. However there are many other considerations the owner would need to address in arriving at a price to charge customers, including demand and competition.

Test yourself

6.2

What are the five main influences on price?

3

Approaches to pricing

There are many different approaches to pricing and some or all of the following will be relevant, depending on the product and the market in which it is operating: ● skimming ● penetration

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● ● ● ● ● ●

product life cycle cost plus marginal cost psychological product mix discounts.

3.1 Skimming This approach is used when a new, innovative, or much improved product is launched onto the market, and involves setting a high price to ‘skim’ off customers who are willing to pay this high price. The success of a price skimming strategy is largely dependent on inelastic demand for the product either by the market as a whole, or by certain market segments. The organisation can enjoy high prices in the short term when demand is relatively inelastic. In the short term the organisation benefits from good profits, but as profitability increases, competing suppliers are likely to be attracted to the market and the price will fall as competition increases. The main objective of employing a price skimming strategy is to benefit from high short-term profits and from effective market segmentation. There are several advantages of price skimming: ● By charging high prices initially, a company can build a high-quality image for its product. Charging initial high prices allows the firm the luxury of reducing them when the threat of competition arrives. By contrast, a lower initial price would be difficult to increase without risking the loss of sales volume. ● Skimming can be an effective strategy in segmenting the market. An organisation can divide the market into a number of segments and reduce the price at different stages in each, thus acquiring maximum profit from each segment. ● For ‘conspicuous’ or ‘prestige’ goods, the practice of price skimming can be particularly successful, since the buyer tends to be more ‘prestige’ conscious than price conscious. Similarly, where the quality differences between competing brands is perceived to be large, or for offering, where such differences are not easily judged, the skimming strategy can work well, for example the manufacturer of designer label clothing often use this approach.

3.2 Penetration pricing This approach is the opposite of skimming in that it involves setting a low price in order to achieve a large or dominant market share. This strategy is most often used by businesses wishing to enter a new market, build on a relatively small market share or when launching a new product. Penetration pricing will only be possible where demand for the product is believed to be highly elastic, meaning that demand is price sensitive and either new buyers will be attracted, existing buyers will buy more of the product as a result of a low price or will switch from other brands.

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The advantages of penetration pricing are: ● It may lead to large sales volumes/market shares and therefore lower costs per unit. The effects of economies of both scale and experience lead to lower production costs. ● It may also promote complementary and captive products. The main product may be a low price to attract sales. Customers are then sold accessories at high prices (these accessories often only fit the manufacturer’s own product). The disadvantages of penetration pricing are: ● The likelihood of competing suppliers following suit by reducing their prices, nullifying any advantage of the reduced price and starting a possible price war, which is likely to be bad news for everyone apart from the customers! ● The low price could have a negative effect on the image of the product, particularly where buyers associate price with quality.

Test yourself

6.3

What is the main difference between skimming and penetration pricing?

3.3 Pricing and the product life cycle Price skimming and penetration pricing are typically carried out in line with the life cycle of the product. Typically, early in the life of the product (the introduction stage), a skimming policy is adopted, partly to recoup the heavy costs of research and development, but more importantly because the first buyers of the new product tend not to be particularly sensitive to price, so a skimming strategy may work well at this stage. At this stage a penetration strategy is only likely to be adopted by an organisation with the resources to produce large enough quantities in order to keep the price low and discourage competition from entering. Typically as the product moves into the growth and maturity stages, there is more competition (unless it has been frightened off by the penetration pricing strategy) and the market becomes more price sensitive, and a skimming approach is no longer possible. At the maturity stage, the price is likely to be at its lowest.

3.4 Cost plus pricing This approach is similar to the way an accountant might calculate the price for a product. It is based on total cost of product, including production and marketing costs, plus an allocation for overheads plus the target percentage to provide a profit margin. The total gives a selling price. It is not without its problems. Cost calculation is based on a predetermined level of demand and production. As these fluctuate, so does the product cost. It ignores market factors such as competitors’ actions. The way overhead cost allocation is done can lead to a wrong pricing decision. However, a major benefit of this approach is that it can help indicate minimum price levels.

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3.5 Marginal cost pricing In highly competitive situations it may be possible to gain business if a sufficiently low price is offered. The question arises, however: what is the lowest price to use at which it makes sense to take the business? One approach is to use marginal costing, which is defined as the cost of producing one more unit. The cost of producing one more unit means that the fixed costs are already being covered by the existing sales volume, and then the costs of producing the extra unit are the variable costs. If a small profit is made per unit, then at least this is an additional contribution which would not have been there if the extra business had not been gained. It can be argued that, even at no profit, marginal business is worth having as it may use resources that would otherwise stand idle. Generating this type of business, however, can ultimately eat into profits and depress the percentage return on sales. The major use of marginal costing, therefore, is to answer the question, ‘Should I accept this order?’, rather than as a pricing tool. This type of approach is more often used with price elastic, high-volume products, where it is important to keep high sales volume. It is also used in service industries for last minute bookings. For example an aircraft may have only filled half of the available seats a day before take-off. The extra cost of filling the remaining seats is extremely low and therefore virtually any price the airline charges to fill the empty seats will increase its profit. Marginal costing is sometimes a basis for export sales; to be competitive in foreign markets, elements of fixed costs that are currently covered by home sales are ignored in setting prices overseas.

6.4

Making it work How budget airlines price their product Budget airlines offer a ‘no frills’ service on popular routes. This means that passengers will not usually have an allocated seat and they will have to pay extra for any additional services such as food or refreshments. In return they will travel at a rate lower than that offered by the major airlines. In the past, major airlines set a price that didn’t rely on all seats being filled all of the time. If there were still seats available shortly before the departure day (or time), they reduced the price in order to fill the remaining seats. All airlines have high fixed costs, so once these were covered and as long as they covered

the marginal cost of the seat, they were adding to any profit. Some passengers, knowing that price would be lowered near the departure time, would wait for the lower price. However, budget airlines work on much lower margins and for them to remain in business they have to make sure they fill all the seats on their aircraft all the time. They need to have all the seats booked as early as possible and to encourage people to do this, the budget airlines increase the price as the departure date gets closer. This of course is a reversal of the previous practice but it means that passengers now book early to get the best price, knowing that delay will cost them money.

3.6 Psychological pricing Psychological pricing involves using price to create a particular image in the consumer’s mind likely to prompt buying. For example, many perfumes have a high price to suggest

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their quality and/or exclusivity. Often the precise figure that represents the price needs consideration; £9.99 and £49 are popular prices, whereas £10 and £50 are not, and this goes for a host of other prices, even with cars at £9,999. These barrier prices seem very strong with customers and research shows that such pricing has great appeal especially with women and sells more products than a round figure price. Having said this, many consumers often find it difficult to recall the price they have paid for products they have bought, especially if they consider them low cost items. Attitudes to such pricing structures can and do change. Influenced by fashion and the feeling of a more open and honest approach, at present there is evidence of reversion to round price figures.

3.7 Pricing and the product mix Products cannot be priced in isolation; they have to ‘fit’ with the rest of the product range. For example Panasonic, the brand name in the UK of a major Japanese electrical company, offer a wide range of electrical products including TVs, hi fi systems, ovens and cameras. Customers will associate the name Panasonic with a middle of the range pricing structure. Indeed the same Japanese company use the brand name Technics for their more up-market hi fi and other products in the UK. Within an individual product line, for example Panasonic’s digital cameras, each product offers additional features, and pricing needs to be spaced out accordingly. Customers see the set of products in the line and relate the price steps to additional features, benefits or quality, for example a higher-quality zoom lens. Some companies advertise a low basic price to attract attention, and then the customer finds that when the extras are added, the price is considerably higher. Holiday tour operators are particularly prone to doing this, and supplements such as a single room, airport taxes and transfers and dates in the peak season can double or even triple the original price.

Putting the case

Q

How should Sampat Cards determine the price of wrapping paper if it decides to sell it?

A

If Sampat Cards decides to sell wrapping paper it will be along side its other card products and so the price it charges will need to ‘fit’ within the overall product mix. There are many other factors the organisation will need to consider and these will include the cost of producing the paper; the main cost will be the price Sampat Cards have to pay the printing company. As Sampat Cards is

6.3 already operating at a profit and therefore covering all its fixed costs, it might only consider any extra costs such as storage, rather than allocating a percentage of the overheads as well. The company also needs to consider what the competition is charging and what customers are prepared to pay. This expectation from customers will in turn be based on their image of the product and Sampat Cards must not set the price too low if they are to maintain their image of high-quality innovative design.

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3.8 Discounts Discounts are allowances that are sometimes offered to dealers and customers as special incentives. Most consumers are familiar with cash discounts which are offered to buyers who pay their bills promptly. Such discounts are customary in many industries and have the advantage of reducing credit collection costs and bad debts. Aside from cash discounts, the main types of discount are: ● quantity discounts ● seasonal discounts ● tactical discounts.

Quantity discounts A very familiar type of price reduction used in all markets to buyers who buy larger volumes, for example: £10 per unit for less than 100 units £9 per unit for 100 or more units. The seller who gives discounts based on quantity reduces selling expenses, administrative and (possibly) transport costs. He also encourages the buyer to buy more from himself rather than from competitors.

Seasonal discounts These discounts are related to the demand for a product and are used to help the seller maintain a more balanced level of sales across the year. Most consumers are only too well aware of the differences in the price of holidays or airline tickets at different times of the year, with high prices at holiday times when demand is greatest. Another example of seasonal discount is when winter boot makers offer a seasonal discount to retailers in the spring and summer to stimulate earlier ordering, which in turn makes their production more even across the year.

Tactical discounts These discounts are short-term and usually in response to competitor activity or to encourage trial of a new product, for example 10% discount until the end of the month. Tactical discounts are also a good way of shifting unwanted stock and this is the basis of many sales in the retail sector – space is needed for the new stock.

Test yourself List three different types of discount.

6.4

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6.5

Making it work How Ikea’s discount tactics backfired Ikea, a Swedish company with distinctive flat-pack furniture, has stores in 29 countries across the world. When it opened a new store in North London in 2005, it decided to offer some stunning discounts – including 500 leather sofas for £45 each – but in strictly limited time slots, some only three hours long. It hoped to attract attention and some good publicity for its new flagship store. The store opened at midnight and expected to attract around 2,000 bargain hunters at that late hour in the middle of a working week in winter, but was shocked at what occurred when around three times that number descended on the area, abandoning their cars and causing traffic chaos in an attempt to get to the

store in time to secure one of the bargains. Police, along with nine ambulances and the fire brigade, had to be called in to deal with the chaotic crowd and the 22 people injured in the crush. Forty minutes after opening the store at midnight, Ikea had to close it and it remained closed for a further 24 hours. A company spokesperson apologised to customers, saying that almost all the special offer sofas had been snapped up and the company had now taken all the offers off sale. This is an example that Ikea can learn from! How an over-generous discount offer, coupled with very tight time restriction, results in chaos, the opposite effect to that which was intended.

Summary ● The relationship between buyer and price differs according to the type of customer and the type of market. Consumers are more likely to be influenced by non-price factors whereas in B2B markets both buyer and seller are likely to be more rational about price. ● There are many influences on price. An organisation needs to take account of the competitive environment in which it operates and the legal and regulatory framework. It will seek to influence demand by the way in which it prices its products, but this needs to be achieved against the background of its own organisational and marketing objectives and the costs involved in producing the product. ● An organisation will need to consider all the different approaches to pricing in order to determine which combination of these should be used.

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Distribution List of topics 1 2 3 4

The importance of distribution Distribution channels The role of intermediaries Physical distribution

5 6 7

Distribution strategies Selection of channels The impact of the internet

Introduction Distribution is the means by which products are made available and accessible to customers. Having made the decision to buy, the customer will want the product at a time and in a place that is convenient. In reality there are few products where customers will beat a path to the manufacturer’s door. It is the business of the organisation selling the product to determine how best to make it readily available to customers. This will involve making decisions about whether to offer the product direct, via one or more intermediaries (middlemen) or by a combination of methods. The organisation will need to manage and control its distribution system and be aware of the possible impact of the internet on its operations.

1

The importance of distribution

Distribution is sometimes a rather undervalued aspect of the marketing mix. However, it is vital that customers receive goods or services when and where they need them – availability can provide a real competitive advantage. It is vital that all aspects of distribution are fully thought through and not some kind of afterthought, otherwise all the hard work involved in developing and maintaining products and promoting them will be wasted. The process must also be efficient. Examples of late, damaged, incorrect or wastefully small deliveries, of vast stockpiles of unsold products, and of raw materials or finished goods simply going missing are indicators of a lack of management concern with the process. It was serious delivery problems with Adidas’ successful range of sports footwear that gave Reebok and Nike their chance to increase their share of the European market in the late 1980s. The principal concerns for marketing people in establishing the ground rules for a distribution network should be: ● Timing – will the product be available when the market expects it? This not only applies to the end consumer, but also to companies looking at how to give retailers or wholesalers what they want when they want it.

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● Location – will it be in the place where consumers expect to find it? Does the customer want to buy at home, in the high street, at an out-of-town shopping centre? Or somewhere else (e.g. on the internet)? The answer may well be that different customers want different things. There is more to a location than just where it is. The high street may seem convenient, but how close is parking? ● Reliability – will the distribution system operate reliably all the time? Although reliability is important in consumer markets, it is vital in many industrial and B2B markets where they rely on components from other manufacturers as part of their manufacturing process.

7.1

Making it work How Coca-Cola delivers just-in-time Coca-Cola’s canners and bottlers process vast quantities of materials each week. Receiving the raw materials and delivering the finished products involves a complex sequence of actions. Coca-Cola tries to make sure that the inputs for the process arrive ‘just-in-time’ so they can be transformed into a finished product ready for transportation ‘just-in-time’ to meet the needs of the retailers. At modern canning plants, the can maker is often located in an adjoining facility, with delivery through a ‘hole in the wall’ operation. The packers are involved in sophisticated networks with the supermarket chains and other outlets to

ensure that this process runs smoothly. Canners and bottlers must ensure that they do not build up large stockpiles of cans waiting to be sold but they must also make sure that deliveries are not late. They benefit from advanced information technology that rapidly relays figures about the demand for CocaCola. Demand tends to rise in hotter weather so the packagers need to plan increased production. Canners and bottlers work closely with the Coca-Cola company and other suppliers to provide a smoothrunning operation so that consumers are always able to buy a drink when they want one. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

Test yourself

7.1

What are the three main concerns when establishing the ground rules for a distribution network?

2 distribution channels The means by which goods or services get from the manufacturer to the customer.

Distribution channels

In order for goods and services to be available to consumers when and where they need them, they need to go through some type of distribution channel. Channels can be long or short, single or multiple, and could have any number of intermediaries (middlemen) or be direct to customers.

2.1 Direct channels A direct channel is said to exist when there are no intermediaries between the supply organisation and its customers. Such contacts might be very direct, face-to-face with a representative of the supplier, for example when an insurance company uses its own sales team. A more remote direct channel is through a catalogue or web page, which is the method used by some holiday companies such as Portland Direct.

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(a) Consumer products 1

2

3

4

Producers

Producers

Producers

Producers

Agent

Wholesalers

Wholesalers

Retailers

Retailers

Retailers

Consumers

Consumers

Consumers

1

2

3

4

Producers

Producers

Producers

Producers

Agent

Agent

Consumers

(b) Industrial products

Distributors

Distributors

Consumers*

Consumers

Consumers

Consumers

* Business to business buyers

Figure 7.1 Typical channels of distribution for consumer and industrial products The main advantage to an organisation of using only direct channels is the high degree of control the organisation can exercise over the channel. It is also often easier to gather feedback from its customers as it is in direct contact with them and is likely to be able to respond more quickly to their needs and wants.

2.2 Indirect channels Indirect channels involve the use of intermediaries. Figure 7.1 shows some of the typical channels of distribution for consumer and industrial products. Many consumer products are sold in shops – retailers. These vary enormously in nature, from supermarkets and department stores, to specialist retailers, general stores and more – even market traders. These may, in turn, be variously located: in a town or

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Retailers

E-tailers

Distributors

Agents

Overseas distributors

Retail group central buying

Publisher’s web site

Wholesalers

Libraries Publisher

Educational colleges etc. Book clubs

College shops etc.

Customers

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Direct mail/advertising

Direct (party) sales

2nd hand shops

Figure 7.2 Alternative channels of distribution in the book publishing industry

city centre, in an out of town shopping area, in a multi-storey shopping centre, or on a neighbourhood corner site. But the complexity does not stop there. Retailers may be supplied by a network of wholesalers or distributors, or they may be sold direct by mail order, door to door, or via the internet. A similar situation applies to services; even traditional banking services are being made available in stores, from machines in the street and through post and telephone and again via the internet. Business-to-business industrial products are similarly complex in the range of distributive options they use. New channels of distribution such as the internet now exist as a result of the information technology revolution and the advent of various forms of e-commerce; the impact of the internet will be considered at the end of the chapter.

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Figure 7.2 gives an example of the various channels that can be involved in the book publishing industry. In this example it is important for the book publisher to ask itself questions about its customers and their needs, for example: ● Who are they? (e.g. students, colleges, parents, children etc.) ● What are their needs? (e.g. for value, performance, convenience etc. – such factors can be linked specifically to a particular product) ● How are their needs being satisfied? (by both direct and, if relevant, indirect competition) ● Where do they buy? (linking to the different channels featured on the diagram). The answers to these questions will help it to determine which mix of channels to use.

7.1

Putting the case

Q

Explain the advantages to Sampat Cards of using a direct channel to distribute its cards.

A

Sampat Cards uses its own sales force to distribute its cards and this is regarded as a direct channel. The advantages of this method are that Sampat

3

Cards has control over the channel as the sales team is employed by the company. It is in close contact with its sales team and therefore benefits from feedback on customer reaction to its products which it can then act on swiftly. As a small company with a limited market, the use of intermediaries that an indirect channel would involve is unlikely to offer any cost advantage.

The role of intermediaries

The most basic role of intermediaries is to reach customers at a lower cost per unit than the supplier can achieve directly. This could be achieved by simply buying in bulk from the supplier and selling individual items on to the customers. The supplier concentrates on production, and delivers in quantity to the intermediary who becomes the supplier’s customer. The role of intermediaries could also include reaching the target in a more effective way, given the buying habits of customers. The intermediary will obviously take a share of the profit from a product/service, but it can still benefit the supplier because of the services it might supply. These could include: ● holding stock ● breaking bulk (for example a wholesaler might receive a container of tea and put the tea into convenient sized packets for consumers) ● consolidating orders (an intermediary will buy more per order than an individual which will reduce the number of transactions between supplier and customer) ● transport and delivery to final customers ● providing local services such as display or after sales service.

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As intermediaries are closer to the final customer than the manufacturer, they may also be able to offer useful market information. Service is important too. Some products need a degree of advice and information to assist their purchase, and all benefit from service in the pure ‘good customer contact’ sense. If a customer needs advice before they will choose and buy a particular product, then the chosen intermediaries must be able to provide it. Again there are compromises to be made here, but customers will decide what’s best for them, and may well have the option of deciding that a particular product is just too complicated to buy and move on to a competitor who has things better organised.

3.1 Types of intermediary The following are some of the main ones:

Wholesalers Wholesalers don’t usually deal with the end customers, but with other intermediaries, usually retailers. However sometimes wholesalers make sales directly to the end user, especially in B2B markets, for example an organisation may buy its catering or cleaning supplies from a wholesaler who serves the retail trade.

Retailers Retailers sell direct to the consumer and may either buy direct from the manufacturer or via a wholesaler, depending on their size and purchasing power.

Distributors and dealers These intermediaries stock the product and often offer other services such as after sales service or credit facilities. They are often used in B2B markets, but they are also used in some direct dealing with consumers, such as car dealers.

Agents Agents do not buy or own goods and act like sales people for the company; their role is to make the product more accessible to the customer.

Putting the case

Q

What are the possible advantages and disadvantages to Sampat Cards of using an art reproduction shop to stock a range of their cards?

A

The art reproduction shop would be acting as an intermediary between Sampat Cards and its customers and would have the potential of reaching a much wider market than the present one. The shop appears to be consistent with Sampat Cards’ high quality image. It is also unlikely to affect the current level of sales via the part time sales agents.

7.2 The main disadvantage is that it may not fulfil the basic role of an intermediary, which is to reach the customer at lower cost per unit than the supplier can achieve directly. It is possible that some of the sales agents could feel demotivated at not being given the opportunity to sell into a new market. The level of feedback from customers on the cards will depend on the relationship between Sampat Cards and the shop – in the worst scenario the only feedback will be no more orders!

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Franchisees For a sum of money and share of the profits, the owner allows an independent local operator to trade under the brand owner’s name, selling the brand owner’s product(s).

3.3 Building relationships with intermediaries For any distribution channel involving intermediaries to work effectively, an individual relationship needs to be created between the parties. The organisation must prompt them to do the best possible job on their behalf and there is always a need for communication with distributors to: ● Inform them about the product, your plans, how things are going, opportunities to come – and more. An ongoing dialogue is necessary here. ● Motivate them, especially if contact is infrequent or difficult, as with overseas distributors. ● Support them, with for example joint promotions, merchandising or advice, training – any thing they expect or find useful. This ongoing communication may use every available method, from simple e-mail to video conferencing, and must be planned and sustained (and therefore budgeted for in both time and money). For example Levi-Strauss jointly developed a computerised order processing inventory system with its retailers that allowed Levi wearers to order a pair of jeans to fit perfectly. This benefited both Levi and its retailers in term of increased sales and profits. The manufacturers’ own sales force can be a vital link to distributors. Training the sales force to support the distributors’ sales force may improve the overall channel performance. Distributors should have adequate margins to enable them to carry enough stock to be able to satisfy customer needs. If the manufacturer squeezes the margin too hard then the distributor may cut back on stock and this will have a negative effect on everyone concerned. Strong manufacturers should think carefully before taking over or creating their own outlets or selling direct. Intermediaries who have been cut out may set up in competition against them.

7.2

Making it work How Kraft Foods works with intermediaries Kraft Foods is the world’s second largest food company. It calls its intermediaries ‘Supply Chain Partners’ and in order to ensure processes work as smoothly as possible, organises one-day inductions at its premises, or longer-term assignments like job swaps. One of the goals of Kraft Foods is optimal stock levels. To optimise the stock levels in the total supply chain, it helps its trading partners to collaborate fully

to understand the volume and type of inventory held along the chain and the future demands. Stock may be held at manufacturing plants, warehouses or at the retailers’ stores. Information on stock levels and sales can be shared using the internet. The systems enable Kraft Foods and its wholesalers and retailers to view and act upon the same information at the same time creating what it calls a ‘total inventory chain.’ Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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4

Physical distribution

Physical distribution management covers a range of activities concerned with planning and implementing the efficient movement of goods and/or raw materials. To be efficient it needs to be integrated with all functions, i.e. purchasing, production, marketing finance and personnel. At the heart of physical distribution is the decision about which method(s) of transportation to use to move goods efficiently.

4.1 Factors determining the methods of physical distribution The method(s) used will depend on a number of factors. These include:

Factors concerned with the product itself ● What is its shelf life – how perishable is it? ● What is the size (bulk) and weight of the product and what is its value in relation to this?

Factors concerned with the market for the product ● ● ● ●

Who are the customers and how many of them are there? Where are the customers located? Where will customers expect to find the product? What method(s) of transportation does the competition use?

Factors concerned with the cost/benefits of different transportation methods. There is a need to weigh up costs of different methods against benefits such as speed, security of goods, frequency of deliveries, consistency of the delivery service and ability to keep precise track of the movement of the goods. For example, an essential component for a production process might be flown by air if this is the quickest method – the cost of delay would be far greater in lost production than the extra cost of the flight. As well as the factors listed above, decisions may need to be made about whether to use the organisation’s own transport (e.g. lorries/vans) or to sub-contract or hire others. Clearly there are advantages and disadvantages to both alternatives.

Advantages of using own transport ● More control – can be more flexible in prioritising deliveries. ● Can make use of company name/logo on the lorries/vans (extra promotion because of the visibility of this). ● More control over the delivery people as they are company employees and hopefully a more professional service. ● Ability to get feedback from own staff.

Disadvantages of using own transport ● Initial investment and upkeep, particularly if vehicles are not fully used. ● Own staff may not be as well trained as specialist delivery company personnel.

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Stop and Think If you were a manufacturer of furniture, would you prefer to use your own transport for delivery or not?

5

Distribution strategies

The choice and number of channels of distribution will depend to some extent on the type of distribution strategy of the organisation. The strategy an organisation chooses will depend on the resources and objectives of the organisation, the type of product being offered and the needs and expectations of the target market in terms of where and when they want the product. The three distribution strategies are: ● intensive ● selective ● exclusive.

5.1 Intensive An intensive distribution strategy involves using as many appropriate outlets as possible to sell the product and get maximum exposure and is typically used by FMCG (fast moving consumer goods) manufacturers, where there is a great deal of competition. This wide exposure means more opportunities to buy. Many FMCG are sold in grocery and provision stores of all sorts, all types of supermarket large and small, confectioners, newsagents, petrol stations, cinemas and other entertainment centres (e.g. bowling rinks), leisure centres and clubs, some pubs and bars, vending machines, cafés, sandwich shops and more. To this one could add a list of different locations for some of these that would include the high street, railway and bus stations and out-of-town shopping centres. An organisation supplying low value consumer items such as crisps or chocolate bars needs intensive distribution, to be available in as many outlets as possible. Consumers will rarely search for such items – if their usual brand is unavailable, they will usually select a competitor’s brand rather then go to another outlet.

5.2 Selective A selective distribution strategy is one that as the term implies involves choosing outlets relevant to the product and market, often outlets that can provide information and advice, for example outlets selling TVs. It is worth noting, however, that this type of strategy is often giving way to more intensive distribution, for example, TVs now being sold in supermarkets.

7.1

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5.3 Exclusive This strategy is, as the term implies, restrictive and often there is one specialist outlet in a region, for example Wedgwood china is sold through exclusive dealers and might be available in only one shop in a particular town. Sometimes the fact that the item has exclusive availability is important to the customer, for example a designer dress. This form of exclusivity that necessarily implies a restriction on supply, allows the product to be priced at a premium.

7.3

Putting the case

Q

What distribution strategy is most appropriate for Sampat Cards at the moment?

A

The three main distribution strategies are intensive, selective and exclusive. The choice of strategy depends on the resources and objectives of the organisation, the type of product and the needs of the customer. Sampat Cards is a small business that would not

6

have the resources for intensive distribution, but even if it did, this strategy would not be appropriate for a high quality card. Consumers would not expect to find it in every available outlet and if they did it would lead them to question its appeal. At the moment the strategy being used is probably selective rather than exclusive – it is sensible to consider alternative distribution channels, like the art reproduction shop. This should increase the market, but is not restricting it to exclusive outlets.

Selection of channels

Decisions must be made about which channels will be used (and which will not). Channels are not mutually exclusive, several may be utilised together and the mix (and relative importance of different channels) is what must be decided. There is no one easy and obvious route for most suppliers. A mix of methods needs to be considered, and any decision must be based on facts and analysis. Established firms have well defined channels. These channels often establish the norm for that particular market. While such channels will clearly differ from market to market, the channels themselves develop from the exchange between suppliers and customers. They then come to fit the needs of many customers and again become the expected norm. Such arrangements are usually long-term and can prove a challenge to new entrants trying to break into the market. Although this is, as we have seen already, a decision involving some complex, interlocking issues, five main factors will influence the channels used: ● ● ● ● ●

customer requirements, including customer service product characteristics competitive characteristics company characteristics environmental characteristics.

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6.1 Customer requirements The choice of channel will depend on the needs and wants of customers. It may not be possible to satisfy everything a particular customer wants, but that customer’s decision is likely to be based on issues such as cost, convenience and availability. Opening times are relevant to availability and some supermarkets in the UK and elsewhere are now open 24 hours. One of the advantages of shopping on the internet is that it is open all hours, but against this is the need to wait before receiving the product. Purchasing from a local store means there is immediacy in getting the goods, but there is the time and trouble of visiting the outlet. All customers make a trade-off between time, trouble and other factors, and this helps to explain why in many consumer markets there is a need for a number of different channels of distribution. Industrial buyers usually prefer to deal directly with the manufacturer.

Service to customers Channels should provide not just a route along which products and services are made available, but should actively create availability in a way that provides customers with a satisfactory way of obtaining what they want. Customer service is a broad term, but some questions that should be asked which may affect the distribution channel used are: ● Are the goods/services available when and where the customer needs them? ● Is the system for ordering the product/service easy for the customer (if applicable)? ● Does the customer have a contact name and phone number for information or queries concerned with the order or delivery? ● Is the delivery at a day/time suitable for the customer? Is there any choice? ● Will delivery be on time? ● Will the goods arrive in first class condition? ● Will the order be correct (will there be any bits missing e.g. screws etc. for ready assembled goods)? ● Does your organisation have a competitive edge over the competition with your distribution strategy? ● Does you organisation offer guarantees or warranties and if so, is the customer aware of these? ● Are all staff the customer has contact with (either face-to-face, over the phone or by email, letter, fax etc.) properly trained, polite and helpful? ● And finally, will the customer want to use your organisation and products again and recommend you to others? It is vital that if the organisation is using intermediaries, these intermediaries operate in a way that is consistent with the standards expected by the company using them. A customer whose item is delivered late or by a surly delivery man will blame the company from which it was bought, regardless of whether this person was a company employee or not.

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7.2

Stop and Think

Most people have had problems with delivery of a product – you probably have yourself, or know someone who has. Think how the problem was dealt with and how it made you feel about the organisation and its product. Was it a positive or negative experience?

7.3

Making it work How Kraft Foods seeks to improve customer service. Kraft Foods wants the end consumer to be 100% satisfied with their purchase and it believes this can be achieved by delivering a high quality product in perfect condition every time. If this does not happen it believes it is essential that the problem is resolved efficiently and speedily to the consumer’s satisfaction. In order to achieve consumer satisfaction it has:

●

mechanisms for resolving distribution problems that caused the complaint

●

a crisis management policy for recall of product that may have a quality issue

●

a feedback route for consumer comments and suggestions, for example the Kenco Freephone Coffee Advice Line.

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

6.2 Product characteristics Perishable products, such as fruit and vegetables, and fashion garments with short life cycles typically move through relatively short channels direct to the retailer or ultimate user. Major bakeries distribute their bread and cake products direct from the bakery to the retail shelves or within short distances of their premises. Complex products, such as custommade installations and many industrial products are typically sold direct from the manufacturer to the buyer, a direct channel. In contrast, the more standardised and the less perishable a product, the more indirect the channel will be; for example, rice will usually be distributed by wholesalers to catering establishments or via retail outlets to consumers. It is also generally the case that the lower the unit value of the product, the longer the distribution channel. Convenience products and industrial supplies with low unit prices are often distributed through relatively long channels; this is because the market is widespread and only purchasing very small quantities at a time. Wholesalers and retailers are then vital to the manufacturer, who could not possibly deal with each individual consumer. In contrast, installations and more expensive industrial and consumer products use shorter, more direct channels.

6.3 Competitive characteristics The channels chosen may often be influenced by the channels competitors use, and there may be dangers in moving away too far and too fast from what a market expects and likes. The competitive interaction in this way between retailers is another variable. In the area of fast food, Burger King tries to obtain sites near to McDonald’s; on the

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other hand, some manufacturers, such as Avon Cosmetics, choose not to compete for scarce space in retail stores and have established profitable direct selling operations instead. Similarly, major chains may seek to open branches near existing smaller, independent, retailers, not only to take advantage of their market knowledge – they are in an area where there is a demand – but also with the aim of replacing them altogether. This may well not be entirely in customers’ interests and illustrates one aspect of the power of major retailing groups.

6.4 Company characteristics Companies with adequate financial, marketing and managerial resources will be less likely to use middlemen in marketing their products. A financially strong manufacturer can hire his own sales people, warehouse its products and grant credit to the retailer or consumer. If an organisation, through vertical integration, can combine the different levels in the distribution channel under its single ownership, then clearly it will be exercising great control, though this will be costly. The higher costs of vertical integration may be offset by higher revenue from not having to fund the margins of the intermediaries. A smaller or financially weaker company must rely on wholesalers and other intermediaries, and firms who put most of their energy into production may also be forced to use the marketing expertise of a middleman to replace the lack of marketing management in their organisation. Although they will not have the costs associated with setting up their own system, they will not have the control either. It follows from this that in distribution channels, the greater the control an organisation has over the distribution channel, the greater the cost, and vice versa. There is a trend towards more vertical integration and franchising for the following reasons: ● ● ● ●

economies of scale control of the total operation savings in transaction costs closer relationships with suppliers and customers.

6.5 Environmental characteristics Changes in the economic and legal environment can also bring about changes in distribution. For example, when the market is depressed, manufacturers want to move their goods to market in the most economic way. They thus cut out intermediaries or inessential services to compete on price and deal direct. Again, legal restrictions have been introduced in the UK in recent years to prevent any channel characteristics that may weaken competition. There may also be controls on the conditions under which a product is distributed: for example, refrigerated transport for perishable foods or special containers for dangerous chemicals. These factors may sometimes make it necessary for the manufacturer to carry out much of the distribution himself. Also influencing how goods are distributed are overall trends within retailing. Out of town shopping, the use of the car (or restrictions on it), and everything from the cost of

vertical integration The strategy whereby a company either moves upwards into ownership of supply or downwards into ownership of distribution outlets.

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renting retail accommodation to the desirability of an area, are all influenced by the needs and wants of consumers.

Test yourself

7.2

What are the five main factors that influence the choice of channels?

7

The impact of the internet

These days, we are surrounded by high-tech developments. Ordinary citizens may not suffer too much from failing to keep track of new technologies the moment they appear, but it can be disastrous for a business not to harness new technologies to develop the business and keep it ahead of the competition. The internet has forced many businesses to rethink how they operate. Businesses have to look very closely at what the internet can offer and then decide how well it meets their own needs and the needs of their customers. The internet is a global market with an estimated 100 million people. It allows companies to expand internationally without the costs normally associated with such a venture. Many customers now do at least some of their shopping on-line, as they value the opportunity to do so at a time that is convenient to them. It is particularly suitable for products such as holidays and books. The internet is a very useful tool in direct selling, but like any other form of distribution has its downsides, as the many failed dot com businesses bear witness to. It shouldn’t be seen as a magic solution, and the nature of the product or service on offer, the needs of the target market and the resources and expertise of the organisation should be the focus when considering it as a channel of distribution.

7.1 Organisations and the internet Amazon.com is a very successful bookseller that has built it business on the internet. It is now valued at $120 million and within months of starting became the largest bookstore in the world, operating in nine countries from the US to Japan. It has built up a huge customer base and uses the information it captures from its customers to communicate with them when they next visit the website. It uses their name and tells them what books might be of interest to them and how much they might be able to sell books for which they have previously purchased from the site, as well as encouraging them to submit book reviews. Many large supermarkets offer internet retailing. Although most customers will still visit the store, ordering via the internet is a very useful way of shopping for those who are housebound or too busy. There have been a few teething problems, with some customers complaining that perishable goods are often near dated, or their chosen brand was replaced with an inferior one. These teething problems are outweighed by the numbers of satisfied customers and the benefits to the organisation of serving the needs of a distinct market segment. It is not only large organisations that benefit from use of the internet. It allows small businesses to compete on an equal footing with much larger companies by setting up

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on-line brochures or catalogues. For example, a small local butcher who sold speciality meats decided to set up a website to sell his products. The sales from the internet were so successful that he was able to shut his shop and trade purely in this way. He was able to expand his business in a way that would have been totally impossible by remaining and trading from his shop.

Test yourself

7.3

What three things should you consider before deciding whether to use the internet as a direct channel of distribution?

7.4

Making it work How Amway use the internet in their business Amway is a global business employing more than 6,000 people worldwide in over 80 countries and is one of the world’s large direct sales companies for consumer goods. For the greater part, Amway’s customers are not final customers; they are the independent business owners (IBOs) with whom Amway works. Most of these IBOs operate from home and many of them have other careers and want a flexible working relationship with Amway. They want to work at a time that is most convenient for them, which can be any time of the day or night. With high levels of internet use within the UK and Europe, market research showed that IBOs were internet ready and further research with them identified their requirements for the site. Webdesigners were commissioned to construct the site, and tests took place to establish the stability of the pages to ensure that the processes worked efficiently.

The IBOs were offered a number of small launch promotions as well as a range of additional bonuses designed to encourage them to make use of Amivo, the new Amway website. Within a short time the website attracted a significant number of IBOs, and promotions helped to encourage repeat use of the site by demonstrating the benefits it offers. Using the site allowed the IBOs to monitor their bonuses and sales in real time. It also helped them to see which areas of sales were worth targeting as they developed their businesses. Trading on the internet has also helped Amway to refocus its business by flexibly engineering it to meet the needs of its IBOs. At the same time, there are clear cost savings for Amway in being able to communicate with its customers through the internet, rather than by using postal or telephone services. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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Summary ● An efficient distribution system will give customers goods and services when and where they need them and will operate reliably. ● There are many possible channels of distribution; some are direct and others are indirect involving the use of intermediaries. Intermediaries can fulfil many important services, but it is important that they are kept informed, motivated and supported by the organisation using them. A number of factors concerned with the product, the market and cost/benefit considerations have to be taken into account when considering the best way of transporting goods. ● There are three main distribution strategies an organisation can use, and these are intensive, selective and exclusive. Most suppliers will use a number of channels to reach their customers, basing their decision on the requirements of their customers including the level of service they expect to receive, the characteristics of their product and the resources of their organisation. They will also consider what channels competitors in their market are using and what legal or economic factors could impact on their decision. ● The internet is playing an increasingly important role as a direct channel of distribution, providing companies of all sizes with the opportunity to reach new markets.

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Part Three Practice Questions Section A 2 mark questions: 3.1 What is the difference between a core product and an augmented product? 3.2 What do you understand by the term extension strategy and when is it used? 3.3 Name two particular factors affection pricing in service markets. 3.4 What is vertical integration? 3.5 What type of distribution strategy do cigarette manufacturers use and why? 3 mark questions: 3.6 Give three uses of a product positioning map. 3.7 Give three reasons for test marketing. 3.8 Give three factors that affect pricing in an oligopolistic market. 3.9 Name three different types of discount. 3.10 Give examples of three different services a wholesaler might perform.

Section B 25 marks each: 3.11 a) In what ways could the new product development process help Sampat Cards decide whether to launch a range of wrapping paper and tags? b) Explain whether you think Sampat Cards should use the internet as a means of direct selling. 3.12 a) Why is branding important to Sampat Cards? b) What advice would you give to Sampat Cards on its brand name and its branding strategy, assuming that in the future it might sell a range of different products? 3.13 a) How does demand and price elasticity affect the price Sampat Cards decides for its wrapping paper (assuming it will launch it)? b) What other influences on price should it consider?

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Marketing communications Contents 8 9

Buyer behaviour Promotion

Overview Having determined the product, price and distribution, the final part of the marketing mix involves communicating with the customer and others involved with the organisation. This is the most visible part of marketing, and in many ways the most fascinating. There are many ways in which a company can try to influence its customers to buy, but before it decides on particular methods, it needs to try to understand the many influences on the customer and the stages they are likely to go through in reaching a decision.

Learning objectives         

The objectives of the fourth part of this study text are for you to be able to: explain the stages in the decision-making process distinguish between the three different types of buying situation assess the importance of various influences on the buying decision identify similarities and differences in buying behaviour in consumer and organisational markets describe the impact of stakeholders on an organisation explain the relevance of the communications process model to promotional activities describe and assess the appropriateness of a range of promotional activities to meet different objectives identify how to monitor the effectiveness of different promotional activities explain a process for determining the promotional mix for a given product or service.

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CASE STUDY

McDonald’s The first McDonald’s restaurant opened in the USA in 1940 and there are now more than 29,000 McDonald’s restaurants in over 120 countries. In 2001, they served over 16 billion customers – equivalent to a lunch and dinner for every man, woman and child in the world! McDonald’s global sales were over $38 billion, making it by far the largest food service company in the world. The phenomenal growth of McDonald’s is largely attributed to the creation of its strong brand identity. Its trademark, the Golden Arches, and its brand name have become amongst the most instantly recognised symbols in the world. It also makes use of a wide range of promotional methods in order to remain the market leader, having first found out what its customers want and developed products to satisfy their needs. In the UK, cinema and television advertising have played a major part in McDonald’s marketing mix and it is now the biggest single brand advertiser on British television. Radio and press advertisements are used to get specific messages across, emphasising the quality of product ingredients. Sales promotional activities, especially within the restaurant, have a tactical role to play in getting people to return to the restaurants regularly. McDonald’s has provided free meal vouchers to be used as prizes by schools. However, some teachers, parents and consumer groups are concerned that the young and vulnerable are being exposed to what they consider unreasonable marketing pressures, to purchase food that, arguably, is not especially good for them. McDonald’s main website has several different areas, including a map locator of the nearest restaurant to a particular postcode, recent news and press releases and information on how to become a franchisee or employee. It also encourages participation in free prize draws and special offers by registering as a Mac member. As well as its main website, it now has a website for children – www.Ronald.com – which has games, quizzes and educational activities for children. McDonald’s also invest heavily in sponsorship. In 2002 they were sponsors of the Football World Cup and the Olympic Games and in addition they sponsor

many other activities and events in countries across the world; some of these activities are for the benefit of local communities. Across the world over 70% of McDonald’s restaurants are franchised, which is the main reason for the rapid expansion of the business. McDonald’s identify franchisees as very important stakeholders, as many ideas for new items on the menu come from them. It was franchisees who suggested the idea that led to the introduction of the Egg McMuffin in 1971,which enabled McDonald’s to cater initially for the breakfast trade. ‘Filet-o-fish’, ‘Drive-thrus’ and ‘Playlands’ were all products or concepts developed by franchisees. Another group of stakeholders who are crucial to the success of McDonald’s are its suppliers. It sets standards for suppliers that are amongst the highest in the food industry and believes in developing close relationships with them to develop and improve products and production techniques. Not everyone approves of the way McDonald’s operates, in particular groups and individuals concerned with animal rights and the effects on the environment of McDonald’s operations. McDonald’s prosecuted protesters in the UK who distributed leaflets (entitled ‘What’s wrong with McDonald’s?’), that accused the company of starving the Third World, destroying rainforests and selling unhealthy food. The resulting trial (which found in favour of McDonald’s) became known as McLibel but now some 15 years since the first leaflets were distributed, the European Court of Human Rights has ordered a retrial as it believes the protesters did not receive a fair trial originally. Some people are concerned about the use of the symbol of the Golden Arches on certain buildings or locations; for example in Israel, local residents were alarmed when McDonald’s converted a local building into a restaurant by removing many of its architectural features and pasting its own yellow arches on the walls. There is concern among some groups that for this type of activity, planning permission may be granted because of the power of such a large organisation. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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Buyer behaviour List of topics 1 2 3 4

Decision-making process Types of buying situation Influences on the buying decision Diffusion of innovation

5 6

Buying behaviour in organisational markets Stakeholders

Introduction Some products require little or no thought before purchase, as they are bought regularly and buying them has become a habit. Others require considerably more thought and it is helpful for an organisation to be able to identify the different stages a customer is likely to go through before making a final decision. This knowledge can enable it to understand how best to influence buying at various stages. There are a number of influences acting on customers in both consumer and organisational markets and a company needs to determine what these are. In addition to their customers, organisations are involved with a wide range of individuals and groups who can influence the way in which they operate. It is important for businesses to understand the needs of these groups and the ways in which they can impact on them.

1

The buying decision process

If you stop to think about your own experience as a consumer, buying a range of goods and services, you will begin to appreciate the individuality of each purchasing occasion and the number of influences affecting your final decision. For an organisation, trying to work out how best to get customers to buy their products, an understanding of buyer behaviour is a key concern. Over the years there have been many attempts to create a model of consumer decision-making and the following is a simple framework that highlights the key stages that most consumers go through on the way to their final decision. These stages are: Problem recognition ↓ Information search ↓ Information evaluation ↓ Decision ↓ Post-purchase evaluation

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Problem recognition (of an unsatisfied need/want/desire) This is the initial stage where the customer recognises a need. For example, a person may develop a headache whilst out shopping and seek to remedy the resulting discomfort as soon as possible by purchasing a painkiller. In this case the customer will probably want to find a quick remedy for two possible reasons, to effectively reduce the pain and discomfort and be able to continue shopping. Therefore they will limit the level of the time and effort spent assessing the situation and making a decision. Sometimes the need is not so immediate, for example in the winter months a person may be feeling depressed and in need of cheering up. An advertisement for a holiday with pictures of idyllic beaches, or even passing a travel agent’s window whilst out, may trigger the need to look for a holiday to solve the problem of feeling depressed. Alternatively, if they could not afford a holiday, the solution to the problem of feeling depressed might be to treat themselves to a new CD!

Information search The questions that need answering at this stage are what kind of purchase will solve the problem, where and how can it be obtained, what information is necessary to arrive at the decision and where is the information available. The customer with the headache will consider the various alternatives available to them and will probably identify that there are several types of analgesic available, such as aspirin, paracetamol and ibupofren, and these are available either through wellknown branded names or the own-label brands of major chain stores. In the example of the holiday, the information search is likely to be more complex, involving consideration of offerings from different holiday companies. The investigation is likely to involve looking through brochures, the internet or going into travel agents, as well as asking opinions from friends or family. For an organisation offering holidays, promotional material and persuasive information is vital at this stage, in order to get the product/brand on the ‘shopping list’.

Evaluation of the alternatives The customer with the headache will consider the potential advantages and disadvantages of the various alternatives identified such as the strengths available, whether they are allergic to any of the ingredients, any possible side-effects, whether they are in table or capsule form, the number of tablets/capsules contained in a pack and the price. This may only take a moment, but for the person searching for a holiday, evaluating the alternatives may take place over several days or weeks, particularly if more than one person is involved in the final decision. Evaluating all the alternative holidays on offer is a daunting task as an online search could generate over 100 entries to sift through. As this would take far too long the customer will need to find some way of differentiating between them and drawing up a short list. They might decide to visit the websites of three or four major tour operators and compare prices of similar holidays and then make a choice based on that. Alternatively they may go into town and visit three or four travel agents, take away brochures and make their choice based on the description and images they see. The important point for holiday companies is that they need to make sure their organisation is on the short list.

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Purchase decision The decision may be a natural outcome of the evaluation stage. As the customer with the headache is already out shopping and the need is immediate, they will probably stop at the nearest appropriate shop and choose any brand that meets their criteria. In this example they would only not make their purchase in that shop if it had temporarily run out of stock. In the example of the holiday, the final stage is where the customer pays for the holiday. At this stage, the method of payment and the terms of payment could be crucial to some customers, for example being able to pay in instalments. This would allow the customer to spread payments, say over a six-month period. If the customer is unable to do this he may regretfully choose another holiday company where he can. Suppliers can, of course, make it easy or difficult for potential customers to make their purchase. A customer going into a travel agents and seeing many others waiting to see a sales advisor may walk straight out; similarly, going into a shop and seeing available staff talking to each other and making no attempt to serve may have a similar effect. The lesson here is to make sure there are no barriers to the final step of purchase.

Post-purchase evaluation Whatever the purchase, there is likely to be some level of post-purchase evaluation to assess whether the product or its supplier lived up to expectations. The customer with the headache would feel reassured that they had made a correct decision if they got quick relief from the pain and discomfort and in these circumstances would have no hesitation in buying the same brand again or recommending it to others. The decision process resulting in the purchase of a holiday may have been difficult, involving a lot of time, money and effort. In these circumstances there may be doubt as to whether the right decision has been made, a condition labelled ‘cognitive dissonance’ meaning that consumers are ‘psychologically uncomfortable’ trying to balance the choice made against the doubts still held about it. Clearly this ‘psychological discomfort’ (second thoughts!) is not pleasant for the consumer and in order to reduce it they will perhaps try to filter out messages that undermine the choice made (for example, advertising for a holiday that was a rejected alternative) and paying extra attention to supportive messages (for example, a list of reasons for choosing the holiday company printed at the front of the chosen holiday brochure). Consumers like to be reminded and reassured they have made a wise choice and it is very important for companies to provide such reassurance.

Test yourself What are the five stages in the decision-making process?

8.1

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8.1

Putting the case

Q

The first stage of the buying decision-making process is problem recognition. What is the relevance of this to McDonald’s?

A

The problem recognition stage of the buying decision-making process is concerned with satisfying a need, want or desire. McDonald’s satisfies the hunger need, but so do many other fast food restaurants, so it is important to consider why McDonald’s is so successful.

2

In the case study, the phenomenal growth of McDonald’s is largely attributed to the creation of its strong brand identity and its trademark Golden Arches that are amongst the most instantly recognised symbols in the world. This means that a potential customer may see the Golden Arches and associate them with solving their hunger problem. McDonald’s also makes use of a wide range of promotional methods to let its customers know what it is offering and how it can give them a good cheap meal. As it is the market leader, it is clearly successful in identifying these needs.

Types of buying situation

The examples of the headache remedy and the holiday demonstrate that not all purchases need the same amount of thought or involvement. Broadly speaking, purchases, whether consumer or industrial, will fit into one of three main categories.

2.1 Routine problem-solving As the name suggests, this is usually a routine purchase that has been made a number of times before, for example cigarettes or the headache remedy outlined above (consumer market); in organisational markets, office supplies are an example of a routine purchase. The items in this category tend to be low-priced, low-risk and because usually not a great deal of thought that needs to go into such purchases, the repeat purchase can become a habit. This explains why many companies invest in heavy promotion to generate awareness and trial of new products, as these are necessary foundations for longer term repeat purchasing behaviour. It is also difficult for new suppliers to enter this type of market because of the inertia of consumers; this helps to explain why they use introductory offers such as price cuts as a way in.

Stop and Think

8.1

Think of an item that you buy routinely and consider what the organisation does to encourage your future purchases.

2.2 Limited problem-solving (modified re-buy) This often occurs when a similar product has been bought in the past (and is sometimes known as modified re-buy), but the buyer is now reconsidering the specification, brands, suppliers and so on. In this category cars are an example for both the consumer

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and organisational market as in both cases it is likely there has been some previous experience. The purchase of a holiday given in the example above is also likely to be the result of limited problem-solving as it is probable the consumer has made several similar purchases in the past. The information search is likely to include talking to friends and family who have been on a similar holiday recently and a trip round local travel agents. However, for this particular type of purchase you only have one chance to make the right choice – once you are on the plane it is too late! If it is a very special holiday, for example a honeymoon, the stakes are even higher and the necessity of getting it right is likely to lead to a conscious and detailed information search perhaps going as far as extended problem-solving, which is the third category.

2.3 Extended problem-solving (new task) This type of problem-solving represents a much more serious investment of time and money and consequently a much higher risk: for example, a new conservatory for the house or honeymoon holiday (consumer market) or a new communications system (organisational market). These purchases occur extremely infrequently (or for the first time) and often require some sort of loan. This means the purchaser is motivated to gather as much information as possible and to think quite consciously and systematically about what the decision-making criteria should be. This does not necessarily mean the final decision will be made on purely rational, functional or conscious grounds. If, for example, two different makes of conservatory have similar technical specifications, price delivery and after-sales service terms, then final differentiation may be in terms of ‘Which one will impress the neighbours most?’

8.2

Putting the case

3

Q

What type of problem-solving are customers of McDonald’s likely to be involved in?

other forms of promotion is to encourage repeat purchase until going to McDonald’s becomes a habit and other similar fast food outlets are not considered.

A

There are three main categories of problemsolving: routine, limited and extended. It is likely that most McDonald’s customers have bought meals from the organisation on many previous occasions and so are likely to regard a purchase as routine, that is to say one which does not require much thought. One of the reasons McDonald’s spends a great deal of money on advertising and

Limited problem-solving might apply to people who have not previously visited McDonald’s or if they are going on a different type of visit, for example taking a group of children for a birthday party. In these cases they might seek information to make comparisons between McDonald’s and other fast food outlets and ask the opinion of friends and family.

Influences on the buying decision

From the discussion of the decision-making process and the categories of problemsolving, it is clear that there are many influences on customers decision-making.

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Consumers, albeit often unconsciously, will use a set of criteria in order to assess the alternatives and arrive at a final decision. These criteria may be determined or influenced by any number of the following factors: ● ● ● ● ● ●

environmental influences personality perception motivation attitudes groups.

3.1 Environmental influences Environmental influences are concerned with the wider context in which the decisionmaking is taking place. All of these environmental issues (PESTLE) have been dealt with in more detail in Chapter 2. What is important is to recognise that decision-making is not completely divorced from the environment in which it is taking place, whether the consumer is conscious of it or not. For example, many consumers who are not particularly ‘green’ have allowed the move towards demanding more environmentally friendly products to influence their decision-making, looking more favourably on CFCfree, recycled or non-animal tested products. During a recession consumers will lose the ‘feel good’ factor and with uncertainty about employment prospects will often postpone any major purchase decisions. Someone who is unemployed and living on state benefits will be extremely price sensitive and must focus on purchasing basic products. On the other hand, a highly successful stockbroker in London or New York is likely to be much less price sensitive, and able to purchase a wider range of products or services. These purchases may include luxury items such as a sports car or yacht. New technology has influenced many consumers in their choice of ever-smaller mobile phones with an ever-increasing number of features.

3.2 Personality Personality is at the heart of all our behaviour as consumers, but trying to make sense of personality traits so that they can somehow be used in the marketing of products is more difficult. In the 1980s, advertising in the UK in particular was full of images reflecting the personality traits associated with successful lifestyle stereotypes such as the ‘yuppie’. Independent, ambitious, materialistic traits were seen as positive characteristics and many companies were keen to have them associated with users of their products. With changes in the socio-cultural environment, overtly materialistic traits are no longer seen as so acceptable and have given way to more caring and environmentally friendly concerns and this is reflected in a lot of promotional material. As individuals, some people are more risk averse than others – these are the type of consumers who wait until a new product is firmly established before buying; in contrast the risk takers enjoy being among the first to try something new. Particular products, for example many extreme sports, will appeal to risk takers and the marketing of these should reflect the personality of the users.

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8.1

Making it work How Vodafone makes use of David Beckham’s personality Vodafone is one of the world’s largest mobile telecommunications companies – it has over 130 million customers and operates in 26 countries worldwide. It decided to use David Beckham in much of its advertising because as well as being a well-known footballer, he is well regarded around the world and appeals to a broad section of society; this suits Vodafone, who need to appeal to different segments of the market. However, Vodafone also felt that David Beckham’s personality fitted with the image it was trying to

create for its brand. Beckham’s healthy lifestyle allied to his talent suggests an energy and controlled passion for life; an image that Vodafone would also like to project for itself. On a football field, Beckham is innovative, creative, exciting; characteristics that Vodafone aspires to. Beckham the family man comes across as caring and empathetic; Vodafone wants people to appreciate that it too understands and cares about what people need and want. Beckham is generally seen as dependable and Vodafone wants to communicate a similar image. The synergy is clear. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

3.3 Perception Perception is the way in which individuals make sense of all the information they receive. People respond differently to advertisements, packaging and different aspects of the product, depending on their experience, personality and mood. In the previous example of the customer with a headache, the consumer may have used particular brands in the past and in their experience believe that one is more effective than others. (In reality they may have been composed of exactly the same ingredients; however, the person perceives that one brand is more effective than another.) As far as personality is concerned, an extrovert is likely to perceive a brightly coloured advertisement for a product as lively and interesting and be attracted to buy, whereas an introvert may perceive it as brash and not for them. A particularly good or bad experience with an organisation can colour a consumer’s perception of future dealings and lead them to select or distort messages from the company. For example, someone opposed to nuclear power is unlikely to take at face value positive publicity from the industry. Conversely, a consumer who has enjoyed eating a particular brand of ready meals for a long time will be unlikely to take much notice of an independent report that only gives the brand a satisfactory rating – they will probably just concentrate on the positive comments – selective perception!

3.4 Motivation Customers’ needs and wants have been the focus of most of this study text, and motivation is what leads consumers to meet these needs. In the previous examples the consumer with the headache was motivated by the need to stop the pain and the consumer who felt depressed was motivated to relieve his depression by booking a holiday. There are many possible motivations and some of these can be linked to basic needs such as those for relieving hunger and thirst or the need for security. For example, someone who has just worked out at a sports club is probably thirsty and motivated by

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this thirst to look for a drink. A well-stocked chiller cabinet conveniently situated near the entrance will solve the problem and so for an organisation selling soft drinks, it is important to ensure their product is in this type of location. Many consumers who buy private health care insurance are motivated by the need to feel secure that they can be seen and treated quickly if they develop worrying symptoms. Indeed much of the promotional literature for private health care companies highlights how the need for security is satisfied by the insurance. Motivation is also linked to the need for a feeling of belonging or to the need for success, status and good opinion within wider society. The majority of promotional material in many countries focuses on these latter needs. For example, most car advertising contains some kind of message implying that if you drive this car it will somehow enhance your status and gain the respect of others. Perfumes and other luxury products emphasise that using them makes a statement about who you are, the status you hold and this is true of brand names like Rolls-Royce or Gucci.

3.5 Attitude A consumer can develop attitudes to any product or part of the marketing mix and these attitudes can affect behaviour. In the previous examples, it appears the consumer with the headache had a positive attitude towards the use of painkillers to relieve symptoms; the consumer looking for a holiday may have had an attitude towards not taking a holiday in certain countries, perhaps because he did not approve of particular political regimes. Attitudes tend to take time to develop and are difficult to change, particularly if they are well established and deeply ingrained. Some individuals are very patriotic and this will influence whether they buy products made in their own country or foreign imports. There is a difference between attitudes that relate to an organisation’s business ethics and those that centre round its products. An organisation that has a bad reputation for its employment practices or its environmental record will have created negative attitudes that will be very difficult to change. In contrast, negative feelings about a specific product or brand are easier to change. One of the main aims of public relations, discussed in the next chapter, is to encourage a positive image of a company and its products.

Making it work Consumer attitudes and perception of advertising A survey carried out in the UK for the advertising standards authority has given a fascinating insight into the attitudes and perceptions of a cross-section of the population on advertising. Most people viewed advertising in a positive light and said that life without advertising would be very dull. If advertising was thought to have a lot of money behind it or to have significant presence then this added credibility to the message and made consumers perceive the brand in a positive light. The study found

8.2 that if the brand is perceived well or the brand is trusted because it is known and established, then there is a virtuous circle and the advertising message will be even more credible. If a brand has a recognised area of expertise, then consumers question less the claims of new products within that area. Consumers had a more negative attitude towards some advertising for financial products. They felt some advertisers hid behind the small print and they perceived it to be there to protect the advertiser and not the consumer. In particular they disliked words like ‘from’, ‘terms and conditions apply’, ‘limited stocks available’ and ‘subject to status’.

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3.6 Groups There are many groups that have influences on buyer behaviour. The key group exerting influence is the family. The needs of the family affect what can be afforded, where the spending priorities lie and how a purchasing decision is made. Over time the structure of a family changes; for example, as children grow older and eventually leave home, or as events break up families or create new ones. This means that a family’s resources and needs also change over time, and that organisations need to understand and respond to these changes; for example, people at different stages in their lives will need different types of insurance. The family unit can also have an influence on a range of decisions. If a child asks for a toy, unless it is a ‘pocket money’ toy, it is one or both parents who will probably decide on the purchase and then pay for it. It is important for the manufacturer of the toy to appeal to both the child and its parents, often by emphasising features to the parents concerning the toy’s durability and safety or educational merit, whilst showing the fun side of the toy to the child. It is worth noting that in many countries like the UK, there is concern about the level of advertising and other promotions directed at young children with the aim of getting them to pester their parents. Children are an important target group, partly because of their ability to pester their parents and influence family purchasing and partly because of the desire to create brand loyalty as early as possible. A UK study looking at children’s viewing of advertisements for toys and games in the run-up to Christmas found that prolonged exposure to advertisements in November and December dramatically increased children’s demands, as expressed in their letters to Santa Claus! Groups (either formal or informal) that a person belongs to can also influence buying decisions and this is probably most obvious in the teenage market where there is a strong need to conform to peer pressure in wearing certain types and brands of clothes and generally behaving in a way that is acceptable to the group. This influence is by no means restricted to teenagers. There are few people (female or male) going to a special occasion who have not worried about what to wear to ‘fit in’ with the rest of the people who will be there. Several examples have already been quoted of using the opinion of friends (another informal group) to help in all kinds of decision-making.

Test yourself Name six different possible influences on the decision-making process.

8.2

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8.3

Putting the case

Q A

What influence could groups have on an individual’s decision to eat in a McDonald’s restaurant?

groups are another important influence on buyer behaviour.)

There are many different types of groups that can affect decision-making, one of the most powerful being that of the family. It is likely that children brought up in a household that regularly visits McDonald’s restaurants are likely to continue to visit them, particularly if as a teenager this is acceptable behaviour in their peer group. (Peer

The case study mentions groups who do not approve of the way in which McDonald’s operates. These concerns are with animal rights and the effects on the environment of McDonald’s operations. As they have taken protesters to court, it is clear that the company sees them as a threat – they must believe they could negatively influence an individual’s decision to eat at one of their restaurants.

4

diffusion of innovation The rate at which new products are adopted by consumers in the market place.

Diffusion of innovation

So far in this chapter buyer behaviour has been linked to the decision-making process of products that are already in the market. It is worth looking at buyer behaviour when a new product is introduced into the market as it is very important for an organisation to do all it can to ensure the product continues to attract new customers. Diffusion of innovation is the rate at which new products are adopted into the market place. A more detailed explanation is that it is a rather grand-sounding phrase used to describe the stages by which consumers come to adopt the new product (innovation). The stages are regarded as a kind of wave (diffusion) spreading through the population in steps, as different types of consumer take on the product. These different types of consumer are given the following names and are characterised by different personality types. The groups are: ● Innovators – these are the risk-takers, who typically will be the first to try any new product. ● Early adopters – these are the next group to try a new product and are often described as opinion leaders as their opinion tends to be respected by others. ● Early majority – this group likes to wait and see if there are any problems before deciding whether to try a new product. ● Late majority – this group is sceptical and cautious and as the name implies, will wait a long time before deciding whether to try a product. ● Late adopters/laggards – these are the last to try a product, as they are traditional and slow to change. From an organisation’s point of view, the early adopters are the group they are most interested in because their opinion is respected by others who may well decide to buy the new product on their recommendation. The difficulty for the organisation is identifying these opinion leaders so that they can then positively influence them.

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Sometimes the organisation tries to create opinion leaders by getting a celebrity, respected by the target market, to endorse the product. It can also try to create opinion leaders by offering certain consumers special deals. For example, a student is quite likely to buy a textbook recommended by a teacher and so teachers are often given the textbook free if they say they will recommend it to a group of students. Customers of a kitchen company might be offered a discount if they allow other potential customers to view the new kitchen the organisation has just installed.

Stop and Think

8.2

What type of consumer do you consider yourself to be and how does this affect when you buy a new product?

5

Buying behaviour in organisational markets

This type of buying covers a wide range of organisations. Two of the common features of organisational buying is that: 1 almost invariably there will be a number of people involved in the buying decision, and 2 it will be more formalised than most buying in consumer markets. There will also be much more emphasis on price and technical specifications in organisational markets and the decision-making is likely to be more rational. Organisational buying of major items often involves high risk, high involvement and a conflict of interests between departments. The risk of a wrong decision can be an organisational risk to the efficiency and therefore financial status of the company. There will be various expectations, perceptions and attitudes among people involved in the decision-making (just as there are in consumer markets) that will influence choice, together with factors connected with the product/service itself (for example how quickly the product is needed and whether it is a routine purchase or not). People involved in the decision-making may also feel that the risk of a wrong decision will harm their status and credibility.

5.1 Decision-making unit (DMU) Whether or not an organisation has a separate purchasing department, the buying task and decision-making is likely to be shared between members of what is commonly referred to as a decision-making unit (DMU). The make-up of this DMU will vary according to the type of purchase and the buying task itself. Five broad roles and associated buying influences have been identified within the DMU, as follows.

Users Users are, as the name implies, those using the product.

Influencers Influencers are those influencing key product attributes and criteria, or specifications,

decision-making unit (DMU) A group of people who share the decision-making for a buying task, particularly in B2B markets.

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perhaps through technical expertise. They can also be any other key people influencing the final decision.

Deciders Deciders are those with the authority to select the product or supplier. For high value purchases these are less likely to be purchasing executives alone and more likely to involve senior management.

Buyers Buyers are typically purchasing executives charged with administering and progressing the buying task and they may also have the role of deciders, particularly for lower value items.

Gatekeepers Gatekeepers are those controlling and directing relevant information flows internally, and contact with outsiders such as suppliers. This role could be taken or shared by buyers, administrative, secretarial or technical staff. These roles are not necessarily formal (indeed they can be applied to some group decision-making in consumer markets) and one person could fulfil more than one role; equally one role could be shared by a number of people. Whether one person takes the final decision (autonomous) or a group will depend on product and company factors and how these interact with the DMU. Autonomous decisions are most likely when time pressure is high, it is a repeat purchase and the perceived risk is low. Group decisions are most likely when the perceived risk is high, the company is large and it is a decision involving extended problem-solving. The DMU will vary according to the size of the organisation and the type and complexity of the product being bought. For example an organisation buying a fleet of new cars for its sales executives would probably initially have a pile of brochures from various car dealers – the gatekeeper might discard any brochures thought to be irrelevant/inappropriate. The purchasing officer may have dealt with some of the car dealers before and be able to negotiate favourable terms and may also draw up a short list. The users (sales executive) are likely to be asked their opinion of their current company car and what criteria are important to them in the choice of a new car. In this case the influencer may be the finance director who is anxious to keep costs down and considers running costs as well as the initial price. The decider could be the purchasing officer, but is probably likely to be someone more senior in the organisation such as the finance director or managing director.

5.2 Other aspects of organisational buying Price and cost factors are particularly important in this type of buying, as are various trading deals such as reciprocal arrangements between organisations. Another important factor is the size and type of supplier and their importance to the organisation (what % of the total do they supply), and vice versa. The balance of power between the two organisations will have an impact on negotiations between them. Outside influences, outlined in the section on consumer markets, are important here too particularly economic and legal considerations.

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Test yourself

8.3

What are the roles in the DMU?

6

Stakeholders

So far in this chapter there has been an attempt to understand the behaviour of different types of customer in different types of buying situation. This final section looks at wider groups of people who impact on the organisation in some way or other. There are a large number of individuals or groups who can be classified as stakeholders, depending on the size and type of organisation. Some of the main ones are: ● ● ● ● ● ● ● ● ● ●

employees of the company customers suppliers shareholders financial institutions trade unions central and/or local government local community pressure groups media.

It is important for any organisation to understand the needs of its stakeholders and to try to build positive relationships with them as they can greatly influence the success or otherwise of the company. Some of the methods used to build a positive image of the company and its products will be discussed in more detail in the section on public relations in the next chapter. Most companies have employees and without them they would not be able to operate; proper recruitment procedures, training and motivation are key in obtaining and keeping the best staff. Trade unions represent the interests of workers and will seek to ensure they get the best possible terms and conditions from their employers. In extreme situations, if talks between unions and management break down, the union may call for strike action, which of course for the organisation is disastrous. The previous chapter on distribution highlighted the importance of building good relationships with suppliers so that the customer receives a top quality product when and where it is most convenient. Unless a company is very small and able to finance itself completely, it will need the financial backing of shareholders or help from financial institutions. Shareholders can have a big impact on the way in which organisations operate, as if enough of them disapprove of particular actions the company is taking, they can call an extraordinary general meeting and influence the board of directors to change their policy and in extreme conditions can dismiss the board. For example, the shareholders of the French division of the Channel Tunnel dismissed the board of directors and appointed their own when they were dissatisfied with the way in which the company was operating.

stakeholders Individuals or groups who depend on the organisation to fulfil their own goals and on whom in turn the organisation depends. Typically stakeholders include customers, competitors, suppliers, employees, the local community, government and pressure groups.

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Depending on the type of organisation and the market in which it is operating, local and/or central government can be stakeholders. Certainly, as discussed in previous chapters, companies with a large market share may well be the object of scrutiny by central government to ensure they are not operating against the public interest. On a more local level, an organisation will need planning approval to build or extend its premises or to put up signs and logos. The local community will be affected by the operations of organisations and some will organise themselves into pressure groups if they feel strongly about how an organisation is operating. No organisation wants the media involved in spreading negative publicity and so large organisations in particular will go to great lengths to try to build good relationships with local communities.

8.3

Making it work How Cummins helps meet the needs of stakeholders Cummins is a large multinational enterprise with an annual global turnover of around $6 billion, serving customers in over 130 countries and employing over 23,000 staff. It is primarily involved in the B2B market, providing diesel engines, power systems and related components for other manufacturers and businesses. The company has moved many of its traditional communications, such as engineering and other manuals online, using modern portal web technology. It provides a series of web-portal communications systems that draw on a large central database of information, selecting appropriate information for its different stakeholders. The employee portal has two main elements. The first has daily updates on employee achievements, company and industry news, as well as work information and online training packages; the second has highly detailed technical and marketing information presented in a user friendly format.

Cummins prides itself in its investment in its own employees – it has a workforce spread world wide. Because these employees need to be kept up-to-date with important developments, Cummins supplies them with the hardware, software and technical backup required to sustain their motivation. For its customers and suppliers it has a password protected internet site which provides in-depth technical information required for installing Cummins engines in almost every type of diesel powered application which helps them work faster and more effectively. Distributors benefit from another secure web portal that gives them access to all the commercial and engineering data needed to run their business efficiently. It carries news and information specific to regional communities of distributors and dealers. Cummins also has an extensive portfolio of public websites that provide key information for customers and end users of the company’s products as well as for investors, the press and potential recruits. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

Summary ● Customers pass through a series of stages before making a decision to buy; the amount of time and thought they put into each stage will depend on the nature of the purchase. ● There are many influences on customers’ decision-making that an organisation needs to be aware of; many of these influences are common to both consumer and organisational markets. ● Decision-making in organisational markets is likely to be more formal than in consumer markets and will normally be the result of group interaction. ● All organisations need to be aware of the impact of stakeholders on the operation of their business.

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Promotion List of topics 1 2 3 4

Marketing communication Advertising Sales promotion Personal selling

5 6 7 8

Direct marketing and exhibitions Public relations and sponsorship Internet marketing Deciding the promotional mix

Introduction This chapter is concerned with the many ways in which organisations can communicate with their customer and persuade them to buy. Most people associate promotion with advertising and whilst this is a very important means of trying to persuade, it is by no means the only method at an organisation’s disposal, nor is it necessarily the most appropriate. Although the emphasis is on consumer markets, some of the methods discussed are just as important in organisational markets, sometimes more so. The organisation’s objective can be to build a reputation rather than to sell, and in this case it needs to consider which of a range of public relations activities would be most suitable. Internet marketing is growing in popularity and many organisations are taking advantage of the opportunities it offers. Finally, having considered a range of promotional activities, a company needs to decide its promotional mix. Determining a promotional plan and budget will be discussed as part of the marketing plan in the final part of the study text.

1

Marketing communication

In order to communicate successfully in marketing, it is necessary to fully appreciate the communications process model, shown in Figure 9.1. The communications process model above shows the following: ● ● ● ● ● ●

sender (source of the message) encoding the message medium by which the message is conveyed decoding the message the receiver of the message ‘noise’ which can affect the message.

Sender (source of the message) The sender of a marketing message is likely to be an organisation, perhaps in

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Sender

En c

od in g

e th

Fee db ac k

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g ssa me

e

Noise

Receiver Medium

D ec o

ding the message

Figure 9.1 The communications process model conjunction with an advertising agency, which wants to communicate a message. The organisation will need to be aware of the image the target market has of it and/or its products as this can influence the rest of the process.

Encoding the message This means that the sender of the message (the organisation) has to decide exactly what words, pictures or symbols are going to be used to convey the meaning of the message. There are many problems that can arise at this stage, as the sender will have many alternative ways of expressing the message; for example, is the best approach to be amusing, artistic, sophisticated or factual and what kind of imagery will appeal to the target market? The sender will need to consider how the receiver of the message is likely to interpret it. In the last chapter, personality, perception and attitude were discussed as important influences on buying decisions and these are important here. For example, when cigarette advertising was allowed on TV, one company ran an advertisement showing a man on his own standing in a doorway with the caption ‘You’re never alone with a Strand’. The company regarded this as a statement that smoking their cigarettes meant you never felt alone. Unfortunately their sales fell because customers interpreted the message in a different way. They perceived ‘You’re never alone with a Strand’ as meaning people who smoke the brand don’t have friends!

The medium This is the channel(s) of communication that the sender decides is (are) most appropriate for the message and the target audience. For example, advertising a perfume in a high-price glossy magazine will be more appropriate than advertising it in a

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lower-priced poorer quality magazine as the target market associate the high-price glossy magazine with a high-quality perfume. Commercial radio would not be an appropriate medium for advertising perfume, as it would be difficult to conjure up an image. The uses of different media will be discussed in more detail later in this chapter.

Decoding This is where the receiver of the message interprets the meaning, and as mentioned before, this is an area where influences such as personality, perception, attitude and motivation are particularly important. The organisation can only trust that the right message encoding and channel decisions have been made in order for the message to be interpreted as it planned. There are particular additional problems associated with language and cultural barriers when operating in different countries, as outlined in Chapter 4.

Receiver In mass market advertising it is unlikely everyone will interpret the message in the same way. However, in one-to-one situations such as personal selling it is much easier for a good sales person (sender) to see the effect of any messages on the customer (receiver) and to put right possible misinterpretations.

Noise This refers to anything outside the control of the sender that could interfere with or distort the message at any point in the communication and could be as simple as background noise. For example in a busy shop this may mean a customer cannot hear properly what the sales person is saying and may misunderstand or become irritated and leave. Knowledge of this model should help when using any type of promotional activity outlined in this chapter. It should help focus on: ● ● ● ●

The image of the company/product. Is it considered positively or negatively? What the tone and content of the message is going to be. What medium will be used to convey the message. What problems there could be in how the message is interpreted by customers (including possible language/cultural barriers in overseas markets).

9.1

Making it work How a charity’s message was interpreted Christian Aid is a charity in the UK who decided they wanted to get a message across that giving to charity is a far more worthwhile way of spending money than frittering it away on non-essential items. It decided to do a spoof advertisement in the style of satellite shopping channel QVC as it felt this would attract attention. The advertisement at first appeared to be

selling ceramic rustic country cottages, before it highlighted that there are more important things to spend money on and went on to talk about the charity Christian Aid. Although in general the advertisement attracted the attention the charity wanted, it did receive requests from 10 people for the ceramic country cottages, as they had not realised the advertisement was for a charity!

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2

Advertising

Advertising, something we all see all around us, may be defined as: ‘any paid form of non-personal communication directed at target audiences through various media in order to present and promote products, services and ideas’. Advertisements are one-way communications, which means there is no immediate feedback to the organisation from customers. A company designs an advertisement that is read, watched or listened to, and hopefully the message is received in the way in which the company intended. Bearing in mind the lessons of the communications process model and carrying out marketing research pre-launch should help! Advertising may be used for one or more of the following reasons: ● To provide information – this information can act as a reminder to current users or it can inform non-users of the product’s existence. Some advertising may give very detailed information, such as that in the press for financial products. ● To attempt to persuade – it can attempt to persuade current users to purchase again, non-users to buy for the first time and new users to change habits or suppliers. Persuasion is likely to be part of virtually all advertising. ● To create uncertainty about the ability of current suppliers to best satisfy needs (extreme versions of this are referred to as ‘knocking copy’ – used sometimes by, among others, car manufacturers – which is openly critical of competition). ● To reinforce the idea that current purchases best satisfy the customer’s needs – this is reassurance and aiming to continue to prompt ongoing purchases.

2.1 Advertising media There is a wide range of advertising media available. All are potentially appropriate, but a mix must be selected that fits the purpose of organisation and product. The main categories, which tend to provide good awareness amongst consumers include: 1 Daily newspapers, which often enjoy reader loyalty and, hence, high credibility. Consequently, they are particularly useful for consumer products and reminder advertising. Different target markets read different newspapers; some are read hurriedly and lengthy copy may be wasted. However advertisements with detailed copy can be placed in newspapers that attract businessmen. 2 Sunday newspapers, like any print media, can be referred back to and as they tend to be read at a more leisurely pace may be suitable for more detailed and complex information such as that needed in some advertisements for financial services. 3 Colour supplements (and similar) are ideal for general advertising, but appeal to a relatively limited audience, and tend to be expensive. 4 Magazines vary from quarterlies to weeklies and from very general, wide-coverage journals to many with a specific focus and some linked to very specialised

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5

6

7

8

9

10

interests which are useful for product aimed at a specific market, for example fishing rods and equipment advertised in fishing magazines. Similarly, different magazines of the same type (such as women’s magazines) appeal to different age and socio-economic groups. Magazines are normally colourful and often read on a regular basis. However, advertisements need to be eye-catching to attract attention as they are often competing for attention with many other advertisements. Local newspapers are (obviously) particularly useful for anything local, but are relatively expensive if used for a national or broader campaign. They are sometimes used for test market area advertising support prior to a national launch. Television is regarded as the best overall medium for achieving mass impact and creating an immediate or quick sales response. It is arguable whether or not the audience is captive or receptive; but the fact that television is being used is often sufficient in itself to generate trade support. Television allows the product to be shown or demonstrated, which is a major benefit for products such as cars. It is useful in test marketing new products because of its regional nature, but is very expensive – and therefore ruled out for anything except mass market products. Outdoor advertising (billboards/posters) lacks many of the attributes of press and television, but it is useful for reminder copy and a support role in a campaign. Strategically placed posters near to busy thoroughfares or at commuter stations can offer very effective, long-life support advertising. Collaboration between manufacturer and retailers can link these to strategic locations designed to support local activity. Radio advertising can be produced cheaply and is good for announcements of sales and special offers. It can be targeted at particular groups, for example advertisements can be ‘on air’ at times when business people are likely to be travelling to and from work in their cars. As it is limited to sound it is not suitable for any products that need to be shown. Internet advertising can draw customers to the company’s website, but it is important to advertise only on websites that are guaranteed to attract the type of customer that will benefit the business (i.e. the same target market). Companies with a wide customer base may chose to advertise on large websites like AOL, Yahoo or Freeserve; in order to advertise on different sites the company needs to supply a button, a banner and/or a pop-up window. Cinema, with its escapist atmosphere, can have an enormous impact on its captive audience of predominantly young people; but it has little lasting effect (because of the infrequency of cinema visits) unless used in conjunction with other media such as press and television. It is only suitable for certain products, bearing in mind the audience and the atmosphere. This medium, like TV, has high production costs.

In addition, there are other types of advertising such as that found on the sides of buses, on the inside and outside of taxis and on banners dragged across the skies. These can prove extremely effective for certain products and organisations. There is virtually no

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limit to where advertisements can be placed; a woman in the USA even sold advertising space on her pregnant stomach to an online casino!

Putting the case

Q

Why does McDonald’s use a number of different media for advertising?

A

Different media are appropriate for different purposes, products and markets. For example television is good for achieving mass impact in showing images of products, whereas print media can give more detail as it can be referred back to. McDonald’s, as a large organisation and market leader, has the resources to enable to take advantage of any types of advertising media it feels will benefit promotion of its products. The case study mentions television and cinema

Stop and Think

9.1 advertising, both of which can show images of people enjoying McDonald’s food in their restaurants; television appeals to a mass market and the target market for the cinema are younger people who may be reminded by the advertisement to go to McDonald’s after the cinema! Radio and press advertisements are also mentioned in the case study. Press would be particularly useful in giving more detail about the range of products and ingredients as well as showing images and radio could be used to give information on any special offers. McDonald’s could also make use of other media not mentioned in the case study such as billboards for reminder advertising.

9.1

What advertisements can you remember seeing in the past few weeks and why do you think they made such an impact?

2.2 Trade advertising This is certainly important in many industries. It is often not sufficient to advertise products to consumers alone, particularly where it is important that distributors/retailers are willing to stock and promote a product. Trade advertising can also help the sales force as it can: ● remind retailers/distributors about the product between sales visits ● alleviate problems associated with the cold-call selling of less well known products ● indicate the support, and weight, being given to a product. Advertising in the retail market is sometimes disproportionately important within the trade, being used both as an objective measure of assessing what stock to order, and as an easy (albeit subjective) criterion in making a quick decision. Often trade advertising in specialist trade publications occurs prior to, or linked to, consumer advertising campaigns to help prompt the buying-in of stock in anticipation of future demands to be created by the consumer advertising. Other promotional

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tactics may be advertised. For example, when new products are launched, or special promotions introduced, trade support may be achieved through special offers (a display device if you order a minimum quantity), or increased (introductory) discounts, all of which trade advertising can effectively emphasise. Curiously perhaps, one of the most important aspects of trade advertising is not what it says, it is the fact that it is there. The commitment (and cost) of taking such space is seen as a commitment to particular products. If a sales person is pressing a shop to take good stocks, mount a window display or generally take a product seriously, then shop buyers are apt to ask, What are you doing for it? This is reasonable enough; it will be easier to sell something if the supplier is taking action to make people want to buy it.

2.3 Advertising strategy Advertising needs to be designed and produced in a way that reflects an analysis of the market and a subsequent sensible choice of media and advertising strategies to reach the objectives of the organisation. An organisation also needs to take into account the communications process model (outlined at the beginning of the chapter) to make sure the message it wants to convey reaches customers who interpret it in the way intended. Often, the main aim of consumer advertising is to persuade. Sometimes there is a danger of confusing creativity – the process that makes something both appropriate to customers and memorable – with cleverness. Sometimes a clever idea – a play on words in a headline, perhaps – can act not to increase the power of the advertisement, but to dilute it or obscure what should be a clear message. Advertising must never fall into the trap of confusing cleverness with clarity of communication. The next question is: how can an advertisement be made creative? There are many ways: humour, personalities, exotic locations, cartoons, even running advertisements in the form of a serial, ending with a cliff-hanger to encourage viewing the next instalment. Gold Blend coffee successfully used this technique on UK television and significantly increased its sales. It even ran press advertisements giving the time and date of the next advertisement! In addition to this, advertising has to be made to look attractive. Sometimes this may be achieved through the added humour, personalities or whatever, or through lavish production values – just commissioning special photography may be costly, but the quality may immediately create something special. A danger here is that the pluses hide the message; for example viewers of a poster laugh at its humour but cannot recall exactly what was being advertised on it.

2.4 Monitoring effectiveness The most famous saying about advertising is that of the company chairman who said ‘I know half the money I spend on advertising is wasted – but I don’t know which half’ – a remark that contains a good deal of truth, and a sobering thought in any organisation where every penny of the budget has to be fought for. Organisations will want to monitor the effectiveness of their advertising, but in order to do this they first need to determine what each different advertising media is offering in terms of market coverage. Advertising media such as magazines, television, radio and

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so on provide potential advertisers with a profile of their market and their geographic coverage, along with the associated costs of advertising. The effectiveness of most advertising can be measured by carrying out marketing research before and after the advertising and comparing the results. This is particularly relevant if the objective of the advertising is not to increase sales but to create awareness or give information; much government advertising falls into this category. Even if the main objective of the advertising campaign is to increase sales, it can be misleading to attribute any change in sales solely to the advertising campaign, as there may be other influences as well, for example a general increase in consumer spending.

9.2

Making it work How Colour Eighteen uses advertising Colour Eighteen is the youngest fashion collection in the house of Toppy Co. (Hong Kong). The company introduced Colour Eighteen to Hong Kong in 1989 and the brand has quickly expanded into other Asian countries. It sees its target market as young executives who combine a flair for fashion with a strong work ethic. Colour Eighteen’s advertising campaigns have changed with the evolution of the collection from happy fun-loving groups of girls goofing around, to

3

something slightly more serious. Its main media for advertising in Hong Kong has been large billboards, light boxes in the Mass Transit Railway and advertising on the back of buses. These are all locations where the target market has the greatest opportunity to see. Other media, such as television, as well as being more costly, are not viewed as much by younger people who spend more of their leisure time out and about. Source: www.toppy.com.

Sales promotion

In formal marketing terms, sales promotion can be defined as: ‘an inducement aimed directly at persuading a specified target audience to achieve one or more defined objectives’. In simpler terms, it is a method of persuading people to take a course of action that, without that persuasion, they would not otherwise take. It encompasses areas such as point-of-sale (POS), offers, giveaways, and merchandising and display in retail situations. Generally, then, sales promotion is a marketing device to stimulate or re-stimulate demand for a product during a particular period. It cannot overcome deficiencies in a product’s style, quality, packaging, design or function, but can provide an important addition to advertising activities as an integral part of the promotional mix.

3.1 The role of sales promotion in marketing A more specific way of understanding what sales promotion can do for the company is to review some of the major purposes of sales promotion, or the objectives that can be achieved through using it effectively. For example, it can be used to: ● introduce new products, by motivating customers to try a new product or retail customers to accept it for resale (for example, a retail outlet might be given a

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● ● ● ●

dump bin with a minimum order or a consumer might be offered two products linked to sell together) attract new customers and/or motivate existing customers to buy more (for example, packets of crisps, some of which have discount vouchers inside) maintain competitiveness, by providing preferential discounts or special low prices to enable more competitive resale prices to be offered increase sales in off-peak seasons, by encouraging consumption ‘out of season’ with discounts or special offers such as three nights for the price of two in hotels increase trade stocks, by special monetary discounts or quantity purchasing allowances, in return for holding greater than normal levels of stock (this is effectively what a dump bin does).

Types of sales promotion Promotions received at home In-home consumer promotions can help to pre-empt the attempts of competitors to solicit impulse purchases via in-store advertising and display. Techniques used here include: ● sampling, where a sample of the product is delivered free to consumers’ homes ● coupon/voucher offers via postal and door-to-door distribution, newspaper or magazine distribution, and in-pack/on-pack distribution ● competitions.

In-store promotions Clearly this type of promotion has a major advantage in that it is featured at the location where many of the final decisions and actual purchases are made. Techniques used here include: ● temporary price reductions ● extra value offers, including offers relating to future purchase (this includes store cards that collect points that can later be redeemed) ● premium offers (incentives), including free mail-in premiums, self-liquidating premiums and banded free gifts ● point-of-sale product demonstrations ● personality promotions (with a demonstrator – as in toy shops where people show off things like robot toys – or with someone famous, such as a novelist signing their books).

Immediate benefit promotions Here, consumer reward for purchasing is immediate, and, as with most incentives, the sooner the reward can be expected and received after the qualifying action, the greater will be the positive effects of that incentive in stimulating purchase action. Included in this promotion category are: ● price reductions ● free gifts (which can be additional product, such as two for the price of one; the latter is now in the language as bogofs – buy one, get one free)

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● banded pack offers (for instance, a new razor with shaving soap) ● economy (special editions and own brand items). Some of these are offered by retailers as part of other broader schemes, for example in the UK you can obtain Shell Smartcard points (or Airmiles) at John Menzies and other retail outlets, as well as with your petrol.

9.2

Putting the case

Q A

What sales promotions could McDonald’s use in its restaurants?

of sales promotions in their restaurants to encourage people to return regularly.

Sales promotions are means of stimulating or restimulating demand for a product during a particular period and encompass many different devices. The case study mentions McDonald’s use

There are many methods McDonald’s could and do use including temporary discounts, giveaways (particularly for children) and competitions. It could introduce a scheme to award points for every visit with gifts or discounts as rewards for certain numbers of points.

Trade promotions Some promotions are directed exclusively at retailers or their staff. The reasons for promoting to the trade include: 1 obtaining support and co-operation in stocking and promoting products to customers 2 inducing distributors to increase their stock levels, where research may have revealed lower than average stockholding 3 pre-empting competitive selling activities by increasing trade stocks. Amongst the techniques used in trade promotion are: ● Bonusing: this can take the form of monetary discounts or ‘free goods’ (13 products for the price of 12), or special quantity rate terms. ● Incentive schemes: these can be tailored to the needs of a retailer’s sales staff and may also include competitions, particularly for sales staff. Competitions linked to generating window displays make a good example of use here, with prizes such as holidays being regularly used. ● Dealer loaders: instead of money, gift incentives may be offered to distributors, or their sales force, for achieving agreed sales targets or stocking certain quantities of a product. Other trade promotions are linked to publicity rather than directly to sales: ● Co-operative advertising schemes: these give assistance with preparation of advertisements or media costs, which in some businesses make promotional activity possible that might not happen unsupported. ● Provision of display materials: these can be either free of charge or on a shared cost basis; includes things from display stands to window stickers and shelf talkers.

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● Tailor-made promotions: these are custom designed to the outlet’s individual requirements, often promoting their own name and corporate image. Thus it can be seen that trade promotion can be an extremely important element within the total market strategy in helping to ensure that stocks are available in the right distribution channels and at the right time – and in retail outlets are actively promoted at point of sale.

Test yourself

9.1

Give three reasons why an organisation might use sales promotions to the trade.

3.3 Monitoring effectiveness It is easy to measure the take up for sales promotions that rely on the redemption of vouchers, entering competitions or prize draws. What cannot be monitored immediately is the longer term effectiveness of the sales promotion, which in general terms is to encourage greater use of the product or encourage switching from other brands. Sales should increase with the sales promotion, but when the promotion has finished, ideally sales should stabilise at a level higher than that recorded before the sales promotion. If sales dip and then only stabilise at the original level, there will not have been any overall increase in sales and with the costs involved in mounting the campaign, the sales promotion will not have proved successful.

Making it work How Hoover’s sales promotion turned sour Hoover is a company selling a wide range of electrical ‘white goods’ and some years ago they produced a sales promotion campaign that has entered marketing folklore as ‘What not to do!’ Hoover linked up with Airmiles to offer consumers ‘Two free flights to the USA’ (from Britain). Airmiles and Hoover envisaged that the spare seats on aircraft going to the USA would be filled with customers taking up the offer. All consumers had to do was purchase any of Hoover’s products to the value of £100 or more to claim the free flights. At the time Hoover thought that this would boost demand for their goods and they could sell extra services such as car hire and insurance when people booked the flights and everyone would be happy. At first things seemed to go well. Demand for Hoover vacuum cleaners retailing at £100 rocketed (the cheapest goods qualifying for the offer), so much so

9.3 that Hoover had to increase their production lines (at some extra cost). Unfortunately Hoover had completely underestimated demand and soon they found they had to pay for extra flights to fulfil their promise to customers. Customers also became extremely frustrated at not being able to book the flights they wanted because of the huge demand, and irritated when they were encouraged to take out expensive car hire and insurance. Worse still for the company, because most people had only purchased Hoover vacuum cleaners to qualify for the free flights, they started advertising them for sale at a lower price, and sales of Hoover vacuum cleaners subsequently plummeted. In the end the company lost millions because of this sales promotion, and several top marketing executives lost their jobs. The lesson for Hoover and any other company offering a similar promotion is not to make it so financially attractive that people will buy a product solely for the promotion. The sales promotion should just encourage brand switching or earlier purchase.

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4

Personal selling

Sales people are involved in everything from selling door-to-door or in retail shops, to selling battleships to governments. The old-fashioned view of a salesperson is someone who ‘gets rid of the product’, which may have worked in times of short supply and low competition. Today, however, customers and organisations have become much more sophisticated and in most markets there is intense competition and sales people need to be talented and multi-skilled if they are to be successful both on a personal level and for their company.

4.1 Selling in different markets Sales people who work in retail deal with a wide range of customers and they need to be well presented good communicators and have good product knowledge. For example, a customer is likely to associate a smartly dressed, articulate sales person with a good quality product; conversely a poorly dressed salesperson with limited product knowledge may lead the customer to question the quality of the product and the store. Usually sales persons are at the final stage of the customer’s decision-making process and it is they who can make or break the sale. All the carefully planned promotion that has helped to persuade the customer to reach this point will come to nothing if the sales person does not sell effectively. In organisational (B2B) markets, a good sales person needs all these qualities and more. In this market, selling is often the largest promotional expense and the sales force represents a big investment for the company. Selling in this market involves building relationships with customers in other organisations (rather than the consumer). A sales person needs to prepare carefully, not only having a thorough knowledge of his own company’s products, but also those of competitors. The sales person also needs knowledge of the customer and his organisation in order to be in the best position to act as a problem-solver. Sometimes, in this market, the selling process can take place over weeks, months or even years and the sums of money involved for one sale can be considerable. This highlights the need for good negotiation skills.

Putting the case

9.3

Q

What qualities do staff working in McDonald’s restaurants need?

what they want, it is important that the staff can give information on the products to any customers needing it, for example anyone with an allergy.

A

Staff working in McDonald’s restaurants deal with a wide range of customers and will need to be well presented, as customers can associate a scruffy appearance with a low-quality product. Although many people coming into the restaurant will know

The sales staff are the final stage of the customer’s decision-making process and although for most customers this is a routine purchase, they can still be ‘turned off’ and leave if they are not treated appropriately.

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4.2 The selling process The selling process will vary depending on the nature of the sale. For example, a sales person in an electrical retail outlet will probably make several sales a day, whereas a sales person selling a fleet of aircraft would be fortunate to make more than one sale in a year. The process outlined below can apply to any sale, although clearly in B2B and industrial markets there is likely to be a much more detailed product knowledge and greater emphasis on research into the competition and customer. Also negotiation skills will be important. ● Research into the customer and the competition: this is likely to be extensive in organisational markets, particularly when dealing with a new customer and if the potential business is likely to be very big. In a retail outlet, the sales person should be aware of the offerings of the competition. ● Setting objectives: in any market it is important to have clear objectives, for example in organisational markets the objectives of a particular visit may be to find out more about the company’s particular needs and to arrange a further meeting with key decision makers rather than to effect a sale. ● Identifying the problem (needs of the customer): this is also very important in any market and is the core of good selling. ● Selling the benefits: having identified particular needs, it should then be possible to emphasise the benefits of particular features of the product that will appeal to the customer. ● Dealing with objections: objections show the customer is interested in the product. By listening carefully a good sales person may be able to meet these. ● Closing the sale: getting the order: sales persons look for ‘buying signals’ like ‘When can you deliver?’ This is the last stage of the customer’s decision-making process and as outlined in the previous chapter it is important not to have any barriers to the final sale (such as payment methods). ● Following up: this corresponds to the post-purchase evaluation stage of the decision-making process and it is important to reassure customers that their decision to buy your product was the correct one: a follow-up call to check their satisfaction with the product is often important.

4.3 Monitoring effectiveness The effectiveness of personal selling in retail and some organisational markets can be measured through individual staff’s sales figures. To motivate staff to sell effectively, companies set targets that result in bonuses if reached. Sales of any individual or outlet can be measured against previous years or other outlets in the chain. The effectiveness of personal selling is more difficult to measure where several people may be involved over a much longer time period as is the case in some organisational markets. The process of mystery shopping, described in Chapter 3, is used particularly in the retail sector to monitor effectiveness of the total shopping experience and to provide feedback as to how personal selling could be improved.

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Test yourself

9.2

Identify the key stages in the selling process.

5

Direct marketing and exhibitions

Direct marketing is the use of direct media to reach a target and its main feature is that it involves a direct individual relationship between the customer and the company. One form of direct marketing is telemarketing, where customers or potential customers are contacted by telephone. It is an immediate two-way communication aimed at selling a product or service, targeted and personal, quick and cost effective to carry out. However it cannot be used to give complex information and it alienates many people who do not like being contacted by phone, particularly at inconvenient times at home. Some advertisements give freephone telephone numbers or include a coupon to complete, encouraging potential customers to call for further information or to buy particular products such as CDs. The main form of direct marketing is direct mail, which is discussed next.

5.1 Direct mail Direct mail is what is particularly associated with the term direct marketing. There are two main reasons why it has become more popular as a method of promotion, one being the rising costs of TV and press advertising but perhaps more importantly the development of database marketing whereby many retailers, banks and other institutions have and use information on their customers to communicate with them. Only the worst of it should be called ‘junk mail’, though some perhaps deserves that description. Feelings about direct mail can run high. Some people regard it as intrusive and everyone appears to know someone who has been mailed three times in the same week about something entirely inappropriate, or addressed wrongly. Direct mail is a technique where tiny details matter. For instance, a letter with a PS may do better than one without; a reply card with an actual postage stamp (rather than with prepaid postage) may get up to 50% more replies; and certain so-called ‘magic’ words (new, free, guaranteed, exciting) tend to boost response, provided they are not overused. Direct mail can be directed at any level of the buying process, from ultimate customers to specialist retailers (it is sometimes useful for customers who do not justify the cost of visits, or more than a certain number of visits), and is used as much in business as to consumers in the traditional sense. It is used very successfully in a wide range of organisations including charities, banks and building societies. Many others are dependent on it as their main form of promotion or because it results in a major proportion of their sales (indeed, one example of this is business books). Some consumers choose to receive mailings from companies on forthcoming events or new products. Contrary to popular belief, direct mail is read. In the UK, the Post Office recently demonstrated through research that more than 90 per cent of direct mail is opened and

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more than 75 per cent of it is read. The challenge, therefore, is to ensure your organisation’s offering will stand out from others, will generate interest and will be seen as persuasive. Direct mail is not an alternative to advertising, rather it adds to the range of techniques available. It is no more a magic formula than any other individual technique. It is flexible and certainly more so than advertising as it may constitute four letters, or 40, 400, 4,000 or 40,000. It can be targeted on specific market segments but it can appear easier to use than, in fact, it is. Every element of it needs careful consideration. Briefly, each element of direct mail contributes to its success. These include the following.

The list Any mailing is only as good as the list of names it is mailed to. It must be appropriate, up-to-date and personal. In many businesses existing customers are as important as prospects, so complex overlapping campaigns are constructed; there is a specialised area of data-base marketing and, though list holding and use is now covered by the Data Protection Act in the UK, sources of lists are valuable. Techniques such as satisfaction cards, completed by customers after purchasing a product or receiving a service, are specifically designed to help build up a list.

The message This is vital. Copywriting in this area is a specialist job. Just one phrase changed may increase (or decrease) the response. There are about three seconds, when something is pulled out of an envelope, during which the recipient decides whether or not to read on further, so immediate impact is crucial.

The envelope The ‘packaging’ is part of the message – many envelopes are overprinted, perhaps with a ‘teaser’ message. What is on them affects response. It is particularly important in assisting the job of getting the recipient to decide to read on.

The letter This is also vital and is often not short. A good message is as long as is necessary to present an argument to buy and it may take two or three pages. People dip in and out of the material, so some repetition of content in the letter may be sensible. As a general rule a brochure of some sort plus a letter works better than a brochure or letter on its own.

Brochures These provide supporting information in a number of ways. They may be coloured, illustrated or, in extreme cases, incorporate a range of gimmicks from prize draws to stamps.

Test yourself What is the difference between direct marketing and direct mail?

9.3

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9.2

Stop and Think

What can an organisation do to try to ensure a recipient of its direct mail does not immediately throw it away?

5.2 Exhibitions Both B2B and consumer sellers use exhibitions or trade shows as part of their promotional mix. Such events range from small-scale local involvement, for example a specialist bookseller taking a stall at a model railway exhibition, to an annual national trade show serving a specific industry, such as Pakex for the UK packaging industry. Sometimes companies feel their main reason for attendance at an exhibition is to be seen to be there, as other companies in competition with them will be present. Exhibitions bring together a wide range of key personnel in one place at one time, and can thus generate a great many potential sales leads cost effectively. However, for exhibition attendance to be successful an organisation needs to make sure that it plans well and has clear objectives and purposes – and chooses the exhibitions it goes to with care, as exhibitions that are not attracting its target market will be of little value. It is important to make a good impact on the show’s visitors and this can’t be done without spending money and training staff carefully so they make the most of the opportunities offered. After the exhibition is over, it is important to follow up any leads, otherwise all the effort will be wasted.

5.3 Monitoring effectiveness It is relatively easy to monitor the effectiveness of direct marketing, whether it is direct mail letter, telephone call or a direct response advertisement. The measure used is the level of response (either for further information or sales) depending on the objective of the message. For exhibitions, it is also easy to monitor effectiveness by the level of sales leads resulting from attendance. By calculating the total cost of attending the exhibition and the number of leads resulting in sales, an organisation can determine whether it is likely to be worth while attending in the future.

6

Public relations

The Institute of Public Relations uses the following definition of public relations: ‘A planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its publics.’ ‘Publics’ is used in its broadest sense to include not only customers and potential customers, but also suppliers, employees, investors, government, journalists, local community and anyone else with an interest in the activities of the organisation. This description also fits that of stakeholders, discussed in the previous chapter.

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There will usually be three key objectives for PR: 1 high levels of awareness of the organisation and its products 2 a favourable reputation among the organisations ‘publics’ (stakeholders) 3 high levels of goodwill towards an organisation’s products and activities. In some organisations, public relations tends to be neglected yet if the power of public relations is consistently ignored, then at worst not only are opportunities missed, but also the image that occurs by default may actually damage business prospects. Therefore, time spent on public relations is time well spent and, while for smaller firms it can produce good low-cost results, a larger firm able to sub-contract the activity to a PR agency may well spend substantial sums. There are a number of activities that come under the general heading public relations, and these are: ● ● ● ●

press relations sponsorship events and hospitality publications.

6.1 Press relations Press relations are a very specific form of public relations that can pay dividends although, unlike an advertisement, there is no guarantee of what is going to be said. Though personal contact with journalists and others is important, much can be achieved through the press release, a structured, written communication to the press intended to be the basis of a story or press mention. Press releases can be in the form of routine mentions or of more particular stories, but much of the impact of both sorts of material is cumulative. To achieve this cumulative impact, the organisation needs to be constantly on the lookout for opportunities of gaining a mention. While it may be of interest internally that a firm has 25 staff, inhabits an eighteenth-century mansion or is reorganising, it must find something with more of an element of news in it to gain mention. Often press releases give news of a new product or sales or profit forecasts; they can be used to give news of an award the company has received or as a means of countering bad publicity. Press conferences fulfil the same type of function as press releases; in these the press are invited to listen to a statement or presentation from the organisation and then offered the chance to ask questions. Press conferences are used for major events, such as an act of sabotage on the company’s products resulting in deaths or serious illness; in this case the company would be seeking to reassure the public that it had done everything possible to minimise any further problems by removing all stock and carrying out a thorough investigation into the cause. If a company, or its spokesperson, becomes known as a source of good comment, stories and articles, then press contacts will start to come to them, and the whole process may gain continuity and momentum. In addition, a number of events can be linked to press and public relations activity. For example, both launch parties and

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author signing sessions fulfil this role for books, creating something more than simply the publication and launch of the book for the press to report.

Test yourself

9.4

What are the three key objectives of public relations?

6.2 Sponsorship sponsorship The support of an event, activity or organisation by providing money or other resources that is of value to the sponsored event. This is usually in return for advertising space at the event or as part of the publicity for the event.

Sponsorship is supporting an event, activity or organisation by providing money or other resources that is of value to the sponsored event. This is usually in return for advertising space at the event or as part of the publicity for the event. For sponsorship to be successful, there need to be benefits to both sides of the deal – the sponsoring company and the event, activity or person being sponsored. An organisation engaged in sponsorship needs to define its objectives in sponsoring, for example it might be to raise awareness of the brand, to build an image or to promote a new product. There are many kinds of sponsorship, for example: ● Sports sponsorship: major sporting events have the advantage of being attended and (more importantly) watched by large numbers of people. They also attract media coverage. For example Flora margarine sponsors the London marathon and more recently the Sydney, Australia marathon. Flora promotes itself as a healthy alternative to butter and thus it fits well with the healthy image of running a marathon. Flora benefits from television coverage of the London marathon where viewing figures are around six million and this coverage has increased awareness of the brand. ● Arts sponsorship: arts events or organisations are not as well attended as sports events but are often regarded as more ‘worthy’ and more in keeping with the image of certain businesses and brands. ● Educational sponsorship: this can take several forms from the sponsoring of individual students at college through to the provision of books and computers nationwide using the redemption of product or store related vouchers as Tesco have done with their ‘Computers for Schools’. ● Sponsorship of television and radio programmes: for example in the UK the chocolate manufacturer Cadbury’s sponsor the soap opera Coronation Street. The examples above are of sponsorship by large organisations, but small local companies can sponsor local events or activities. For example a company could sponsor the local football team by providing their kit in exchange for the company name on the football shirts. A small garden centre could plant out areas in the local park in return for allowing their nameplate to be displayed. In all cases an organisation needs to ensure that what it is sponsoring is compatible with its target market.

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9.4

Making it work How Manchester United makes use of sponsorship Manchester United is probably the most famous football brand worldwide. It has a number of sponsorship deals with different companies for the mutual benefit of both. The following statement from Manchester United demonstrates the benefits of its sponsorship with Audi: ‘We are obviously delighted to have Audi UK as one of our commercial partners and are looking forward to developing a comprehensive programme that helps us both achieve our business goals. Audi is a superbrand, that sits

perfectly alongside the likes of Vodafone, Nike, Fuji, Budweiser and Pepsi.’ As part of the two-year sponsorship deal, Audi supplies 20 of its cars to high-profile players and officials in the club and invites them to participate in the Audi Driving Experience training programme to encourage responsible driving through comprehensive instruction. In return, these highprofile footballers and officials will be seen driving Audi cars and Audi will get advertising space at the Old Trafford football ground. Source: www.manutd.com.

6.3 Events and hospitality Often events are directed at the organisation’s wider public with the objective of creating goodwill, for example organising tours of the company for groups of students and/or providing them with packs of information to help them with their studies. Some companies involve themselves in the local community, for example in the UK it is quite common for the police and fire service to hold ‘open days’ where any members of the public (including small children) can climb over fire engines or see what it is like in a police car. There is plenty of information available and an opportunity to talk to those working in the service and this helps to inform people and encourage co-operation. This type of activity as well as creating goodwill can also act as a form of recruitment for the service. The launch of a new product or service may mean an organisation uses this as an excuse for a party or other event to encourage positive coverage in the press. Journalists and important customers or potential customers are likely to be top of the list. For example when Legoland introduced some new rides in its theme park, it invited journalists and their families to a free day out with all meals included. The resulting positive press coverage was far more cost effective than a full page advertisement in the same paper! Corporate hospitality is used particularly in B2B markets and involves inviting key decision makers to venues such as Wimbledon or other prestigious sporting or arts events. The objective here is again to encourage a positive feeling towards the company, though the motives are rather transparent! Apparently more selfless are the motives in donating to charity or financially supporting worthy causes in other ways. Many large companies do this and benefit from the positive publicity.

6.4 Internal public relations Many larger companies have some type of internal ‘in house’ journal and this can be a good way of encouraging team spirit as well as keeping employees up-to-date with

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company news. Often such publications will congratulate members of staff who have performed particularly well and for many there is great satisfaction in seeing their name in print. Some companies provide free or subsidised benefits such as evenings out or membership of sport clubs, and these can be regarded as a form of goodwill to encourage employee satisfaction.

6.5 Monitoring effectiveness It is difficult to monitor precisely the effectiveness of press relations or many other types of public relations. This is because the objective is normally to build reputation rather than directly to increase sales. Most large companies rely on feedback from continuous research into their corporate image. They can monitor any changes in consumer attitude towards the company or its products and can then try to analyse courses of action that were effective.

7

Internet marketing

The first essential for promoting on the internet is a well designed website. Sometimes the main aim of the website is to be able to sell online to customers; in Chapter 7, the successful use of the Internet by Amazon.com for direct selling was discussed. Even when the main aim is not direct selling, there will almost certainly be some promotion of the organisation, giving information on products and/or giving information on the company that puts it in a good light. The ways of using the internet to promote a business are: ● ● ● ● ●

internet advertising (discussed in Section 2.1) search engines ‘pay per click’ online directories newsletters affiliate schemes.

7.1 Search engines ‘pay per click’ Search engines (such as Google or MSN) are the most popular way for a customer to begin browsing on the internet. These search engines read the content of a web page to determine its listing position (i.e. relevancy to a users search for a particular item) and there is no charge to the company for this. However, increasing popular is a ‘pay per click’ service (offered by many search engines including Google) whereby a company can buy or bid on specific keywords related to the company’s product or service. For example, company A wishes to be in the listings for a particular search engine when somebody searches for the term ‘cheap cars’. Currently the highest bidder is at 50p per click and the second highest is at 48p per click. In order to be ranked top of the list, company A must bid 51p per click (or if they want to be second, then 49p per click). This can be very expensive, but it is possible to set a financial limit per day (and/or select a low price per click – which will mean being further down the list).

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7.2 Online directories Online directories are similar to phone books; however they list websites (descriptions and links) in categories for easy searching (for example finance and shopping). They search the web constantly looking for credible websites to include; an organisation that is not listed but wishes to be included can contact them so that their website/business can be analysed with a view to inclusion.

7.3 Newsletters Newsletters can be an excellent method of keeping prospects or customers interested in a company/product. An organisation can offer to email a newsletter or details of special offers to visitors to the site. Newsletters can be created and sent by the company itself or outsourced to a media marketing company to do the job for them.

7.4 Affiliate scheme This method is where an organisation (company A) advertises its website on another organisation’s website (company B) in an attempt to direct business its way. In return company A would pay company B a commission for every sale or referral resulting from the affiliation.

7.5 Monitoring effectiveness The effectiveness of pay-per-click is measured by the number of enquiries or sales and the effectiveness of the affiliate scheme can be measured in a similar way by the number of referrals or sales. The take up of any special offers will be the measure for the effectiveness of newsletters. It would be difficult to measure the effectiveness of an entry in an online directory, but as there is not likely to be any cost associated with this, it is worth including anyway.

Putting the case

Q

In what ways does McDonald’s use the internet to promote its business?

A

There are a number of ways mentioned in the case study that McDonald’s uses to promote its business on the internet. The map locator on its website would be useful to anyone planning a journey, wanting to know where McDonald’s outlets are. Anyone thinking of becoming a franchisee or employee, or wanting information on recent developments in McDonalds, could get information – this could also be useful to students studying marketing! However offering entry to

9.4 free prize draws and special offers by registering as a Mac member is probably the most useful promotion, both to customers, who will benefit from the offers, and McDonald’s, who will gain useful information when they register. McDonald’s can use this information to contact them (with their permission) and build a relationship that should encourage brand loyalty. The website for children doesn’t have any mention of registering; the main purpose of this is probably to keep the McDonald’s name to the forefront of the children’s minds and to generate some goodwill among parents in providing games and quizzes to keep their offspring occupied.

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9.3

Stop and Think How might internet marketing influence you in your choice of products or services in the future?

8

Deciding the promotional mix

When considering the promotional mix to use, consideration of the following six Ms is a good checklist. The six Ms are:

Market ● Who are the customers – consumers, organisations or both? ● How big is the market? ● How wide a geographic area is being covered?

Mission ● What are the objectives of the promotion – for example to inform, persuade, remind, build a reputation?

Message ● ● ● ●

Is there a USP to promote? What is the essence of the message? What type of approach is appropriate, for example humorous or serious? What use will be made of words, images, and music?

Methods ● What types of promotion are appropriate for the product, market and message? ● What is the reach and coverage of various methods?

Money ● What is the budget? (Issues connected with the budget will be dealt with in the chapters on marketing planning.)

Monitoring ● How easy is it to test the effectiveness of different methods? Once the promotional mix has been determined, it is time to work out a detailed plan so that the various forms of promotion can be integrated to form a coherent whole. This aspect of promotional planning will be dealt with in the final part of the study text.

Test yourself

9.5

What are the six Ms that are used as a checklist to help determine the promotional mix?

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Summary ● All forms of promotion involve communication between the organisation and its customers and an appreciation of the communications process model helps a company understand how best to get its message across. ● Advertising takes place on television, cinema, radio, print and posters as well as new media such as the internet and less common locations. Deciding which advertising media to use involves consideration of the product and its target market and the resources of the organisation. ● Personal selling is used in consumer markets, but is particularly important in many organisational markets as often it is the main promotional method used. Direct marketing and exhibitions are used in both consumer and organisational markets. ● Public relations covers a wide range of techniques and these together with sponsorship are important ways in which an organisation can build its image. ● Internet marketing is a growing field that can be used by a wide range of organisations to promote their products. ● There are a number of factors that need to be considered before deciding the promotional mix and these can be summed up in the six Ms – market, mission, message, methods, money and monitoring.

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Part Four Practice Questions Section A 2 mark questions: 4.1 What are the two stages in the decision-making process that come between the recognition of a problem and the decision to purchase? 4.2 In the diffusion of innovation model, what type of consumers are of most interest to an organisation and why? 4.3 In the communications process model, what is meant by encoding? 4.4 What is the difference between direct marketing and direct mail? 4.5 Give two ways in which an organisation could monitor the effectiveness of its internet marketing. 3 mark questions: 4.6 Give three factors that are of particular importance in organisational buying. 4.7 In the decision-making unit (DMU), what is the role of a gatekeeper and who in the organisation is likely to take this role? 4.8 Give three reasons why a car dealership might choose to advertise on the radio. 4.9 What are three objectives of public relations? 4.10 Name three different types of sponsorship.

Section B 25 marks each: 4.11 a) Explain what you understand by the term stakeholders and identify McDonald’s stakeholders. b) What influence can these stakeholders have on the way McDonald’s operates? 4.12 How does knowledge of the communication process model benefit McDonald’s when planning a series of advertisements in your country? 4.13 a) What are the benefits of sponsorship for McDonald’s? b) What other types of public relations activities are appropriate for McDonald’s?

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Strategy and planning Contents 10 Strategies and planning 11 Marketing planning

Overview The final part of this study text looks at the ways in which organisations decide where they want to be, and how they are going to get there. The starting point for this is an organisation’s corporate plan which determines the direction of the business. From this, marketing strategies and plans are developed. Some of the models and tools used in corporate planning also form part of the marketing planning process, and the topics covered in previous sections will be brought together in the final chapter on marketing planning. Sometimes planning is a reasonably straightforward task – in many small businesses there is only one geographical market and a limited number of products (perhaps only one product!) and one corporate and marketing plan. However, in larger businesses, there may be many business units located across the globe, producing a wide range of products. In this case there will still be one corporate plan, but very many marketing plans. Whatever the size of the business, the same principles of marketing strategy and planning can be applied; it is the scale and complexity that differ.

Learning objectives        

The objectives of this final part of the study text are for you to: describe how marketing planning fits into the overall corporate planning framework assess the importance and relevance of various models and strategies in the corporate and marketing planning processes explain the role of forecasts and budgeting in the planning process outline the main stages in the marketing planning process distinguish between the various elements in a SWOT analysis explain the importance of setting SMART objectives describe the ways in which marketing plans are controlled outline a promotional plan for a given promotional objective.

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CASE STUDY

Kraft Foods Kraft Foods is the world’s second largest food company and markets its brands in over 150 countries across the world. It originated in Chicago USA as a wholesale cheese business just over 100 years ago. Since then it has grown by merging with and taking over other companies. Today, its major international brands include Kraft, which is the number one cheese brand in the world, as well as the best known brand for salad dressings, packaged dinners and barbecue sauces. Other international brands are Nabisco cookies/biscuits, Maxwell House coffee and Philadelphia cream cheese. Some of its other brands are more specific to certain countries or areas, such as Kenco, the fastest-growing coffee brand in the UK. This brand is probably little known in North America, where Kraft’s Maxim coffee is a best seller.

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Retailers and other customers view Kraft as an indispensable partner.

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It is well placed to form alliances with other companies.

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People are keen to work for the company.

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It is viewed as a responsible business enterprise.

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It is acknowledged as a high quality performer in its sector.

In order to achieve these goals Kraft aims to:

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accelerate the growth of core brands

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extend awareness of these brands into developing countries

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strengthen its portfolio of brands

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improve service and quality at the lowest cost

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develop company values that are supported by committed employees.

Kraft sets out its vision as ‘Helping people around the world eat and live better’. Alongside this it lists its main values as follows:

Kraft sells to a variety of different customers including corner shops, wholesalers and large multinational supermarket chains. In doing so it incurs:

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Innovation – satisfying real-life needs with unique ideas.

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raw material costs and production costs to manufacture the products to sell

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Quality – fulfilling a promise to deliver the best.

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Safety – ensuring high standards in everything it does.

marketing costs associated with any promotional activity

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Respect – caring for people, communities and the environment.

selling expenses involved in selling its goods into supermarkets and to its other customers

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Integrity – doing the right thing.

distribution expenses when transporting from its factories to its customers.

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Openness – listening to the ideas of others and encouraging an open dialogue.

Together with the vision, these values define how Kraft conducts its business day-to-day. It believes it has been operating with high standards of ethical business conduct for a very long time and says ‘We are still learning and growing in our knowledge of the expectations society has for global companies like ours and, while we don’t have all the answers, we do have an abiding commitment to achieve long-term business success in a way that is true to our values and consistent with our strong dedication to good corporate citizenship and building trust every day.’ This vision and set of values are used by Kraft to form the basis of the following goals for the organisation:

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Its products become the consumer’s first choice.

Kraft aims to identify cost savings that can be reinvested to continue to grow its major brands and to support new products. It recognises that reducing costs by eliminating waste is vital in the modern food industry, which is driven by price competition in the retail sector. It uses the experience of key managers to help manage and develop its brands and make important planning decisions about their future. For example, tight deadlines need to be fixed for product launches and then achieving those deadlines calls for careful, coordinated planning to ensure that necessary production capacity is available, promotional plans are ready and that the whole exercise stays within budget. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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Strategies and planning List of topics 1 2 3

A framework and mission The competitive position Product analysis

4 5 6

Setting objectives Growth strategies Control and evaluation

Introduction Successful organisations consist of different people united in a common purpose or goal. This implies the organisation must have a clear vision of where it wants to be in the future and how it intends to get there. In order to do this, a business must analyse where it is now, which involves looking at its position in the competitive market and scrutinising its portfolio of products. It can then assess various options to grow and decide the general direction it is going to take to enable it to move forward successfully. In most organisations, marketing managers will play a major role in helping to determine the direction the company takes in the future, as many major decisions are concerned with products and markets. This chapter concentrates on areas in planning that are the concern of the organisation as a whole as well as the marketing department. A business will need to fully understand the implications of various choices it could take in order to be able to construct realistic marketing plans – the subject of the final chapter in this study text.

1

A framework and mission

Companies come in all shapes and sizes: large global organisations, sole traders, charities and public service organisations, to name but a few. What they all have in common is an idea of what they want to achieve and how they are going to do it. Before looking in more detail at this complex area, it is helpful to look at the main steps in corporate planning and marketing planning that a large organisation might follow and how these relate to one another. Figure 10.1 shows a suggested framework for both corporate and marketing planning. The framework on the left headed ‘corporate planning’ is what is happening at the organisational level, that is to say it affects the whole of the business. The framework on the right is concerned with marketing planning. In corporate planning some of what the organisation is hoping to achieve may not be directly related to marketing and will not be discussed in this study text (for example, the value chain). This chapter focuses on aspects of the corporate planning process that also affect the marketing planning process. Many corporate decisions have direct relevance to the

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Corporate planning Mission statement (1.1) Strategic analysis External environment PESTLE Porter’s five forces (2.1) Opportunities and threats (SWOT)

Marketing planning (Mission statement/corporate obj.) Marketing analysis External environment audit PESTLE Porter’s five forces Opportunities and threats (SWOT)

Internal business competences Resource audit Value chain Portfolio analysis – BCG (3.1) Product life cycle Strengths and weaknesses (SWOT)

Internal marketing audit Marketing resource audit including Portfolio analysis – BCG Product life cycle Strengths and weaknesses (SWOT)

Corporate objectives (4) Objectives Long term (Not always measurable) Short term (SMART) Operational (SMART)

Marketing objectives Objectives Long term (Not always measurable) Short term (SMART) Operational (SMART)

Strategic choices Corporate strategy Portfolio balance BCG (3.1) Degree of diversity (Related/unrelated) Horizontal/vertical integration

Strategic choices

Business strategy Porter’s generic strategies (5.1) Cost leadership Differentiation Focus

Contribution by the marketing director to business strategy. NB In a small firm corporate and business strategy will not be differentiated

Directions Ansoff matrix (5.2) Strategic selection Evaluation (5.3) Suitability Acceptability Feasibility

Contribution by the marketing director to corporate strategy NB In a small firm corporate and business strategy will not be differentiated

Directions Ansoff matrix Strategic selection Evaluation Contribution by the marketing director to strategic selection Marketing mix strategies Marketing mix plans/tactics

Control and evaluation Control and evaluation

Figure 10.1 Corporate and marketing planning

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marketing plan and indeed the marketing director or manager(s) is likely to contribute to these (this is pointed out under the strategic choices and selection parts of the marketing planning section of the framework). Important aspects of the planning process are discussed in the following sections of this chapter: ● ● ● ● ● ● ●

Mission statement 1.1 Porter’s five forces model 2.1 Boston Consultancy Group (BCG) matrix 3.1 Objectives 4 Porter’s generic strategies 5.1 Ansoff matrix 5.2 Evaluation (suitability, acceptability feasibility) 5.3

Many organisations will not operate with such an elaborate or formal framework. However, any type of planning involves a number of key stages and these can be put simply as: ● ● ● ●

Where are we now? – analysis of external and internal environment Where do we want to be? – objectives How are we going to get there? – strategies How will we know when we’ve arrived? – control and evaluation.

1.1 Mission statement/vision A mission statement, (sometimes referred to as a vision) is at the start of the corporate planning framework shown above. It is also shown in parentheses at the beginning of the marketing planning process, together with corporate objectives. This is because both the mission statement and the corporate objectives of the company will determine the overall direction of the marketing plan. The mission statement should encompass what the business is all about, and for larger organisations it might be published in several places, for example at the front of an annual report, on promotional material, displayed in the boardroom and on the factory floor. There is no standard format for a mission statement, and some organisations may have a short statement together with a set of values. However, an effective mission statement should contain the following characteristics. It should be: ● brief – easy to understand and remember ● flexible – able to accommodate change ● distinctive – make the business stand out. In addition, a clear mission statement should ideally have each of the following elements: ● Purpose – why the business exists. Is it to create wealth for shareholders? Is it to satisfy the needs of all stakeholders (including employees and society at large)? ● Strategy and strategic scope – the commercial logic for the business. The commercial logic involves the competitive position of the business in terms of the products or

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services it offers. It also covers the boundaries within which it is operating, for example local, national, global. ● Policies and standards of behaviour – everyday actions. This aspect of the mission statement would cover statements like delivering ‘outstanding customer service’. ● Values and culture – beliefs of the people who work in the business. These are basic beliefs such as business principles, for example commitments to customers and operating in a socially responsible way. It can also involve stating commitment and loyalty to employees and a strong sense of mission can help to create a work environment where there is a common purpose. Some organisations have a short vision (mission statement) together with a brief set of values.

10.1

Making it work Examples of mission statements The British supermarket Sainsbury’s mission statement is: ‘To be the consumer’s first choice for food, delivering products of outstanding quality and great service at a competitive cost through working “faster, simpler and together”.’ Other mission statements are longer. For example, the mission statement of Psion plc is as follows: ‘Our mission is to grow rapidly and profitably through innovation in mobile internet. In pursuing this mission, we will deliver value: to shareholders through superior returns

to customers through solutions and devices that enhance their quality of life and personal effectiveness to staff through a stimulating environment that encourages innovation’. Mission statements are increasingly being developed to indicate the priorities facing the organisation for the foreseeable future. For example Pilkington Glass appears to have market dominance in mind with its mission statement, seeking to be: ‘A dynamic, market driven, global provider of glass products, judged best in class by our customers, our people and our shareholders.’ Source: adapted from www.tutor2u.co.uk.

Test yourself

10.1

What are the three characteristics of an effective mission statement?

Stop and Think

10.1

Consider an organisation with which you are familiar, or look at the website of a well-known organisation. How effective do you think its mission statement is?

1.2 The impact of stakeholders The role and importance of stakeholders has already been discussed in Chapter 8, but it is worth emphasising again here, as stakeholders can influence the way in which the organisation operates. This can be seen from the examples of both Psion plc and Pilkington Glass’s mission statements, which make specific reference to shareholders,

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customers and staff. It follows from this that organisations need to balance the requirements of various stakeholders, and to have objectives that seek to blend the various interests of these stakeholders. Many organisations seek to meet the needs of all their stakeholders. For example, a goal of being the market leader should benefit: ● customers as they will receive high quality products ● shareholders who will receive high dividends ● employees who will receive good wages. However if the concern of the company is with maximising returns to shareholders, this may be welcomed by them, but received less enthusiastically by other stakeholder groupings. It is important for an organisation to consider the relative power and interest of the different stakeholder groups when making decisions.

10.1

Putting the case

Q A

2

What evidence is there that Kraft seeks to meet the needs of all its stakeholders? Stakeholders are individuals or groups with an interest in the organisation. There are several examples in the case study of Kraft seeking to meet the needs of these different groups. It mentions goals associated with retailers – it wants to be viewed as an indispensable partner. It clearly values its staff as another goal is wanting people to be keen to work for the company and this will only happen if it treats its staff well.

One of its main values is ‘caring for people, communities and the environment’. This can encompass a range of stakeholders – ‘people’ in this context appears to be broader than just customers, certainly it would incorporate potential customers. ‘Caring for communities and the environment’ could indicate a willingness to take account of the interests and concerns of certain pressure groups. It is likely that Kraft has become number 2 in the world by taking into account the power and interest of its many stakeholders

The competitive position

As discussed in previous chapters, no organisation can afford to ignore what is happening in the external environment and a PESTLE analysis (discussed in Chapter 4) helps to focus on influences that might affect it. What is also essential is as deep an understanding of competitors as possible and this understanding is central to the marketing plan. The following section looks at Porter’s five forces model, one of the main models used to help understand the competitive situation. It is useful because it doesn’t look just at established direct competitors, but also about indirect and future competitors and about competition for suppliers. This model is used to help analyse competition systematically and provide a starting point for developing strategies. The framework at the beginning of this chapter shows a PESTLE analysis and Porter’s five forces model in both the corporate and marketing plans. At the corporate level, the

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Potential entrants Threat of entrants

Suppliers

COMPETITIVE RIVALRY

Bargaining power

Buyers Bargaining power

Threat of substitutes Substitutes Figure 10.2 Porter’s five forces model Source: Adapted with the permission of The Free Press, a Division of Simon and Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved.

analysis of both will be broad; at the marketing planning level it will be concerned with issues of particular relevance to the marketing plan.

strategic business unit (SBU) The key characteristic of an SBU is that it is a profit centre in its own right. It could be an operating division of a large organisation or market(s) or product(s).

2.1 Porter’s five forces Porter’s five forces model tends to focus on the single, stand alone, business or strategic business unit. This is an operating division of a large organisation or market(s) or product(s). The key characteristic of an SBU is that it is a profit centre in its own right. For example, Dell considers the market for business computers as one of its SBUs. The five forces model is so named because it considers five key areas in the competitive environment. These are: ● the threat of entry ● the power of buyers ● the power of suppliers

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● the threat of substitutes ● competitive rivalry.

The threat of entry This considers how easy or difficult it is for others to enter the market. Some markets might be very difficult to enter because of high costs involved in setting up, for example car manufacture. Other markets might be difficult to enter because of some sort of barrier, for example the need for a licence, personal contacts or specialist knowledge. A strong brand can also act as a barrier to entry.

The power of buyers The power of buyers is high where there are a few, large players in a market, for example the large grocery chains in the UK and a large number of small suppliers (like small farmers supplying the large grocery chains). The power of buyers is also high if it is easy to switch between suppliers.

The power of suppliers The power of suppliers tends to be a reversal of the power of buyers. The power of suppliers is high if it is expensive and/or difficult to switch to another supplier. For example an organisation might be reluctant to switch software suppliers because of the difficulty and/or expense and the power of suppliers is also high when the brand is powerful (for example Microsoft). Some suppliers have become more powerful by integrating forward, for example a brewer buying a chain of bars.

The threat of substitutes Sometimes new products are developed which threaten existing ones, for example emails largely substituting faxes. Sometimes the threat of substitution is not as obvious; thought needs to be given as to how people spend their money, for example a company fitting new bathrooms might be in competition with holiday companies. Persuasive advertising might persuade a family that they would gain more benefit from the money set aside for a new bathroom being spent instead on a family holiday.

Competitive rivalry Competitive rivalry is likely to be highest where many of the organisations in the market are of a similar size and the market itself is static or declining. Competitive rivalry is also high if the market is easy to enter, there is a high threat of substitution and suppliers and buyers in the market attempt to control. Competitive rivalry is always at the centre of the diagram as it tends to be an amalgamation of the other influences.

Test yourself

10.2

What are the five forces in Porter’s five forces model?

3

Product analysis

Most organisations are concerned with managing a mix of products to satisfy the needs of customers in the market(s) they are serving. Chapter 5 considered the attention products need at various stages in their life cycle and how and when to introduce new

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products into the market. It also considered the importance of positioning products in the market in relation to the competition. These are all important considerations when drawing up marketing plans. Another model, not discussed then, but relevant at both the corporate and marketing planning stages is the Boston Consultancy Group (BCG) matrix.

A tool that is used to categorise each of a company’s products/services in terms of the overall growth in the market in which it is operating and its share of that market.

3.1 The Boston Consultancy Group (BCG) matrix This is a tool that is used to categorise each of a company’s products/services in terms of the overall growth in the market in which it is operating and its share of that market. The BCG matrix is a well-known model that is commonly used as a foundation for decisions about the company’s products or services. Strategic corporate and marketing planning often revolves around this analysis of the organisation’s product portfolio. The BCG model considers the mix of products/services offered by the organisation and puts them into categories depending on their share of the market in which they are operating and how quickly (or otherwise) the market is growing. The matrix comprises four sections, with characteristics and names as follows. ● Problem child/question mark: products/services that have a low market share in a high-growth market and which with proper company support could become stars of the future. ● Star: products/services that have a high market share in a high-growth market, are bringing profit into the company and set to be ‘bread and butter’ services of the future. ● Cash cow: products/services that have a high market share in a low-growth market

Market growth rate

Boston Consultancy Group (BCG) matrix

Question marks

Stars

Cash cows

Dogs

Relative market share

Figure 10.3 Boston Consultancy Group (BCG) Matrix

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– typically these are the ‘bread and butter’ services that generate the most profit for the business. ● Dog: products/services that have a low market share in a low growth market and are on the way out. In general, a product positioned in a growth market and delivering a substantial market share is already a profit-producing star and should be looked after. A profit-producing product situated in a slow-growing market, on the other hand, can be treated as a cash cow, i.e. one that produces income without the necessity to continue investment. Cash cows are the products that generate the most profit for an organisation. If market growth is high, but the product occupies a relatively low market share, it should be treated as a problem child. If its market share increases, it will move towards favoured status as a star. If, on the other hand, it fails to perform as expected, then it may need to be dropped from the portfolio, as it will then represent a drain on resources. Products that are categorised as dogs have both a slow rate of growth and a low market share. These ‘dog’ products are often a drain on resources and if this is the case they should be removed from the portfolio. Once the analysis of a business’s products has been completed, it can look at its portfolio of products to see what adjustments might need to be made. The example below illustrate two possible combinations with the implications of both – there are of course many more. ● Portfolio 1: Cash Cow  Problem Child. This could be a useful combination, with the cash cow providing the profit to finance the development of the problem child into the star of tomorrow. ● Portfolio 2: Star + Problem Child  Dog. This portfolio may lead to problems. The star may be self-financing but neither it nor the dog may be able to finance the problem child, leading to difficulties in the future if the problem child has not been developed before the star begins to decline. In general, companies need a well balanced product portfolio and the Boston Consultancy Group Matrix helps to analyse whether this is so. However there are critics of the approach.

3.2 Criticisms of BCG analysis Criticisms of this matrix approach focus on the over-simplification implied by the model. Dogs, for example, far from being the useless parasites implied by the model, can be very useful. They may be worth persevering with, if only to keep a full product range: if a particular product is dropped, customers might look elsewhere for the rest of their business. Another criticism is that the axes of the grid disregard some key factors. A market with high growth may have a lot of competitors (for example the mobile phone market) and may not be an attractive one to enter. It is also true that in many cases a company can be successful in a market with a relatively low market share.

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10.2

Putting the case

Q A

In the Boston Consultancy Group (BCG) matrix, how would you categorise the Kraft cheese brand and what are the implications for Kraft of this categorisation?

that this is a growing market. This means that the Kraft brand has a large share of a fairly static market and this would categorise it as a ‘cash cow’.

The BCG matrix is a model that acts as a basic foundation for decisions about a company’s products. It categorises products in terms of the growth in the overall market and the associated market share of the product. In the case study we are told that the Kraft cheese brand is number one in the world and this means it is the market leader. We can assume that the market for cheese is fairly static as there is no indication in the case study

As a ‘cash cow’ the implications for Kraft are that this is one of their ‘bread and butter’ products, that is to say it produces income with relatively little investment and will be generating good profits. Kraft could use the profits from this product to help support ‘stars’ or ‘problem children’, that is to say products in markets that are growing rapidly. Like all organisations, Kraft needs to have a balanced portfolio of products.

4 objective A target that has to be achieved. In planning it answers the question ‘where do we want to be?’

return on investment (ROI) Return on investment (ROI) measures the relationship between profit (before tax and interest) and the money invested to produce that profit.

SWOT analysis (Strengths, weaknesses, opportunities and threats.) An analytical tool used to determine the best way forward for a particular company, which builds on internal strengths and external opportunities and seeks to deal with internal weaknesses and external threats.

Setting objectives

Objectives are a statement of what an organisation plans to achieve. Corporate objectives will be wide-ranging and will need to be compatible with the mission statement. They almost always include quantifiable financial targets such as sales and profit; the corporate plan is also likely to include objectives of market share (by value) and return on investment (ROI) over a set time period. Return on investment measures the relationship between profit (before tax and interest) and the money invested to produce that profit. As well as financial targets, the corporate plan may also include objectives on service levels, innovation and other ways in which it intends to conduct itself, for example, in being socially responsible. Some objectives, such as those concerning market share, will be a direct concern in marketing planning. Others, such as return on investment will be more of a concern to the finance department, but will still have an impact on marketing planning. Marketing objectives necessarily have a narrower focus than corporate objectives and tend to be more concerned with products and markets. However they also need to be compatible with the mission statement and corporate objectives. The setting of marketing objectives will be examined in more detail in the next chapter. Both corporate and marketing objectives result from the analysis of the external and internal environment, as an organisation exploits its strengths, minimises any weaknesses, takes advantage of opportunities and manages threats. This type of analysis is known as a SWOT analysis and is examined in detail in the final chapter on marketing planning. Both corporate and marketing objectives need to be realistic. Forecasting and budgeting help to achieve this.

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4.1 Forecasts Forecasting is important in constructing realistic plans at all levels. The more accurate the view of the future, the more appropriate the plans are likely to be. Forecasts can be general or specific, qualitative or quantitative and organisations can make use of some of the secondary and primary sources outlined in Chapter 3 to help them try to predict future behaviour. For example, they might use qualitative techniques such as management judgement or expert opinion and secondary sources of information such as publications by banks or government bodies to help to predict changes in the external environment. Organisations can use primary research such as focus groups and/or questionnaires to ask customers opinion of their likely consumption patterns in the future. One area of interest to all organisations is market demand. Independent market research companies such as Mintel publish information on various markets and this can be useful for an organisation trying to estimate total market demand. Market demand for a product (or service) is the total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period.

market demand The total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period.

10.2

Making it work Estimating demand in the UK overseas mass market package holiday industry Looking at demand in a 12-month period, and using data available to calculate market demand: Number of customers in the UK for overseas packages holidays: 17.5 million per year Average selling price per holiday: £450 Estimate of market demand £7.9 billion (customers  average price)

Company A believes its share of the market to be 15%, then its company demand can be calculated as £7.9 billion  15% (market demand x company’s share of the market)  £1.2 billion If these figures are correct then this is an accurate picture of the present position. However it is much more difficult to predict future sales as in most markets, including this one, total demand and company demand are not stable. Source adapted from www.tutor2u.co.uk.

To calculate company demand, the company needs to know (or estimate) its share of the market. Assume

Other techniques, such as time series analysis can also be used to predict future sales:

Time series analysis This is where data from the past is used to predict the future and is particularly used to try to predict future sales. Past figures are analysed to see what the overall trend appears to be – are sales growing, ‘flat-lining’ or in decline? Many sales figures will appear to move in cycles, periodic changes in patterns over a period of time. It is important to understand the reasons for the cycles. Some are a reflection of successful marketing activities in the past, whereas others may be caused by external factors, such as fluctuations in the economy. Cycles may last years or months and tend to recur. The construction industry in most countries will reflect ‘boom and bust’ cycles in the national economy. When the economy is depressed,

time series analysis Data from the past is used to predict the future and is particularly used to try to predict future sales. Past figures are analysed to see what the overall trend appears to be.

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nobody wants new buildings and the housing market suffers as well. Normally, when the economy recovers, the construction industry follows close behind. Time series analysis can also be used to analyse shorter-term seasonal fluctuations in sales, for example toys for Christmas, fireworks and gardening products. Having completed a time series analysis, managers should be in a better position to estimate the sales forecast for the coming period, perhaps giving pessimistic, optimistic and expected figures. The main problem with time series analysis is that it is based on past figures and assumes that things will carry on the in same way – this might be a reasonable assumption if the market concerned is stable and predictable, but it is a very dangerous assumption in unstable fluctuating markets. Many businesses prepare sales forecasts on the basis of past sales and providing other forms of research are undertaken, this should provide a reasonable basis for helping to develop a plan whether at corporate or marketing level.

4.2 Budgets A budget is a financial plan that sets out, using figures, an organisation’s expected future income and expenditure. Fundamentally it is the same as an individual planning how much money they will earn, what they can afford to spend in the future and on what to spend it. Budgets have a number of functions. By creating budgets, managers can: ● ● ● ● ●

strategy The means by which an objective is reached. In planning it answers the question ‘How are we going to get there?’

set out a clear plan, involving target figures for defined periods of time meet the organisation’s objectives communicate their targets clearly motivate employees to achieve these targets control performance by monitoring actual outcomes against planned targets.

Ideally, budgets are created through consultation with all areas of the business to achieve a shared understanding about objectives for the future. This is important because the organisation’s long-term goals need to be in focus to avoid the risk that budgeting might lead to short-term focus on financial results. This could encourage cost-cutting exercises at the expense of strategy. In the worst case, individual managers may pursue exclusively their own narrow goals rather than business wide ones. Budgets may be challenging, but they should be realistic, so that people feel they can be achieved and it is worth working towards them. The starting point for building a budget is to forecast the likely sales, bearing in mind the environment in which the company is operating, the competition and likely changes in customer demand. A manufacturing company needs to determine what quantities of products have to be produced and the timing of manufacture. With these figures in place, budgets can then be allocated for costs relating to sales, marketing and administration and figures established for the likely costs of storing and transporting the goods (distribution). These details then provide data for relevant departments. Once the budget has been set and agreed by the management teams, it becomes a mechanism through which managers can monitor progress on a particular aspect of the business (for example a plan to launch a new product) or on total company performance.

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Smaller companies and those offering services will still need to budget, though there may be fewer considerations than those faced by large manufacturing companies. Public service organisations also need to budget, as although their aim is normally to provide a service rather than make a profit, they are accountable to the general public for the way in which money raised by taxation is spent.

Test yourself

10.3

Name five functions of a budget.

Stop and Think Why do organisations like charities need to budget?

5

Growth strategies

There are two approaches that have particular relevance to how organisations grow. These are: ● Porter’s three generic strategies ● Ansoff matrix.

5.1 Porter’s three generic strategies Because Porter’s three generic strategies are broad, the choice of strategy is determined at the corporate planning level, although the marketing director or managers are likely to have an important input as they will need to set their marketing plan in the context of the choice of strategy. Porter identified three broad generic strategies an organisation can take: ● cost leadership ● differentiation ● focus.

Cost leadership The low cost leader in any market gains competitive advantage from being able to produce at the lowest cost. Costs are shaved off production, delivery, labour and all other aspects of the marketing mix, as cost advantage is the focus. Products tend to be ‘no frills’. However, low cost does not always mean low price. Producers could price at competitive parity, exploiting the benefits of a bigger margin than their competitors. Some organisations, such as Toyota, are very good not only at producing high-quality cars economically, but have the brand and marketing skills to use a premium pricing policy.

Differentiation Differentiation means offering something different, better or more valued by the customer than that offered by the competition. It allows companies to focus on value

10.2

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rather than price and because it involves segmenting the market it will incur more costs than mass marketing, but will generate a comparatively higher price and a better margin. The differentiating organisation must make sure its additional costs are offset by an increase in revenue generated by sales. There is also the danger that any differentiation could be copied by competitors, so there is always an incentive to innovate and continuously improve.

Focus The focus strategy is also known as a ‘niche’ strategy. Where an organisation can afford neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche strategy could be more suitable. Here an organisation focuses effort and resources on a narrow, defined segment of a market. Competitive advantage is generated specifically for the niche. Often smaller companies use a focus strategy. An organisation could use either a cost focus or a differentiation focus. With a cost focus, a firm aims to be the lowest cost producer in that niche or segment. With a differentiation focus a firm creates competitive advantage through differentiation within the niche or segment. There are potential problems with the niche approach. Small, specialist niches could disappear in the long term, particularly if larger companies decide the niche would be a profitable addition to their portfolio of products. Cost focus is not achievable with an industry depending on economies or scale, such as telecommunications. The actual choice of generic strategy depends on the organisation’s capabilities and resources, what type of competition it faces and the key factors for success in that market. In practice, it might be difficult to stick rigidly to one of these strategies alone and there might have to be some flexibility.

Putting the case

Q

Which of Porter’s three generic strategies does Kraft appear to follow?

A

Porter’s three generic strategies are determined at the corporate planning level and they are cost leadership, differentiation and focus. Kraft’s strategy is certainly not one of focus as this is where an organisation focuses effort and resources on a narrow, defined segment of a market – Kraft is a global organisation with many products in markets all over the world. It could be argued that Kraft is operating a differentiation strategy as the case study shows it offers different products in different markets, for example Kenco coffee in the UK and Maxim coffee

10.3 in North America. Differentiation allows companies to focus on value rather than price and because it involves segmenting the markets it incurs higher costs than mass marketing. However in the case study we are told that Kraft aims to identify cost savings and as it is such a large organisation it will be able to benefit from being able to produce at lower cost than many of its rivals. This leads to the conclusion that it could be operating a cost leadership strategy, one that sees cost advantage as the focus. Cost leadership does not necessarily mean the lowest price. Kraft has a well recognised brand and this can enable it to exploit the benefits of its brand by charging prices that reflect its image and for these reasons it seems that a cost leadership strategy is the one chosen by Kraft.

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5.2 Ansoff matrix

Ansoff matrix

The most widely known and used framework to help a business determine its future growth strategy is that developed by Ansoff. Ansoff’s product/market matrix is used to indicate the different directions a business might take in terms of its products and markets. It is used at the corporate level to identify the general direction a business should take and then in more detail at the marketing planning stage when particular products and markets are analysed. The matrix identifies four main directions a business may take and these are in ascending order of risk. 1 2 3 4

Remain in existing markets with existing products – market penetration. Develop new products in existing markets – product development. Enter new markets with existing products – market development. Enter new markets with new products – diversification.

1. Remain in existing markets with existing products – market penetration In order to grow and yet remain in existing markets with existing products, an organisation will need to achieve market penetration. The aim of market penetration is to increase sales volume in current markets, usually by more aggressive marketing. Sometimes existing customers can be persuaded to buy more of the product, for example encouraging consumers to regard breakfast cereals as a nourishing snack that can be eaten not only at breakfast but also at other times of the day. A company might try to build brand loyalty and barriers to entry to protect its position. It might also seek to reduce costs by improving productivity through capital Products Existing

New Product development

Market development

Diversification

Existing

Markets

New

Market penetration

Figure 10.4 Ansoff matrix

A framework in the planning process that considers alternative directions an organisation can take in relation to products and markets.

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investment. It may even decide to withdraw from some markets in order to consolidate its position in others.

2. Develop new products in existing markets – product development This was dealt with in detail under new product development in Chapter 5, and in the Ansoff matrix is the growth option concerned with selling new or improved products into existing markets.

3. Enter new markets with existing products – market development This option means selling existing products to new markets, which could be based on new geographic segments or could be created by opening up other new segments. For example in the UK the health drink Lucozade was originally sold as a tonic to people recovering from illness. Another segment likely to benefit from this type of drink, active sporty people, was identified and Lucozade was successfully marketed to this segment.

4. Enter new markets with new products – diversification

diversification A growth strategy, which involves introducing a new product or service to a new market.

This option involves developing into areas beyond current products and markets and happens when an organisation decides to move beyond its current boundaries to exploit new opportunities. If diversification is unrelated, this means that the organisation moves into areas that bear little or no relation to each other. Richard Branson with his Virgin brand is a good example of unrelated diversification as he began in the music industry and has now diversified his business into areas such as financial services, beauty products and transport. This is the most risky type of growth strategy as it can prove very difficult to manage such a wide range of products and markets. If diversification is related, this covers diversification within the same industry – usually by horizontal or vertical integration (see Chapter 7). Vertical integration is where a company either moves backwards into ownership of supply (for example a manufacturer of refrigeration units might acquire the capacity to make one of the key components) or forwards (for example a manufacturer of clothes might open a number of retail outlets in which to sell the clothes). The objective of horizontal integration is to absorb competitors to strengthen either market coverage or market position – though of course as discussed in previous chapters there can be problems if the company is then seen to be in a monopolistic position.

10.3

Making it work Examples of Coca-Cola’s growth strategies Coca-Cola has, at different times, grown using each of the directions shown by the Ansoff matrix. Examples are as follows:

Market development – Bringing out different bottle sizes to attract different buyers, for example the 1.25 litre ‘share size’ bottle that was identified in market research is an example of selling more of an existing product in a new market.

Market penetration – This was achieved by Diet Coke when more was sold in the same market.

Diversification – Winnie the Poo Roo Juice and Powerade are examples of related diversification. Both were new products in the new ‘healthy drinks’ market.

Product development. Coca-Cola Vanilla and Fanta Lemon Ice are examples of successful selling of a new product to an existing market.

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

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10.4

Putting the case

Q

Using the Ansoff matrix, what growth strategy does Kraft appear to take?

A

The Ansoff matrix is used to indicate the different directions an organisation may take in terms of products and markets. There are four options and these are market penetration, product development, market development and diversification. There is evidence in the case study of all these

different forms of growth, but one of its goals is stated as ‘it is well placed to form alliances with other companies’ and this definitely suggests a growth strategy of related diversification, one of the riskiest options in the matrix. The word ‘alliance’ suggests horizontal integration which means absorbing competitors (by taking them over) in order to strengthen either market coverage or market share. This would be an ideal way for Kraft to grow, particularly in overseas markets, and as the world’s number two it is likely to have the necessary financial resources.

5.3 Selecting a strategy At the corporate planning level, the choice of strategy is often measured against three specific criteria: ● suitability ● acceptability ● feasibility.

Suitability Questions are asked as to whether the strategy addresses any key issues identified earlier, particularly in relation to any opportunities or threats that may have been identified from an external environmental analysis (PESTLE and Porter’s five forces). The strategy also needs to be compatible with any major strengths (or weaknesses) which the organisation has.

Acceptability This criterion is concerned with an assessment of acceptability in terms of return, risk and stakeholder reactions if a particular strategy is implemented. For example, it has already been discussed that a strategy of unrelated diversification is high risk, but if returns are estimated to be high and there is not likely to be adverse stakeholder reaction, it may still be the chosen strategy.

Feasability This concerns whether the strategy can be made to work in practice and focuses on practicalities. An organisation will need to project what funds it needs and from where it will obtain them and is likely to carry out various analyses, such as break-even. This type of assessment will be carried out at the corporate planning level and the marketing director or manager(s) will make an important contribution.

Test yourself What are the three criteria that can be used to determine the choice of strategy?

10.4

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10.4

Making it work Polestar’s competitive strategy

ensuring the quality of the product

The Polestar Group is the UK’s largest independent printer and the fourth largest printer in the world. It is a specialist printer and data solutions company operating in the B2B market. It sells its services to other companies, for example among many activities, it creates packaging for Twinings tea, Nescafe labels, holiday brochures for Cosmos, direct mail for Tesco Clubcard and retail catalogues for Ikea and Christies. It can provide a complete service from pre-production through to the packaging. For example, advertisements and flyers are collated and inserted into the relevant magazine; this is then wrapped in a polythene bag to ensure the advertisers’ messages get to the reader.

providing high levels of service

Polestar’s strategy aims to focus on having the best people and the best machinery and on achieving consistent high quality by meeting delivery schedules

6

being innovative. Its strategy is to focus on a few specialist markets that offer higher returns, rather than trying to compete head on with the many other companies in the mass market. For example, Polestar has targeted the direct mail segment that has experienced 30% growth between 1997 and 2002 and is continually developing new ways to add value for its clients. Polestar has invested heavily in equipment (over £35 million between 2000 and 2003) allowing it to provide special services such as stitching free gifts inside magazines or putting gifts such as CDs on the front cover. Polestar believes that with quality employees, specialised equipment and an innovative, quality approach it can offer companies a service that can enhance their business. Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

Control and evaluation

Forecasts and budgets were shown to be important in the setting of objectives and they are also important in monitoring and controlling plans. Throughout the planning stage any differences between the forecast and actual performance needs to be investigated to determine the causes and this is also true of the budget. Plans will also have time scales attached to them and this is another aspect that can be monitored and controlled. A manufacturing company planning the launch of a new product will need to involve all parts of the organisation and is likely to have a complex master plan that shows the timings of different stages in the plan. If one particular stage gets delayed, for example the design of the packaging to use in consumer trials, then the whole promotional plan to support the launch may need to be delayed. If the plan is being carefully controlled, then this potential delay could be spotted and if necessary extra resources put in to deal with it. Evaluation is a logical final step in the planning process when the original objectives are compared to the final outcome. Control and evaluation of the marketing plan will be looked at more fully in the final chapter.

Summary ● Marketing planning cannot be carried out in isolation and so it is important to understand the frameworks for both corporate and marketing planning and how the corporate plan influences the marketing plan.

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● Porter’s five forces is a useful model to help to understand the competitive environment and is useful in helping to develop strategies. ● The Boston Consultancy Group (BCG) matrix is a useful tool at both the corporate and marketing planning levels in analysing a company’s products or services. ● There are two strategies that point to ways in which organisations can grow and these are Porter’s three generic strategies and the Ansoff matrix. Both are used at the corporate planning stage and Ansoff’s matrix is also regularly used in marketing planning to determine product /market strategies. ● It is important to have forecasts and budgets in order to have objectives that are as realistic as possible and to be able to control the planning process.

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Marketing planning List of topics 1 2 3

The marketing planning process Situation analysis Marketing objectives

4 5 6

Marketing strategies Control and evaluation A promotional plan

Introduction It is said that behind every successful product is a good marketing plan. This final chapter of the study text looks at all the steps in the marketing planning process that will enable an organisation to be successful. Before deciding precisely what it wants to achieve, a company needs to analyse where it is at present and to consider how its marketing plan fits with the overall mission of the organisation and its corporate objectives. Having decided what it wants to achieve, the company then starts to plan how to do this, by considering various strategies. It also needs to monitor and control the plan so that it stays on course and reaches the objectives that have been set. There may be a number of smaller plans that together form the overall marketing plan, and each of these need to fit into the overall framework. At this operational level there needs to be detailed planning in order to ensure that the various activities form a cohesive whole.

1

The marketing planning process

The previous chapter outlined the frameworks of both the corporate and marketing plans in order to show how the two are linked. Marketing planning cannot take place in isolation and needs to fit with the mission and corporate plan of the organisation. The main steps in marketing planning are: 1 2 3 4 5 6 7

mission/corporate objectives marketing audit SWOT analysis marketing objectives marketing strategies marketing mix plans control and evaluation.

The stages in the plan above correspond to key stages in the planning process as follows: 1 Where are we now? Mission/corporate objectives, marketing audit and SWOT.

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2 Where do we want to be? Marketing objectives. 3 How are we going to get there? Marketing strategies and marketing mix plans. 4 How will we know when we’ve arrived? Control and evaluation.

1.1 Marketing planning, the mission statement and corporate objectives The importance of a mission statement in giving a vision of what an organisation seeks to achieve was covered in the previous chapter. A strong mission statement can help in marketing planning in three main ways: ● It provides an outline of how the marketing plan should seek to fulfil the mission. ● It provides a means of evaluating and screening the marketing plan – are marketing decisions consistent with the mission? ● It provides an incentive to implement the marketing plan. The previous chapter also discussed the role of corporate objectives in setting exactly what the organisation wants to achieve and the fact that marketing plans will need to be compatible with these objectives. It is for this reason that corporate objectives together with the mission statement are included at the beginning of the marketing planning process to reinforce the fact that the marketing plan cannot operate in isolation.

Test yourself

11.1

What are the main stages in the marketing planning process?

2

Situation analysis

This first part of the marketing plan answers the question ‘Where are we now?’, and for this reason is sometimes known as a situation analysis. It is important for an organisation to be clear about its present position before it starts to plan ahead.

2.1 The marketing audit The term ‘audit’ is more commonly used in financial management to describe the process of taking stock of an organisation’s financial strengths, weaknesses and health. The marketing audit has a similar purpose in the marketing planning process as it systematically takes stock of an organisation’s marketing health. It involves an in-depth analysis both inside and outside the organisation and will involve an analysis of the following: ● ● ● ● ● ● ●

the external environment (PESTLE) the competitive environment (Porter’s five forces analysis) the market segment(s) in which the organisation is operating products (BCG matrix, product life cycle and product positioning) price , place and promotion aspects of the current offering marketing intelligence marketing personnel.

marketing audit The initial stage in the marketing planning process that answers the question ‘Where are we now?’ It involves collection, analysis and evaluation of information both inside and outside the organisation.

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By carrying out the audit it should be possible to assess the performance of the marketing effort in the immediate past. The risk in undertaking the marketing audit is that it might not always be as objective as it could be, because of the implied criticism of past decision-making if the audit appears negative. However, in spite of any problems it is nevertheless a vital first step in the marketing planning process.

2.2 SWOT analysis This is part of an analysis of the current situation and is a logical step that follows from the audit. A SWOT analysis appears in both corporate and marketing planning, the difference being that in a corporate plan the SWOT is broader and covers all aspects of the business, whereas a marketing SWOT is by definition narrower. It is the marketing SWOT that is being considered here. SWOT is an acronym for: ● ● ● ●

strengths weaknesses opportunities threats.

Strengths and weaknesses are internal factors, usually associated with the marketing mix, marketing intelligence, marketing organisation and marketing personnel. Strengths and weaknesses are factors over which an organisation has some control. Opportunities and threats are external factors and arise from the analysis of the external environment. Usually the organisation has little or no control over these, but needs to identify possible opportunities and deal with any threats. Examples of the different aspects of a SWOT are shown below. A strength could be: ● specialist marketing expertise ● a new innovative product or service ● location of the business ● quality processes and procedures ● any other aspect of the business that adds value (including USP). A weakness could be: ● lack of marketing expertise ● undifferentiated products (in relation to the competition) ● location of the business ● poor quality service ● damaged reputation. An opportunity could be: ● a developing market (for example the internet) ● a new international market ● moving into new market segments that offer improved profits.

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A threat could be: ● a new competitor in the market ● a competitor introducing a new innovative product or service ● the introduction of taxation on your product. These are just examples, and they will vary according to the organisation and the market in which it operates. A SWOT analysis helps to sort information systematically and to classify it, but it needs further more creative analysis to make sense of it. It is important to remember that the SWOT list should identify strengths that the organisation can exploit and weaknesses that it will seek to do something about. For example, a car manufacturer might have identified a number of positive points from the marketing audit concerning features on a range of cars, but if these are no different from those of other car manufacturers, there is little point in identifying them as strengths. Strengths need to be features that give (or have the potential to give) a competitive advantage. A SWOT analysis can be quite subjective as it is concerned with identifying strengths and weaknesses of marketing inside the organisation and opportunities and threats from outside. This means that different people within the marketing department might have different opinions, however by discussion a more realistic SWOT analysis can be arrived at.

Test yourself

11.2

What is the purpose of a marketing audit?

Putting the case

11.1

Q

How can a SWOT analysis help Kraft in its marketing planning?

A

SWOT stands for strengths and weaknesses (from within the company) and opportunities and threats (from the external environment). This is part of an analysis of the current situation and is a logical step that follows from the marketing audit.

weaknesses that it will seek to do something about. The strengths should be features that give (or have the potential to give) a competitive advantage – in Kraft’s case this could be its concern for the environment and communities around the world. If this is indeed a strength, it is one that is not easy to copy as it takes time to develop. Any strengths can be reinforced in promotional messages.

A SWOT analysis helps to sort information systematically and to classify it. It is important to remember that the marketing SWOT list should identify strengths that the organisation can exploit (for example its well-known brand name) and

In the case study, it is mentioned that Kraft intends to extend the awareness of its core brands into developing countries and this could well be an opportunity that Kraft identified from a SWOT analysis.

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11.1

Making it work How MFI used a SWOT analysis

Weakness

MFI is the UK’s largest retailer of kitchens, bedrooms and integrated appliances. Until recently it did not sell sofas but was considering acquiring the Sofa Workshop Company in order to grow its business. Before doing so it carried out a SWOT analysis on the Sofa Workshop which indicated the following:

Sofas are products that people buy mainly when their incomes are rising and which they postpone buying when the future look less optimistic.

Strengths

Threat

Sofa Workshop’s brand name, the established leader in design, quality and marketing.

The existence of market rivals (such as DFS) and the possibility that more competitors might enter the market.

Highly skilled workforce with years of experience in top quality sofa production. Distribution channels that complement MFI’s – direct mail, retail outlets and sophisticated use of e-commerce.

Opportunity For MFI to broaden its product range in line with the British public’s increased home-fashion orientation.

Source: The Times 100 Case Studies. Reproduced by permission from www.tt100.biz.

11.1

Stop and Think Carry out a SWOT analysis on an organisation with which you are familiar.

3

SMART (Specific, measurable, achievable, realistic and timely.) A prompt to ensure that objectives are effective.

Marketing objectives

Objectives are a statement of what an organisation plans to achieve. From the SWOT analysis, an organisation should have a desire to exploit strengths and opportunities and to overcome weaknesses and threats. This is the foundation for the setting of marketing objectives. Objectives are essential for clearly defining what must be achieved through marketing strategies and they also provide a benchmark against which to measure their success. However, marketing objectives need to be wide ranging as well as precise, as they have to link closely with corporate objectives as well as including finer details connected to products and markets. In order to make objectives as precise and effective as possible, an acronym (SMART) is used as a prompt. SMART stands for specific, measurable, achievable, realistic and timely. The following gives examples of what objectives need to be in order to be SMART:

Specific An objective such as ‘increase sales in the next twelve months on product “x”’ is not very helpful as however small the increase might be – perhaps only 0.0001% – it has fulfilled the objective. The objective would need to state the actual or percentage increase in sales the company is aiming to reach.

Measurable An objective such as ‘improve customer awareness’ is not capable of being measured.

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For this example, thought needs to be given as to how to measure improvement in customer awareness and what awareness is being measured. An objective such as ‘to achieve 75% customer awareness of our new product in our target market at the end of our advertising campaign’ is an objective that is capable of being measured.

Achievable An objective such as ‘improve sales of product “x” by 30% at the end of the 12-month period’ may on reflection appear unachievable given the resources of the organisation. Although it is important not to be over-cautious in setting objectives, it can be very demoralising to staff to be set unachievable objectives.

Realistic An objective such as ‘to become the market leader’ is unrealistic for a company with a low market share unless it really has the potential to grow rapidly. Again, it is demoralising for staff to be set unrealistic objectives.

Timely/time based Objectives have to have a time scale attached to them and this also then meets the specific criteria. Having determined the objectives, the next step is to define the marketing strategies that will allow the organisation to meet these objectives.

11.2

Putting the case

Q

Kraft identifies five aims for achieving its goals. What would it need to do to turn these into objectives?

What acceleration (increase) is necessary? How will the increase be measured – by value of sales, volume of sales or a %? Over what time period?

A

At present all the aims are rather vague, for example ‘accelerate the growth of core brands’ and ‘extend awareness of these brands into developing countries’. As they stand, they could not be used as objectives in a marketing plan as marketing objectives need to be SMART, that is to say, specific, measurable, achievable, realistic and timely. To take the first aim, the following questions would need to be asked What precisely are the core brands?

4

Similarly with the second aim, there would need to be clarification of which countries, what type of awareness, how it is to be measured and over what time period. A suggested objective for the first aim could be: Increase the unit sales of ‘x’ brands by 10% in 12 months. By having an objective such as this in the marketing plan it would be possible to develop strategies and marketing mix plans to achieve it and to monitor and control its progress.

Marketing strategies

Strategies are the means by which an organisation aims to achieve its objectives – the ‘How are we going to get there?’ of the planning stage.

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Marketers make decisions about each element in the marketing mix to satisfy customer needs, accommodate environmental circumstances and achieve marketing objectives. Although strategies are considered individually for each part of the marketing mix it is important to realise that they will need to form a cohesive whole in order to achieve the objectives.

4.1 Product strategy Among the considerations in formulating product strategy are decisions about features and benefits, quality, related services branding and product development. These considerations will be taken in light of the analysis of the portfolio of products (the Boston Consultancy Group (BCG) matrix discussed in the previous chapter). Also of relevance are other aspects of the product discussed in Chapter 5, particularly those relating to product life cycle, product positioning and new product development. As well as the products or services the organisation is offering, it needs to determine where to position (or reposition) them in the market.

4.2 Distribution strategy Place (distribution) strategy must be carefully co-ordinated with the progression of the product(s) through their life cycle as well as with pricing and promotion decisions. Three broad distribution strategies, intensive, selective or exclusive, were discussed in chapter 7. The chosen strategy must also be based on a thorough understanding of the customer (how and where do they expect to obtain the product) and the market (how are the choices of channel affected by competition, legal issues and so on – see Chapter 7).

4.3 Pricing strategy Pricing strategy is complex, but crucial as it is the only component of the marketing mix that generates revenue. Many different approaches to pricing were discussed in Chapter 6 as well as the choice between skimming and penetration pricing strategies when introducing new products into the market. The first question that needs to be asked is what the organisation wants its pricing strategy to achieve. Pricing objectives have to fit with corporate objectives and the general direction in which the organisation wants to develop. However, due to market realities, organisations may have to trade off one type of pricing objective for another. Rarely can a company achieve very high profitability while at the same time raising its market share to a much higher level. Often in order to gain market share, a company has to keep its prices low, for example Amazon.com who have gained market share by keeping their prices low. This in turn can mean lower profits, certainly in the short term. Pricing objectives have to be consistent with each other and with the overall marketing plan objectives. Consider a marketing objective to achieve a market share of 7% within six months; prices need to be set to support this objective. It may help to determine whether this is going to be possible by considering the following types of question concerned with pricing:

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● ● ● ● ● ● ● ● ● ● ●

What are the marketing and financial objectives? What pricing is necessary to support positioning and targeting decisions? At what stage(s) are products in the product life cycle? How do distribution (channel) decisions affect pricing? How do promotional decisions affect pricing? Is the emphasis on price or non-price competition? What are the product’s costs? What is the break-even point at different volume levels? How do different prices affect revenues, volume and break-even? Is demand for the product elastic or inelastic? What are the prices of competitors’ products?

In consumer markets, once prices are set, tactically they may need to be adapted in response to competitor activity or other changes in the market place. In organisational markets, as discussed in Chapter 6, there may be a good deal of price negotiation.

4.4 Promotional strategy Promotional strategy is another key area in the marketing plan. Promotional strategies can be characterised in terms of ‘push’ or ‘pull’. In a ‘push’ strategy, the company targets intermediaries, encouraging them to carry and push the product to business customers or consumers. ‘Push’ strategies often emphasise personal selling and sales promotion aimed at intermediaries. In a ‘pull’ strategy, the company targets customers, encouraging them to seek the product from intermediaries and thus pull it through the channel. Pull strategies frequently emphasise advertising and sales promotion aimed at consumers and business customers. A new strategy for some companies is the use of viral marketing. This is where companies reach their target audiences through the use of promotional email messages that encourage recipients to send the message to others. Chapter 9 looked at a wide range of promotional activities and the determining of the appropriate promotional mix by considering the six Ms – market, mission, message, methods, money and monitoring.

4.5 Implementing the marketing strategy Having decided on the marketing strategy, well developed plans must be in place to ensure that the marketing objectives and strategies are implemented effectively. In larger organisations there are likely to be many marketing plans running at the same time. Sometimes these plans involve many people in the marketing department and a good deal of liaison both within and outside the organisation, as happens with the launch of a new product. Other plans may be the responsibility of one or two people, for example a small direct mail campaign for a particular product. An example of a detailed promotional plan is given in section 6 below.

Test yourself What is the difference between a ‘push’ and ‘pull’ promotional strategy?

11.3

push strategy A strategy in which the manufacturer promotes to the intermediaries. The product is then ‘pushed’ though the distribution channels by manufacturer and distributor effort.

pull strategy A strategy in which the manufacturer promotes directly to the final customers and hopes they will demand the product from intermediaries. The product is then ‘pulled’ through the distribution channels by customer demand.

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5

Control and evaluation

Marketing plans need periodic monitoring in order to ensure they are likely to meet their set objectives. Although ‘control’ is put at the end of the planning process, it should never be regarded as an afterthought to be bolted on to the end, but as an important part of the marketing planning process. This is why it is so important for the marketing plan to have SMART objectives – an organisation cannot control what it cannot measure. There are four key tools for measuring progress: ● ● ● ●

forecasts budgets schedules metrics.

5.1 Forecasts The methods used to forecast and the importance of forecasts in planning was discussed in the previous chapter. Objectives are set using forecasts and the point was made that the more accurate the forecasts, say of market demand, the more likely it is that the plan will be realistic. Marketing forecasts include future projections of what market and product sales and costs are likely to be in the time covered by the plan. Marketing forecasts can also be used to look at alternatives, for example forecasting the costs of different channels of distribution for a product, or forecasting the costs of different forms of promotion. The marketing information system (MIS), discussed in Chapter 3, can be used to provide much of the information on which to make the forecasts and more sophisticated systems may have programmes to predict future sales and any other forecasts the marketing plan may require. The MIS system can help to control the marketing plan by highlighting any deviations from the forecasts so that corrective action can be taken if it is felt necessary. Even if an organisation doesn’t have an MIS system it needs to monitor forecasts throughout the course of the plan so that it can investigate any changes from the forecast figures.

5.2 Budgets As discussed in the previous chapter, budgets are usually determined in relation to forecasts. Ideally budgets are created through consultation with all areas of the business to achieve a shared understanding about objectives for the future. Once the marketing budget has been set and agreed then it becomes a mechanism through which the marketing plan can be controlled. Any over spending is then investigated and if necessary actions are taken to remedy the problem. However in reality, the way in which the marketing budget is determined can be in any one of the following ways.

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A percentage based on previous year’s sales The advantage of this method is that it is easy to calculate and should be affordable. However, because it is looking backwards, it takes no account of changes in the market such as PESTLE factors, new competitors or changes in customer tastes or expectations.

A percentage based on future sales The advantage of this method is it encourages the company to think ahead as by definition it will be an estimate based on sales forecasting. The disadvantage is that it is based on a forecast and may encourage overspending in markets that are expanding rapidly and underspending in competitive markets where growth is slow or static.

Affordable method As the name suggests, this method allocates a marketing budget according to what the organisation thinks it can afford after other expenses have been met and the only advantage of this method is that at least the organisation won’t overspend! The main disadvantage is that it clearly doesn’t recognise the importance of marketing and the amount allocated may make it impossible for any marketing objectives to be reached.

Competitor parity method This method bases the marketing budget on what it believes the competition is spending. The advantage of this method is that it does help focus on competitor activity and may highlight problems or give ideas. However, it is unlikely that the organisation will be able to gather any detailed competitor information and in any case its objectives and resources are unlikely to be the same.

Objective (or task) method This method looks at the marketing objectives and then decides the best way to achieve them. It is therefore planned and results can be measured against objectives and it encourages thought and discussion of different approaches to meet them. The downside of this approach is that the plans to meet the objectives may be too expensive. The best approach is the objective method, as it is the only one that focuses clearly on the marketing objectives. Even if the plans to reach the objectives require a budget that the organisation cannot meet, it could then decide to raise a loan or if this is not an option then the marketing executives could see what in the plan could be trimmed. Unfortunately some businesses, particularly smaller companies, adopt the affordable option and then wonder why their business is in trouble!

5.3 Schedules Schedules are time-defined plans for completing work that relates to a specific plan. Marketers create schedules to co-ordinate and then track the timing of key tasks and the allocation of resources to implement the plans. Scheduling helps define the timing of various tasks and co-ordinate implementation to avoid conflicts – this is particularly important when co-ordinating projects like the launch of a new product. Schedules are also used to measure and control progress towards completion.

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There are a number of techniques that can be used to manage more complex schedules, such as Gannt charts, critical path schedules or other project management devices, all of which are outside the remit of this study text. Whatever system is used to schedule, the timing should be as concrete as possible so that progress can be tracked to see which activities are behind schedule. metrics Numerical measures of specific performance related activities.

5.4 Metrics Metrics are numerical measures of specific performance related activities. These numerical measures track specific marketing elements so the company can see whether it is bringing the organisation closer to its objectives. The metrics chosen as measurements need to be closely related to the marketing objectives and strategies. For example, a company pursuing a growth strategy will be looking for an increase in sales and customers and will need metrics to measure the changes. This could include measurements of new customers, customer retention, customer defection, customer satisfaction and sales trends by customers or market segment. The following gives some examples of possible marketing metrics: ● the number of products sold per week, month, quarter or year ● the company’s money or unit sales divided by total industry sales over a particular time period ● the number of days to process a customer order ● the number or % of new customers acquired per month, quarter or year ● the number or % of customers who continue purchasing during a set period ● the % of customers who are satisfied or very satisfied ● the number or % of customers aware of an advertising campaign ● the number of customers receiving coupons for free samples and the number redeeming the coupons ● the number of people who have become registered users of a website ● the number of people buying or downloading from a website. Control and evaluation can take either a short or a longer-term perspective. As soon as the control mechanism shows that a gap is opening between proposed targets and actual achievement, managers can start to look for reasons for this happening. Sometimes the reasons might be obvious, such as the loss of a major customer. In other situations further research might have to be commissioned to try to find out any underlying causes. For example, if a brand’s market share continues to decline despite increased marketing effort, serious questions might need to be asked about the customer’s perception of the brand and where it is positioned in the market. However, if the targets set in the marketing plan are not achieved, it is important for marketing managers not to overreact. Some deviation is to be expected and there is also sometimes a lag between implementing marketing action and seeing the results of that action. Saying there is a crisis and taking action too soon could be counterproductive; however, ignoring a major event in the hope that things will be OK in the end would be even worse.

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Test yourself

11.4

Name five possible ways of setting a marketing budget.

11.3

Putting the case

Q

What evidence is there of measures that Kraft takes to control its plans?

A

There are four key tools for controlling plans and these are forecasts, budgets, schedules and metrics. The main evidence in the case study of Kraft controlling its plans is in the last paragraph concerning product launches. There is mention of the necessity for deadlines calling for careful coordinated planning to ensure that necessary

6

production capacity is available. This would involve forecasting the level of production needed and the budget to support this. The company would need to have a detailed schedule as many sections of the organisation would be involved, including the marketing department who would need to produce a detailed promotional plan (mentioned in the case study). It is also stated that the planning would need to ensure that the whole exercise stays within budget. Detailed plans would also include metrics, that is to say numerical measurements, for example achieving a certain level of sales in a specific time period.

A promotional plan

The promotional plan outlined in this section gives an idea of how one smaller plan in the overall marketing plan needs to fit in the overall framework, and how at this operational level there needs to be detailed planning in order to ensure that the various activities form a cohesive whole. Although this concentrates on the elements of a promotional plan, it is important to remember that all the other elements of the marketing mix need to be in place for the promotional plan to be successful. The main stages of promotional planning are as follows: ● ● ● ● ● ● ●

set the promotional objective(s) and decide the message background research into the market set the budget for the campaign decide on the methods and the media plan and implement the campaign schedule control review and evaluate.

6.1 Promotional objective(s) and message The promotional objectives, like any other objectives, need to be SMART. They also need to be compatible with the overall marketing objectives. A marketing objective might be to achieve a 20% increase in sales at the end of 12 months. One of the ways of helping to achieve this objective could be from a special promotions offer where

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consumers have to collect coupons from the product packaging to redeem a gift. The objectives of that particular promotional campaign might be to achieve ‘x’ number of gift redemptions over a three-month period, with the aim of increasing sales in the longer term because some of the gift redemptions have encouraged consumers to continue to buy the product. Other promotional campaigns would then take place during the rest of the 12-month period to achieve the stated objective of achieving an increase in sales of 20% at the end of 12 months.

6.2 Background research into the market Before embarking on an expensive promotional campaign, an organisation needs to know how the target market regards the company and brand. Often marketing research involving focus groups can uncover the attitudes and opinions of the target market and help to avoid expensive mistakes. It might also be necessary to carry out or commission additional research into the overall market for the product and competitors’ brands as well.

6.3 Budget for the campaign Approaches to marketing budgets were discussed in the previous section. The best approach here would be that of the objective or task method – that is to say deciding what needs to be done to achieve the stated objectives and then costing out the various methods and media and making adjustments if necessary.

6.4 Methods and media The choice of promotional method(s) will depend on the promotional objectives, the product, market and company’s financial resources. The advantages and disadvantages of different promotional methods and media were discussed in Chapter 9. Broadly speaking, advertising is effective in reaching large audiences and is used more in consumer than B2B markets. Sales promotions help to stimulate immediate purchase or reward repeat purchase. Public relations are important to all organisations and help build a positive image and strengthen ties with stakeholders. Direct marketing is used to reach targeted audiences and encourage direct response and personal selling is used to reach customers one-to-one to make sales and strengthen relationships and is important in many B2B markets. At this point in a promotional plan it is worth considering how an organisation might choose between similar media. For example if there are four or five magazines that are read by the target market, how would an organisation decide in which one(s) to advertise? This can be a crucial decision in consumer markets where a large organisation may spend £million on one campaign. The decision as to which one(s) to use is to look at the readership figures (in the UK and many other countries, the various media have independently audited readership figures) for each publication and the cost of an advertisement and then in order to make a comparison, work out how much it would cost to reach 1000 readers. This is done by dividing the number of readers of the magazine into the cost of a full page advertisement and multiplying the answer by 1000 to give a cost per 1000 figure.

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Cost of full page advertisement  Cost per 1000 Readership of the magazine  1000 In theory, the lower the cost per 1000, the more cost effective it would be to advertise, however it is necessary to look at why there is a difference in cost per 1000 between different magazines or newspapers before making a final decision. Similar calculations can be made for broadcast media using viewer figures. Two other considerations in the choice of media are reach and frequency. Reach refers to both the number and type of people reached and the geographic area covered. For example a local radio station may only be listened to by certain sections of the population and will only cover a particular geographic area. Frequency refers to the number of times the advertisement needs to be shown to make an impact. An advertisement needs to be broadcast or appear in print a number of times before it achieves an impact that is likely to affect sales.

Test yourself

11.5

How would you calculate the cost effectiveness of advertising in different magazines?

6.5 Plan and implement The first decision will concern the time period over which the campaign will run. It is then necessary to plan a detailed schedule for each type of promotion. In the case of advertising, decisions may need to be made about the number of times to show an advertisement on TV and at which days and times it is most likely to be seen by the target market. Advertising is unlikely to be the only method of promotion. Usually several other forms of promotion such as sales promotions, direct mail, public relations will be used to achieve the objective(s) and it is important to have a schedule so that they can complement and reinforce each other. Once all the decisions have been made regarding choice of promotional methods and timing, the implementation of these needs to go ahead without hitch. It is vital to monitor progress, in case tactical changes need to be made, perhaps in response to competitor activity.

6.6 Control The previous section discussed the four main tools – forecasts, budgets, schedules and metrics – for controlling the marketing plan. These same four tools can be used to control the promotional plan.

6.7 Review and evaluation At the end of the promotional campaign, the first question to ask is whether the objectives have been met. Whatever the outcome of the campaign, there will be lessons that can be learned that should help to inform future campaigns. For example the Czech car company Skoda launched the Octavia in the UK with a £10 million promotional campaign, which was Skoda’s highest-ever spend. However, the launch

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was a failure as only 6,154 Octavia cars were sold over the year following the car’s launch, despite the fact the car received almost unanimously good reviews. Market research at the time suggested that 60% of people said they ‘would never buy a Skoda’. Only a fifth of early Octavia buyers were under the age of 45 and a third had previously owned Skoda cars. Skoda’s image, in spite of its association with Volkswagon, was old, unfashionable and out of keeping with its products. Skoda learnt valuable lessons for its next product launch, the Fabia.

11.2

Making it work Skoda’s promotional campaign for the Fabia After the disastrous promotional campaign for the Octavia, Skoda learned valuable lessons for their promotional campaign for the Fabia. Promotional objectives and message The objectives of the campaign were to achieve ‘x’ thousand sales at the end of the 12-month period and to reduce by ‘x’% the number of people saying they would ‘never buy a Skoda’. The message Skoda wanted to get across was ‘The Fabia is a car so good that you won’t believe it’s a Skoda’. Background research Skoda analysed information from the previous campaign for the Octavia to help them avoid the same sort of mistakes and carried out further research into the market. This showed that the Skoda brand was well known in the UK, albeit for the wrong reasons. Budget This was considerably less than £10 million, although the precise figure is unknown. Methods and media The promotional mix for the campaign was television, billboards and print advertising, public relations, direct mail and sales promotion (competition).

Campaign schedule and implementation The initial TV campaign ran for four and a half weeks and the print and poster campaign ran for two weeks. At the same time as the TV and print campaigns were running, public relations targeted the consumer press and attempted to get journalists to discuss Skoda in a positive light. The direct mailings tried to build on loyalty levels among Skoda drivers and get across the brand’s new image. AutoExpress magazine carried a competition to win a Skoda that generated 27,000 responses. The respondents who didn’t win the car were profiled to check their similarlity to the average Skoda driver, and followed up. Hot prospects received a scale model as a consolation prize and an invitation to test drive a new Fabia. Review and evaluation This promotional campaign was very successful. It exceeded the sales objectives for Fabia and even meant that Skoda had a waiting list for its cars! It reduced the number of negative perceptions of the Skoda brand and had the added unexpected benefit of also increasing the sales of the Octavia by 29% over the previous year. Source: adapted from www.tutor2u.co.uk.

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11.4

Putting the case

Q

What methods and media is Kraft likely to use in their promotional plan(s) for the introduction of a new product?

A

The choice of promotional method(s) depends on the precise promotional objectives, the product, market and company’s financial resources. Kraft is a global company operating in many consumer markets across the world. At any one time Kraft is likely to have a number of promotional plans, possibly several for the launch of new products in different countries or markets. The choice of methods and media will vary from country to

country, but in most countries it is likely to use mass media such as television or print as this is usual in consumer markets and Kraft would have the resources to reach a mass market in this way. For the introduction of a new product it is also likely to use sales promotions to encourage trial and should not forget that public relations, particularly press relations and launch parties could be very effective in helping to promote the new product. Whatever choices are made, Kraft then needs to ensure there is a detailed schedule and control of the plan.

Summary ● Marketing planning needs to take place within the context of the mission statement and corporate objectives of the organisation. ● A marketing plan consists of a marketing audit, SWOT analysis, objectives, strategies, detailed plans, control and evaluation. ● The marketing audit and SWOT analysis answer the question ‘where are we now?’ Marketing objectives answer the question ‘where do we want to be?’ and these objectives must be SMART. ● Marketing strategies and the detailed marketing plans that arise from them are the means by which the organisation attempts to achieve its objectives. It is important that all plans are controlled and evaluated to ensure that the stated objectives are met.

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Part Five Practice Questions Section A 2 mark questions: 5.1 In the Boston Consultancy Group (BCG) matrix, what are the two measures that are used to categorise products? 5.2 In the Ansoff matrix, what is meant by ‘related diversification’? 5.3 What is the difference between a ‘push’ and ‘pull’ promotional strategy? 5.4 What is the main similarity and the main difference between a strategy and a tactic? 5.5 In a SWOT analysis, what is the difference between a strength and an opportunity? 3 mark questions: 5.6 What are Porter’s three generic strategies? 5.7 Give three ways in which mission statements can help marketing planning. 5.8 How would you estimate market demand for overseas package holidays? 5.9 What is time series analysis and what should you be aware of when using it? 5.10 In Porter’s five forces model, give three possible threats to entry into a market.

Section B 25 marks each: 5.11 Assume Kraft is launching a new snack product into your country aimed at the under-25 market. a) Outline the steps in a promotional plan to launch the product. b) Assuming Kraft is intending to use print and/or broadcast media as part of its campaign, suggest how it might choose between similar media. 5.12 a) Assess the effectiveness of Kraft’s mission statement ‘Helping people around the world eat and live better’. b) Why is it important for Kraft to have SMART marketing objectives? 5.13 Describe and assess the usefulness of Porter’s five forces model to Kraft when it is considering marketing a range of its products in a new country.

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Suggested Answers to Practice Questions Part One a) The shop offers a suit and in return the customer pays a sum of money. b) The charity offers a ‘feelgood factor’ in return for the donation of money to a good cause. 1.2 Production and finance. 1.3 Derived demand describes the way in which demand for one product is dependent on demand for another. For example a fall in the demand for cars would lead to a fall in demand for car components such as bulbs, tyres, upholstery etc. 1.4 Relationship marketing and societal marketing. 1.5 Borderline unethical behaviour is that which is not illegal but is not in the best interests of consumers. The example given in the study text is of mobile phone tariffs which are so complex it is virtually impossible for consumers to make true comparisons between competitive offers. (Any other similar examples are acceptable.) 1.6 Marketing as a concept (a belief that the customer is of prime importance). Marketing as a function of business (responsible for identifying, anticipating and satisfying customer requirements profitably). Marketing as an umbrella term for a range of techniques. 1.7 People – who deliver the service. Process – procedures and mechanisms involved in the delivery of the service. Physical evidence – tangible aspects of the delivery of the service (for example, premises). 1.8 Influences of the external environment broken down into Political, Economic, Social/cultural, Technological, Legal and Environmental. 1.9 Mass marketing – all buyers considered the same and one marketing mix for the whole market. Differentiated marketing – the total market divided into distinct customer groups and the use of marketing mixes appropriate to each segment. Niche marketing – concentration on a narrowly defined small market segment. 1.10 Substantial/viable – large enough to sustain costs and be profitable. Accessible – it must be possible and cost effective to communicate with the market segment. Homogeneous (similar with the segment and heterogeneous (different) between segments. 1.11 a) Production orientation has a focus on efficiency in production and distribution and was prevalent in the 1940s and 1950s, when supply and choice were limited. 1.1

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Sales orientation has a focus on selling techniques and was typified in the 1960s by the hard-sell approach of some salespersons in an increasingly competitive market. Marketing orientation focuses on the needs and wants of customers in competitive markets by providing them with the goods and services to satisfy their needs. A marketing approach is appropriate for Butlins (in common with other organisations). A focus on customer needs and wants and identification of different market segments should result in more sales and higher profits and opportunities to identify new market segments. Examples can be given from the case study to show that lack of a marketing approach by Butlins resulted in falling sales when Butlins failed to appreciate that consumer needs had changed and potential customers no longer wanted the type of holiday that was offered in the 1950s and 1960s. b) Consumerism is generally regarded as any organised group pressure on behalf of customers with the objective of influencing organisational behaviour for the benefit of the consumer. These groups working on behalf of consumers might be independent pressure groups, commercial pressure groups, media campaigners/programmes or government encouraged groups. A commercial organisation such as Butlins might view the growth of consumerism as a threat if it isn’t marketing orientated. Media campaigners and programmes are quick to highlight unresolved customer complaints or ‘sharp practice’ and bad publicity could be very damaging to Butlins and result in loss of sales and profit. Conversely consumer pressure groups and magazines such as ‘Which’ will also recognise good practice, and if Butlins are satisfying their customers’ needs and were to rate highly in relation to their competition, this good publicity could result in increased sales and profit. 1.12 The different aspects of the external environment are characterised by the acronym PESTLE, which represents political, economic, social/cultural, technological, legal and environment aspects of the environment. Butlins needs to be aware of the impact these different aspects of the environment could have on its business in order to take advantage of any opportunities and minimise any threats. Political Butlins is unlikely to be affected by a change in government nor is it likely to attract the attention of pressure groups, though it should monitor any developments, particularly pressure groups demonstrating against fast food outlets. Economic Butlins should monitor levels of unemployment, average earnings and levels of disposable income and all these factors can affect demand for holidays.

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Social/cultural Trends in this area are of key importance to Butlins in remaining competitive. They need to monitor trends in the population profile to determine the type of product to offer (e.g. smaller family units could mean a change in the size and type of accommodation offered). Customers’ tastes in entertainment are constantly changing and Butlins needs to be aware of what is popular with their target market. Technological As many customers now book holidays on-line, and/or receive information this way, Butlins need to ensure their website is kept up-to date and is user friendly and use any other forms of technology that improves their service to customers. Legal Butlins needs to be aware of changes in legislation (e.g. health and safety) that could affect their business and ensure any changes are implemented properly. Environmental Concern over the use of the world’s natural resources could lead Butlins to consider ways of saving energy without adversely impacting on customers e.g. low energy light bulbs, changing towels at customers’ request, rather than automatically every day. 1.13 a) Market segmentation is dividing the market into groups of consumers sharing common characteristics (e.g. buying habits, patterns and preferences). Butlins operates in the holiday market and needs to identify which segment(s) to target – a differentiated approach – and it isn’t large enough (1million customers per year) to cover the entire UK holiday market. There are a number of advantages to market segmentation. Butlins can target customers who want a particular mix of accommodation and entertainment and will not waste money and resources offering products or services its customers don’t want. By targeting specific market segments, Butlins will know their particular needs and wants and be able to quickly recognise and adjust their marketing mix if changes need to be made. b) The main bases of segmentation in consumer markets are geographic, geodemographic, demographic, lifestyle/psychographic, benefit and behavioural. Traditionally Butlins holidays were aimed at families and from information in the case study this still appears to be a major market segment (entertainment suitable for both adults and children). This suggests demographic segmentation (families, probably lower to middle income and social class) with a particular lifestyle (attracted by fast food outlets and mass entertainment). It is likely that Butlins experiences much lower demand outside of school holidays and it could consider attracting another market segment at this time (if viable), such as couples without children – perhaps looking for a short weekend break. This would be an example of behavioural segmentation.

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(N.B. There is no single ‘right’ answer to 1.13b). Credit would be given for any appropriate suggestions of how Butlins could segment its market.)

Part Two Suggested answers to short questions Quantitative research can be measured and produces ‘hard’ data answering questions like ‘How many?’. Qualitative research is concerned with attitudes and opions and gives insight into customer behaviour. 2.2 Marketing research is the systematic gathering, recording and analysing of information relating to the marketing of goods and services and thus covers the broad scope of all marketing activities. Market research is about research into markets and is often regarded as a subset of marketing research. 2.3 To reduce uncertainty. To monitor performance. 2.4 The sample should be representative of the total group under consideration. It should be large enough to give accurate results. 2.5 A joint venture is co-operation between organisations for mutual benefit. A franchise is where one organisation (franchisor) grants another (franchisee) exclusive rights to sell its product/service in a particular way. 2.6 Who their customers are. Their product range/service portfolio. Their marketing mix. What their strengths/weaknesses appear to be. 2.7 Within an organisation. Secondary (desk) research. Primary research. 2.8 Exporting (using own staff or agents/distributors). Joint ventures. Franchising/licensing. Manufacturing abroad. 2.9 Financial resources/objectives. Willingness to take risks. How quickly it wants to get into the market. 2.10 Culture/customs of the country. Population profile (age, sex, income, level of education etc.). ‘Normal’ ways of doing business. Attitude toward overseas goods. 2.11 a) As Coca-Cola wants to discover the flavour and packaging to use, any primary research method would require face-to-face contact. Coca-Cola could use both qualitative and quantitative primary research methods. Qualitative research gives opinion and insight rather than ‘hard facts’ and 2.1

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Coca-Cola could use focus groups to gather initial opinion and insight. They could set up a number of focus groups comprised of between six and 12 people who are likely to use sports drinks. A researcher would lead a discussion to gather opinions and attitudes towards such a drink (this could include tasting a variety of flavours) and its packaging. This type of research could help to uncover any possible underlying feelings among the target market that would prevent the launch of the drink from being successful. The focus group research should identify possible flavours and packaging and following on from this, Coca-Cola could use quantitative research in order to get results from a large number of people as to their preferences on flavour and packaging. This could be carried out in a series of hall tests where interviewers ‘recruit’ respondents from busy streets outside in order to take part in the research. b) There are a number of issues Coca-Cola need to address in order to ensure the results are as accurate as possible: ● Are the respondents in both focus groups and hall tests representative of the total market for sports drinks? ● Is the sample size (particularly for hall tests) large enough? ● Have the right questions been asked? ● Have the interviewers been properly trained and have they acted with integrity in recruiting respondents and asking the questions? 2.12 a) Coca-Cola will need information on the external environment (a PESTLE analysis) in order to assess whether to enter a new market. It will need information on the political environment particularly if the overseas country is hostile towards the US and the product being marketing by Coca-Cola is perceived as being ‘American’. The economic environment is unlikely to have a great deal of impact, as Coca-Cola products are relatively inexpensive and only countries with a very low income per head would be unable to afford them. However, the nature of the competition in the market would be of crucial interest to the company. It will need to understand the social/cultural environment, the population profile, how and where they buy, as this is probably the key to successful entry to a new overseas market The technological environment is relevant, as Coca-Cola may need a particular type of manufacture making use of the latest technology. Some overseas countries may have laws or regulations that could affect the marketing of Coca-Cola products and so the company would need to be aware of the legal environment. For example the EU is investigating companies like Coca-Cola to make sure their dominant position has not led to anti-competitive practices. Coca-Cola should be aware of the concerns about the environment and the impact that their manufacturing or marketing methods might have.

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b) Secondary information is information gathered for another purpose. Coca should be able to make use of government statistics for the country and (depending on the country) these should give details of the population profile, levels of disposable income and spending on the type of products marketed by Coca-Cola. Coca-Cola would also be able to buy (or commission) any research reports from independent market research agencies such as Mintel or Snapshots International Ltd; these reports would cover the type of competition and market forecasts as well as socio-economic data on the country. There may also be articles in the business press on issues of interest in the country. Before basing decisions on the use of secondary data, Coca-Cola should consider how up-to-date the information is, how it was collected, who collected it and whether they had a particular ‘axe to grind’. 2.13 a) A marketing information system is responsible for the collection, organisation and analysis of marketing information. It uses information from within the organisation, and from both secondary and primary sources. A typical marketing information system has four interlinked components and these are: The internal database This includes information from within the organisation including costs, production schedules, orders, sales and some types of financial information relating to customer (such as credit ratings). The external database This includes all types of secondary research. The marketing research system Generally such a system involves the process of information search undertaken on an ad hoc basis to provide answers to specific questions. Sometimes organisations carry out their own research, but larger companies often commission outside marketing research agencies to carry out research for them. The decision support system This refers to a set of analytical techniques that enable marketing managers to make full use of the information provided by the other three sources. This analysis may range from projections of sales patterns to more complex projections such as those needed in the launch of a new product. b) Coca-Cola operate world wide and will need a marketing information systems to make the best use of the vast amounts of information at its disposal. Computers have enabled researchers to get more out of their data than ever before. For example, Coca-Cola could use programmes to test the prices that people will pay for their products in different countries. They can show the degree to which consumers will trade-off some feature such as organic ingredients against price. Simulated test markets can be set up. Missing data can be inferred by ‘fusing’ together sets of data. Data can be

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analysed to map or segment consumers to show their different characteristics or attitudes to brands and models can be used to forecast a course of action.

Part Three Suggested answers to section A Core – basic product. Augmented – extra aspects that make the product more attractive e.g. packaging, branding, guarantee. 3.2 Extending the life of a product by updating, revamping. Used at maturity stage, before going into decline. 3.3 Intangible. Perishable. 3.4 Single ownership of different levels in the distribution chain. 3.5 Intensive. Needs to be in as many outlets as possible or consumers may buy competitor product. 3.6 To see how the target market perceives a company’s product/brand in relation to the competition. To see how far away the product/brand is from the ‘ideal’. To see if there are any gaps in the market. 3.7 To try out a product in a limited market before launch. To iron out any problems before launch. To assess areas that are difficult to research on paper e.g. the level of repeat buying. 3.8 Small number of major suppliers dominate the market. Very price sensitive market as oligopolists are evenly matched. No one company changes the price without careful consideration of competitor reaction. 3.9 Quantity. Seasonal. Tactical. 3.10 Holding stock. Breaking bulk. Consolidation orders. Transporting goods. Providing display/after sales service. (Any three of the above.) 3.1

Section B 3.11 a) The new product development process is important to all organisations to maintain a competitive advantage and to serve customers needs as tastes change.

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Sampat Cards has received feedback from its agents that some customers would like a range of wrapping paper and so it has already completed the first stage of the new product development process; this source of an idea for a new product is particularly valuable as it originates from the customer. Wrapping paper would probably fit many if not all of the criteria in the next stage – idea screening. It is probably the next two stages of the new product development process that would be most relevant to Sampat Cards. The first of these is concept testing which is a printed or filmed representation of a product designed to communicate its benefits. At this stage Sampat Cards could sketch some designs to show the target market, perhaps also with some samples of wrapping paper to determine which were the most popular. It would then need to do a thorough business analysis, as after this stage it would be more expensive to drop the idea. Its main concern would be the cost of printing the wrapping paper in the designs and type of paper the target market liked. Other considerations would be the number of designs to print. After this it is likely that Sampat Cards would go ahead and print designs for its agents to sell – i.e. the launch. If it was a larger company it would test market before launch. b) There is no doubt that the internet has opened up opportunities for all businesses large and small to sell direct. Although the Internet could be used on its own, it is more likely to be viewed as another distribution channel, rather than necessarily the only one. At present Sampat Cards’ use of part-time agents as a distribution channel appears to be working well, and so the internet should be regarded as a possible additional channel. The crucial question for Sampat Cards is whether the internet would meet the needs of their customers as well as their own. Certainly it could help the company organise its administration and payments to sales staff more efficiently once a system was set up. Many consumers now use the internet to do some of their shopping and Sampat Cards could perhaps get an estimate from their sales agents of roughly how many of their present customers use the internet for shopping. The problem here is that the sales staff might feel that this new channel could threaten their job and would need reassurance that the Internet could attract new customers, broaden the market and make their jobs more secure. 3.12 a) Branding is using a sign, symbol, logo or any combination of these to identify a product or service and to convey certain values and beliefs about it. Branding is important to any organisation and it is clearly important to Sampat Cards that the brand should convey the high quality and innovative design that will position it at the top end of the greetings card market and differentiate it from competitors. This in turn will enable it to charge a premium price. Branding helps customers as it acts like a guarantee – as

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Sampat Cards brings out more designs, the brand name will reassure customers that these will be the same high quality and innovative design they are used to. People receiving Sampat Cards may become customers if they are impressed with the product. The use of the brand name on the back of the card (with the company’s address or website) will identify whom to contact. b) Sampat Cards has already received some negative feedback from its sale agents about its brand name – it needs to take this seriously as the brand name should convey values and beliefs about the product and this does not seem to be the case. Changing a brand name is a big step, but as Sampat Cards has only been established for a year, it would be better to do it now, rather than wait. It might find that it could get some good suggestions from its part time agents. There are two main branding strategies for companies with a number of products and these are umbrella branding and portfolio branding. Umbrella branding is the use of the brand name on all the company’s products, whereas with a portfolio of brands the company would use different brand names for different products. Umbrella branding would seem to be the most appropriate strategy for Sampat Cards as it can use the same brand name on all its products, thus minimising any marketing costs. It also means that any new products will benefit from the positive image of the brand name, the only downside being that if it introduces a new product that is not successful it could damage the reputation of the brand. The only reason for Sampat Cards to consider a portfolio of brands is if it intends to go into a completely different market – for example low priced cards on cheaper paper. In this example it would not want to damage the reputation of its high quality cards and the use of a different brand name would mean that in the eyes of consumers they are totally different products. 3.13 a) Demand is the quantity customers want to buy at a particular price and price elasticity is the change in the quantity demanded in response to a change in price. This is measured in the formula percentage change (%) in the quantity demanded percentage change in price Sampat Cards needs to know whether the demand for the wrapping paper is likely to be elastic (a small change in price will result in a large change in the quantity demanded) or inelastic (a small change in price will result in an even smaller change in the quantity demanded) – i.e. how price sensitive its customers are likely to be. If demand for the wrapping paper is inelastic, then Sampat Cards could set the price higher than if demand is elastic, as if demand is inelastic, its customers are not particularly price sensitive and other factors such as the quality and innovative design of the cards are more important to them (within reason) than the price they pay. If demand

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is elastic, then customers are price sensitive and may not buy the wrapping paper if they perceive the price as too high. b) Other influences on price Sampat Cards should consider are: The competitive market In common with many organisations, Sampat Cards operates in an imperfect market, where there are many competitors each seeking to differentiate their product from the others. If Sampat Cards is able, through the nature of its product and branding to differentiate itself sufficiently from its competitors in the eyes of its target market, then they will not regard price as a key factor i.e. they will be price insensitive, enabling Sampat Cards to charge a relatively higher price. Company objectives We are not told Sampat Card’s objectives though they are certainly likely to be linked to sales and profits and their consideration of a number of possible new products including the wrapping paper indicates they are seeking to expand. The price of the wrapping paper should be in line with these objectives and with the rest of the product range. This is also true of any other types of products they may introduce. Costs Sampat Cards must consider not only the cost of producing the wrapping paper, but also all the associated marketing costs – these are likely to be low as it can be sold alongside the cards. As Sampat Cards is already operating at a profit and therefore covering all its fixed costs, it might only consider any extra costs associated with the wrapping paper such as storage, rather than allocating a percentage of the overheads as well. The sale of wrapping paper it will be along side its other card products and so the price it charges will need to ‘fit’ within the overall product mix. Legal and regulatory framework There are unlikely to be any laws or regulations that would impact on Sampat Cards.

Part Four Suggested answers to Section A 4.1 4.2

4.3 4.4

Information search. Evaluation of alternatives. Early adopters/opinion leaders. Opinion leaders are respected by others who may buy on their recommendation. Encoding is when the sender of the message decides on the words, pictures or symbols that will be used to convey the message. Direct marketing refers to the use of direct media. Direct mail is one (important) form of direct marketing – others include telemarketing and advertisements with freephone numbers.

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Relationship between the number of clicks and the number of sales or enquiries. Relationship between emails sent and the take up of offers. 4.6 Price and cost. Trading deals such as reciprocal arrangements. Size and type of supplier and the balance of power between them and the organisation. 4.7 A gatekeeper controls and directs information internally and controls the flow of information from outside. Gatekeepers can be buyers, administrative, secretarial or technical staff. 4.8 Relatively cheap. Good for announcements such as special offers/discounts. Can be ‘on air’ at times when the target market are likely to be listening, for example business people driving to and from work. 4.9 High levels of awareness of the company and its products. Favourable reputation among its stakeholders. High levels of goodwill towards the organisation’s products and activities. 4.10 Sports. Arts. Educational. Sponsorship of TV and radio programmes. 4.5

Suggested answers to Section B 4.11 a) Stakeholders are individuals or groups who depend on the organisation to fulfill their own goals and on whom in turn the organisation depends – this can be more loosely interpreted as anyone who has an interest in the organisation. The case study mentions franchisees and suppliers as two very important stakeholders for McDonald’s. Other employees and customers would also be stakeholders and a company the size of McDonald’s would include shareholders and financial institutions among its stakeholders. The case study mentions sponsorship of some projects in local communities, coverage in the media and activities of pressure groups (the protesters); local communities, media and pressure groups are three more categories of stakeholders. b) These different groups of stakeholders can all influence the way in which McDonald’s operates in different ways. Suppliers, franchisees and other employees will need to work with McDonald’s to help the company reach its business goals; the case study specifically mentions the importance of franchisees in providing it with feedback to help it to develop new products and suppliers in meeting the high standards set by McDonald’s. Customers are vital stakeholders for any organisation as if their needs are not met they will go elsewhere. Shareholders and financial institutions supply the money the company

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needs in order to continue to be the market leader and they could withhold support if they believed McDonald’s was not operating appropriately. The way in which the media reports on the activities of McDonald’s can influence its reputation and so it is important for McDonald’s to build good press relations with them; this might lead to more sympathetic reporting of incidents with pressure groups such as those mentioned in the case study. If McDonald’s has positive relationships with local communities this can also help to enhance its reputation. 4.12 An understanding of the communications process model is important when undertaking any form of communication. This model identifies the sender of the message; how the sender encodes the message; the medium by which the message is conveyed; the receiver decoding the message and noise that could distort or interfere with the message. The main purpose of this model for McDonald’s is to enable it to focus on each of these aspects in turn and to determine what could go wrong with any messages they send and how to avoid possible pitfalls. Advertisements are one-way communications and this means there is no immediate feedback to McDonald’s from customers. Although it can carry out marketing research pre-launch, it should still seek to minimise any possible misinterpretations of its advertising message. In the UK, McDonald’s are likely to use a wide range of advertising media to reach their audience. In general they will be very aware of the image the target market has of their products, as they have built up their image over many years; however they need to be aware of anything currently likely to affect this image. For example when there was a scare over the quality and origins of beef because of BSE, McDonald’s used advertising to reassure customers of the quality of its beef and also emphasised other products it offered. Whatever message it wants to convey, its next step is to encode it, which means deciding what pictures, images or words to use. This is the stage where there are likely to be the most potential problems as McDonald’s will need to think how its target market will interpret the message and what tone will be most appropriate. The tone will depend on the content of the message and the target market. For example when seeking to reassure customers about the quality of their beef, the tone would need to be serious and factual, as anything humorous might cause offence. Messages directed at children are likely to make use of bright colours and often the tone is light hearted and fun. The most difficult market to get the message right is probably that for young people as the ‘wrong’ language will make McDonald’s appear out-of-touch. It is likely McDonald’s will use several media to get across their message whatever it is as in this way it can reach more people and one type of media can back up another, for example billboards often back up a television advertising campaign. Although some people (receivers) might not interpret the message in the way McDonald’s intended, use of the communications process model should minimise the risks.

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4.13 a) The benefits of sponsorship to McDonald’s are usually twofold. The first is that it keeps its name in the public eye, as it did when it sponsored the Football World Cup and the Olympic Games (mentioned in the case study) and locally when it sponsors activities for the benefit of local communities. The second less obvious, but arguably more important benefit is that it helps to enhance its image as people link in their minds the name of McDonald’s with the activity being sponsored. World Cup Football and the Olympic games are both events that attract huge followings and the people taking part in the events are at the peak of their sporting profession, just as McDonald’s is a market leader in its area. Also by linking it to such healthy events, it could help to counteract some of the criticism McDonald’s attracts from its use of fast food. b) There are many other public relations activities that are appropriate for McDonald’s. Like any large organisation, it uses press releases to inform of any new products or developments and to counter any bad news or publicity. It needs to build good relations with the press to ensure the coverage it gets is as positive as possible. Journalists and important customers could be invited to any parties given by McDonald’s, perhaps to introduce a major new product or initiative or to celebrate a certain number of years’ trading. The children’s website, mentioned in the case study, is a form of public relations as are various activities it engages in such as setting up a reading initiative in some of its restaurants to encourage small groups of children to take an interest in reading. McDonald’s could allow organised groups to go ‘behind the scenes’ at its restaurants in off-peak times and provide students with information packs. ‘Behind the scenes’ visits or open days (offered by many large organisations) are popular with schools and colleges as they provide interest and for McDonald’s this is an opportunity to impress their young customers or potential customers with their operation. Finally, McDonald’s should make sure its employees and franchisees have their own ‘in house’ journal or similar so that they remain up-to-date and motivated by a mention if they have performed particularly well.

Part Five Suggested answers to Section A 5.1 5.2 5.3

Growth in the overall market. Relative market share. Moving into other areas within the same industry, usually by horizontal or vertical integration. ‘Push’ – company targets intermediaries and encourages them to push their product to customers. ‘Pull’ – company targets customers and encourages them to seek the product and pull it though the channel.

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Strategies and tactics are both means of achieving objectives. A strategy is usually relatively long term and a tactic is short term, often in response to competitor activity. 5.5 A strength is a positive aspect of a company’s marketing which is likely to give it a competitive advantage. An opportunity is an aspect of the external environment that the company feels it can exploit to its advantage. 5.6 Cost leadership. Differentiation. Focus. 5.7 Provides an outline of how the marketing plan should be fulfilled. Provides a means of evaluating and screening the marketing plan. Provides an incentive to implement the marketing plan. 5.8 Market demand is usually calculated over a year. It is calculated by multiplying the number of customers taking an overseas package holiday by the average selling price of an overseas package holiday. 5.9 Data from the past used to predict future trends – particularly used to predict future sales. Because it is based of past figures there is an assumption that things will carry on in the same way and this is a dangerous assumption, particularly in fast changing markets. 5.10 High costs involved in setting up. Need for licence/specialist knowledge. Strong brand(s) already in the market. 5.4

Suggested answers to Section B 5.11 a) The promotional plan will need to be compatible with the overall mission of the business and will form part of the marketing plan. The steps in the promotional plan are as follows: ● Set the promotional objectives and decide the message – the promotional objectives should be SMART and the tone of the message should be compatible with the product, its market and the objectives. ● Background research into the market – it is important to find out the use of media in the particular country Kraft is seeking to enter. ● Set the budget for the campaign (at this level, the budget may have already been determined). ● Decide on the methods and the media – making sure they will fulfil the objective(s) and be compatible with the product and market. ● Plan the campaign schedule – detailed timings to ensure that the various methods together form a cohesive whole. ● Implement and control the campaign – make sure the schedule is adhered to and that any events not planned for (such as competitor activity) are assessed and if necessary suitable action is taken.

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● Review and evaluate – at the end of the campaign evaluate whether it has achieved its objectives and what can be learned for the future. b) The first step is to look at the readership figures (in the UK and many other countries, the various media have independently audited readership figures) for each publication and the cost of an advertisement and then in order to make a comparison, work out how much it would cost to reach 1000 readers. This is done by dividing the number of readers of the magazine into the cost of a full page advertisement and multiplying the answer by 1000 to give a cost per 1000 figure. Cost of full page advertisement  1000  Cost per 1000 Readership of the magazine Similar calculations can be made for broadcast media using viewer figures (or for radio listening figures). In theory, the lower the cost per 1000, the more cost effective it would be to advertise, however it is necessary to look at why there is a difference in cost per 1000 between different magazines or newspapers before making a final decision. As Kraft are planning to enter a new country, it is important they find the reasons for any apparent discrepancies in cost. Two other considerations in the choice of media are reach and frequency. Reach refers to both the number and type of people reached and the geographic area covered. For example a local radio station may only be listened to by certain sections of the population and will only cover a particular geographic area. Frequency refers to the number of times the advertisement needs to be shown to make an impact. 5.12 a) A mission statement seeks to encapsulate what a business is all about. There are a number of criteria against which a mission statement can be judged. An effective mission statement should be brief, flexible and distinctive. Kraft’s mission statement is certainly brief, easy to understand and remember. It is flexible and will be able to accommodate any change to the business as it doesn’t confine itself to just food as it mentions ‘live better’. It appears to be distinctive insofar as being a somewhat ambitious statement it does make the business stand out! In addition, a mission statement should ideally have each of the following elements: ● Purpose – why the business exists. ● Strategy and strategic scope – the competitive position of the business in terms of the products or services it offers and the boundaries within which it operates, for example local, national, global. ● Policies and standards of behaviour – everyday actions. ● Values and culture –such as business principles, for example commitments to customers and operating in a socially responsible way. Kraft’s mission statement fulfils most of these additional elements – it gives a purpose and shows it is operating globally. ‘Helping’ suggests a caring approach and this is reinforced by the list of its values that can be regarded as an extension to the mission statement.

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As the mission statement appears to meet all the criteria above, I would judge it as very effective. b) SMART is an acronym for Specific, Measurable, Achievable, Realistic and Timely. For Kraft it is important that the objectives are specific as an objective such as ‘ increase sales in the next twelve months’ is not very helpful as however small the increase might be – perhaps only 0.0001%, it has fulfilled the objective. The objective would need to state the actual or percentage increase in sales Kraft is aiming to reach. Objectives also need to be measurable, for example an objective such as ‘improve customer service’ is not capable of being measured. For an objective like this, thought needs to be given as to how to measure improvement in customer service. One measure might be the level of complaints received by the company and so an objective could be ‘to cut the level of customer complaints by 25% by the end of six months’. Objectives should be achievable given the resources of the organisation. Although it is important not to be over cautious in setting objectives, it can be very demoralising to staff to be set unachievable objectives. Kraft should make sure its objectives are realistic. For Kraft, an objective such as ‘to become the global leader’ is realistic as they are already number 2 in the world. Finally the marketing objectives must be timely, which means having a time scale attached to them, such as ‘by the end of a 12 month period’ and this also then meets the specific criteria. 5.13 The five forces model is so named because it considers five key areas in the competitive environment and these are the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes and competitive rivalry. It is particularly useful when looking at an overseas market, although Kraft would need to consider the five forces model in relation to each industry sector into which it is introducing their products. Taking each of the five forces in turn. The threat of entry Kraft needs to consider how easy or difficult it is for it to enter the market. For example some markets might be very difficult to enter because the barrier of strong existing brands. The power of buyers The power of buyers is high where there are a few, large players in a market and a large number of small suppliers. The power of buyers is also high if it is easy to switch between suppliers. The power of suppliers The power of suppliers tends to be a reversal of the power of buyers! The power of suppliers is high if it is expensive and/or difficult to switch to another supplier. The threat of substitutes Sometimes new products are developed which threaten existing ones and this could be a problem for Kraft with some of its products if a competitor introduces a new product that appears to be superior.

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Competitive rivalry Competitive rivalry is likely to be highest where many of the organisations in the market are of a similar size and the market itself is static or declining. Competitive rivalry is also high if the market is easy to enter, there is a high threat of substitution and suppliers and buyers in the market attempt to control. Competitive rivalry tends to be an amalgamation of the other influences. In most countries the food industry is highly competitive, but as a global company Kraft has advantages of a strong brand name and resources to back entry into new markets. Also it has stated goals of accelerating the growth of core brands and extending awareness of these brands into developing countries.

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Sample Examination Paper and Suggested Answers MARKETING Important Notice When reading these suggested answers, please note that the answers are intended as an indication of what is required rather than a definitive “right” answer. In many cases there are several possible answers / approaches to a question. Be aware also that the length of the suggested answers given here may be somewhat exaggerated from what might be achieved in the reality of an unseen, time constrained examination. This examination paper consists of TWO sections. Section A is compulsory and carries 25. Candidates are required to attempt THREE questions from Section B, all of which carry 25 marks each. Time allowed: 3 hours SECTION A – COMPULSORY

You should allow yourself approximately 45 minutes in total to answer the questions in Section A. Answer all parts of question 1 (2 marks for each part), and all parts of question 2 (3 marks for each part). 1. a)

Give two reasons to account for the growth of consumerism. (2 marks) Suggested answer: Better education; More information – consumer magazines, programmes on T.V. etc; More competition / more choice for consumers.

b)

In the Ansoff matrix, state which is the least risky strategy and which is (2 marks) the most risky strategy. Suggested answer: Least risky - market penetration / existing markets, existing product. Most risky – diversification / new products / new markets.

c)

Market segments should be accessible and viable. Explain what this means. (2 marks) Suggested answer: Accessible – able to be reached via promotional methods. Viable – large enough to be capable of generating a profit.

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Suggested answer: Product, price, promotion, place, people, physical evidence, process management. e)

What is the difference between intensive and exclusive distribution? (2 marks) Suggested answer: Intensive distribution makes the product available in as many locations as possible (e.g. cigarettes). Exclusive distribution limits availability to certain locations, often to enhance a prestigious image (e.g. Cartier watch). (Total: 10 marks)

2. a)

Give three examples of differences that may apply to the marketing of public service organisations compared to those in the private sector. (3 marks) Suggested answer: More accountability (tax payers money!); More transparency, particularly of money spent e.g. on advertising; Often higher expectations of ethical behaviour.

b)

State what the letters of the acronym SMART represent and amend the following objective to make it SMART – ‘The company aims to achieve a (3 marks) higher profit’. Suggested answer: Specific, Measurable, Achievable / Attainable, Realistic, Timely. ‘The company aims to make £x profit by the end of the next x months’ Reference to specific amount of profit. Reference to specific timescale.

c)

What is meant by secondary data and give two disadvantages of this type of data. (3 marks) Suggested answer: Data that is ‘second hand’ / already gathered for another purpose. Disadvantages – often out-of-date / old; is unlikely to give you all the information you need as it was gathered for another purpose; may have been gathered by someone with an axe to grind / biased.

d)

Draw a graph and label it to show the 4 main stages of a typical product life cycle. (3 marks)

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Suggested answer:

Graph is the correct shape. All four stages identified. Axes correctly labelled. e)

Give three reasons why branding is important to an organisation. (3 marks) Suggested answer: Acts as a guarantee to customers of quality. Helps to differentiate from other similar products / services on the market. (Total: 15 marks) Enables a premium price to be charged.

SECTION B Questions 3 to 7 are based on the pre-seen case study PERDITA HOTELS Perdita is a luxury hotel chain that was founded 49 years ago and now has branches worldwide catering for both tourists and business customers. The balance of business customers and tourists in any particular hotel is determined largely by the location of the hotel and whether it is a weekday or weekend stay. For example, hotels in and around major cities usually have a mix of business customers and tourists on weekdays and almost all tourists at weekends, whereas those in beach resorts cater almost exclusively for tourists. Tourists attracted to the hotel chain are predominantly independent travellers in the 40+ age group with above-average incomes, although Perdita does take bookings of small groups from some of the more prestigious tour operators. The hotel group has a core of loyal tourist and business customers who use their hotels as their preferred choice. Perdita operates in a very competitive market, but in several countries is the market leader. It feels it owes its success largely to its unique selling point (USP), which is that each hotel has its own individual character within the framework of an overall excellent level of service

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and quality. All hotels have a leisure complex consisting of an indoor swimming pool (and an outdoor pool in locations where this is appropriate) saunas, steam rooms and fitness centre, together with beauty and pampering rooms. These are for the exclusive use of hotel guests. The restaurants in the hotels are often regarded as among the best in the area and are open to non-residents. Three restaurants in the hotel chain have been featured in a ‘Best Hotel Restaurants in the World’ guide and Perdita has been able to make good use of this in their promotional material. Because Perdita is a luxury hotel chain, it is sensitive to criticism that it may be wasteful of resources and is concerned to promote an image of social responsibility. This has also been identified by independent marketing research as being of increasing importance, particularly to the type of tourists attracted to the hotel chain. In addition, Perdita has opened several hotels in less developed countries such as the Dominican Republic and has encountered some resistance from the local population to what they regard as a foreign hotel chain spoiling the landscape and changing the way of life of local people. Like all successful businesses, Perdita isn’t complacent and is always seeking to develop new products and possibly diversify into other areas. One of the Managing Directors has suggested Perdita should consider launching its own credit card. He feels this may attract new customers and encourage current hotel customers to stay loyal to Perdita as they will earn bonus points every time they use the card and the points can then be redeemed. Examples of benefits would include free nights at a hotel of their choice within the group (subject to availability) room upgrade or complimentary wine with a hotel meal. Perdita celebrates its 50th anniversary next year. The Board of Directors is determined that the next 50 years should continue the success of the first 50, knowing that it can only achieve this by planning and continuing to build on its strengths, address any weaknesses or threats and take advantage of any opportunities.

Section B - Questions

Answer THREE questions from the five in Section B. You should allow yourself approximately 45 minutes to answer each of the questions in this section. Each question is worth 25 marks. 3. a)

Outline the main differences between product, sales and marketing orientations and explain which approach is appropriate for the hotel chain, giving reasons for your choice. (10 marks) Suggested answer: Product orientation – focus on the quality of the product with the assumption that it will meet customer needs. Sales orientation – focus on selling methods with the view that the business needs to aggressively promote its product / service to be successful. Marketing orientation – focus on the needs and wants of customers so that products / services are developed to meet these needs. Appropriate choice for the hotel is a marketing orientation. Reasons - should result in more sales / profit because of better identification of customer needs / wants; identification / targeting of different market segments;

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will be responsive to changes in consumer tastes (because of marketing research); operating in highly competitive market. b)

Explain what you understand by the term “social responsibility” in relation to the hotel chain and give examples of how Perdita could demonstrate its social responsibility in less developed countries, giving reasons for your choices. (15 marks) Suggested answer: Social responsibility in relation to the hotel chain could include: - General ‘duty’ to conduct its activities with regard to society as a whole; - Not damaging the environment (buildings / infrastructure); - Saving energy; - Recycling; - Supporting charities / voluntary organisations; - Providing services for employees such as health checks. Examples for less developed countries could include: - Employing local people wherever possible in the hotel; - Sourcing local produce / materials where possible; - Saving energy (e.g. use of solar panels, timed light switches, hotel towels replaced on request rather than automatically each day); - Building the hotel in keeping with its surroundings; - Respecting local traditions / customs / holidays; - Sponsoring local community activities. Reasons will depend on the examples chosen, but could include: - Helping the local economy (supplying jobs, sourcing local produce / materials); - Demonstrating Perdita’s wish not to waste precious resources; - Building positive relationships with the local community, which will help give the hotel its own ‘character’. (Total: 25 marks)

4. a)

Explain each of the main steps in the marketing planning process that Perdita needs to carry out in order to remain successful. (15 marks) Suggested answer: The main steps in the marketing planning process should include: - Setting marketing plan in the context of the organisational goals and corporate strategies. - Marketing audit (situational / environmental analysis); - SWOT analysis; - Setting marketing objectives; - Developing product / market strategies and marketing mix strategies to meet these objectives and tactics (e.g. in response to competitor activity); - Control / Review. The remaining marks will come from elaboration and explanation of the steps, in particular:

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- The need to establish their current position (mention of the need for both an internal and external marketing audit; a SWOT analysis based on this identifying the major strengths / weaknesses within the organisation and the opportunities / threats from outside); - The importance of setting objectives in order to define what they want to achieve (explanation of SMART – specific, measurable, achievable, realistic and timebased; mention that plans cannot be properly measured without SMART objectives); marketing plans must fit with organisational goals and corporate strategies; - The importance of developing suitable strategies to meet these objectives (use of Ansoff matrix to determine product / market strategies and an appropriate marketing mix to reach the objectives set); tactics are usually short-term in relation to competitor activity and could include special offers such as three nights for the price of two. - The importance of controlling and reviewing the plan not only at the end, but throughout the cycle to monitor progress and make changes where necessary. b)

Describe each of Porter’s 3 generic strategies and discuss which of these strategies Perdita appears to have adopted. (10 marks) Suggested answer: Porter’s 3 generic strategies: Cost leadership – concentration on achieving the lowest costs, giving a company the capability of setting its prices at a lower level than its competitors; Differentiation – concentration on making a company’s product / service different from that of its competitors; Focus – concentration on designing a product / service for a small segment of the market (niche); Perdita should be identified as having a differentiated strategy. Discussion could include reasons such as: - Making itself different from competitors by its brand image of quality; - USP of hotels with individual character; - Constantly seeking to develop new products / services to meet customer needs. (Total: 25 marks)

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5. a)

Describe the current customers of Perdita Hotels with reference to the (10 marks) four main bases of market segmentation. Suggested answer: 4 main bases of segmentation should be identified as: - Demographic –(concerned with population characteristics e.g. age, sex, income etc); - Geographic; - Lifestyle (attitudes, opinions, interests) / psychographic (personality); - Benefit / behavioural. Demographic – Perdita tourist customers are 40+ with above average incomes. Geographic – The hotel chain is world wide, but the case study doesn’t give specific information on the geographic profile of customers. However, the location of a hotel (beach v city) is likely to influence the type of customer (tourist v business). Lifestyle / psychographic – Tourists are mainly independent travellers and appreciate the excellent facilities / restaurants. They are also concerned about social responsibility. This type of segmentation is unlikely to be useful in segmenting the business market. Benefit / behavioural – The case study refers to a loyal core of tourist and business customers, which is a behavioural characteristic. Benefit segmentation could apply to both business and tourist customers who would both appreciate the luxury and excellent level of service and individual character of the hotels.

b)

Explain what is meant by “marketing intelligence” and how Perdita could make use of “marketing intelligence” to determine whether to launch its (15 marks) own credit card. Suggested answer: The explanation of marketing intelligence should show breadth of understanding by mentioning the 3 main areas where information can be obtained i.e. from within the organisation; secondary research; primary research. For each of the 3 areas mentioned above, there should be examples of appropriate intelligence that could be used in determining whether Perdita should launch its own credit card and there should be comment on any major advantages / disadvantages. From within the organization – use of customer database / hotel records to give an accurate profile of current customers and their usage of Perdita hotels; views of hotel managers on the likely take-up of the card benefits. Comment that the type of information, accuracy and ease of collection depends on how records are kept and the type of systems used.

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Secondary research – this could include published information or articles on the use of credit cards by similar types of organisation; Mintel (or similar market research reports that could be purchased by Perdita). Comment on such information is usually relatively cheap to obtain, but may be rather out of date, may give insight into competitor activity, but possibly too general for any real use to Perdita. Primary research – as this is information gathered for a specific purpose, it could include commissioning a survey by an independent market research company or the use of focus groups to determine views of Perdita customers on the proposed points scheme. This could give a very useful insight into attitudes and opinions of current customers on the topic, but attitudes and opinions don’t always translate into action! Primary research is the most costly of the three. (Total: 25 marks)

6. a)

Briefly describe the main stages in new product development in relation to Perdita Hotels. (10 marks) Suggested answer: The main stages in new product development should be identified as: - Idea generation (from both internal and external sources); - Idea screening (rating ideas against criteria important to the company); - Business and market screening (more rigorous screening including financial analysis concept and product testing); - Test marketing in representative area(s) to iron out any problems before fullscale launch. In relating new product development to Perdita Hotels, suitable comments could include: - Ideas could come from hotel staff or feedback from customer surveys or complaints; - For services such as the proposed new credit card, there is opportunity to test the concept on a representative group of Perdita customers; - Rigorous financial and market screening would be particularly important for the development of a new hotel as there would be no opportunity to test market!

b)

Identify and explain the factors that will determine the price of a room in (15 marks) a new Perdita Hotel. Suggested answer: Factors that will determine the price of a room in a new Perdita Hotel could include: - Demand (e.g. time of year/ weekday v weekend); - Location of the hotel; - Strength of competition from other hotels in the area; - Size, position, amenities in the room (and the hotel); - Staff and other associated costs; - Last minute booking to fill an otherwise empty room; - Customer expectation of price;

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- Image of Perdita Hotels in general. For example: demand identified as a factor. Further elaboration e.g. mentioning how price can be affected by demand at different times of the year; weekday v weekend; how the hotel should have a pricing policy to maximise room occupancy throughout the year; how price reduction can be used to fill an otherwise empty room; how outside factors such as a major international event nearby could increase demand for rooms and enable the hotel to charge a premium price. (Total: 25 marks)

7.

Perdita is building a hotel in a developing country where it has not operated before. a)

Outline the communications process model and explain how this could help Perdita to communicate effectively with the local population who may feel rather hostile towards a foreign hotel chain. (15 marks) Suggested answer: The communications process model (which could be in the form of a labelled diagram) should include sender (source of the message) encoding the message, the medium by which the message is conveyed, decoding the message, the receiver and ‘noise’ which can affect the message. Ways in which the model could help Perdita communicate effectively with the local population could include: Does the local population know the name Perdita and if so what is their image of Perdita? Is it considered positively or negatively? What is the tone and content of the message going to be? What medium will be used to convey the message? What problems could there be in how the message is interpreted by local people (possible language / cultural barriers). To communicate effectively Perdita should: - Ensure the tone of the message is reassuring; - Check the content of the message carefully for possible language / cultural barriers; - Choose a medium suitable for the message (possibly some type of meeting as it is usually easier to reassure people face to face); - Try to eliminate any obvious ‘noise’ e.g. don’t call the meeting on a day / at a time when other things are going on in the local community. Discussion of the possible problems of interpretation of messages due to cultural and / or language barriers. Other appropriate points.

b)

Discuss the criteria you would use to determine the methods of promotion for the prospective customers of this new hotel. (10 marks) Suggested answer:

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There are a number of criteria that could be mentioned, but the most important is the profile of prospective customers. Where is the new hotel to be located? (city / beach / country) The location will determine to a large extent whether customers are mainly tourist or business, which is important as they require different forms of promotion. Other criteria include: - Cost of promotional methods (should mention cost effectiveness e.g. cost per 1000 for different magazines where Perdita might advertise); - Current methods being used by Perdita to market its other hotels (should mention the importance of consistency and where the prospective customers currently get their information); - How easy it is to measure the success of the promotional method (e.g. a coded coupon with a special offer); - The type of message (e.g. a largely informative message may require a brochure / leaflet). (Total: 25 marks)

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Glossary Ad hoc research Research which is a ‘one-off’ and designed to answer a specific problem. Advertising A paid form of nonpersonal communication directed at target audiences through various media in order to present and promote products, services and ideas. Ansoff matrix A framework in the planning process that considers alternative directions an organisation can take in relation to products and markets. Augmented product The total product – what makes it different from similar products. It may be an aspect of design, or the means in which the product is delivered to its customers. Brand name (q.v.) is also part of the augmented product as this is another way of distinguishing it from its competitors. B2B (Business-to-Business) marketing Activities directed towards the marketing of goods and services by one organisation to another. Boston Consultancy Group (BCG) matrix A tool that is used to categorise each of a company’s products/services in terms of the overall growth in the market in which it is operating and its share of that market. Brand A name, sign, symbol, logo or any combination of these used to identify a product or service. A brand should uphold certain values and beliefs. Break-even analysis A technique to determine the level at which an organisation has covered all its costs and is making neither a profit not a loss – breaking even.

Concept testing A printed or filmed representation of a product or service or idea. It is a device to communicate the product’s benefits, strengths and reasons for being and is used to test consumer reaction. Consumerism Organised group pressure on behalf of customers with the objective of influencing organisational behaviour to the benefit of the consumer. The rise in power of the consumer through better information and education leading to more competition, choice and greater buying power. Continuous research Research which is carried out at regular intervals to enable organisations to monitor trends or patterns. Decision-making unit (DMU) A group of people who share the decisionmaking for a buying task, particularly in B2B markets. Derived demand The way in which demand for one product is dependent on demand for another. Diffusion of innovation The rate at which new products are adopted by consumers in the market place. Distribution channels The means by which goods or services get from the manufacturer to the customer. Diversification A growth strategy, which involves introducing a new product or service to a new market. Diversification This involves developing into areas beyond current products and markets and happens when an organisation decides to move beyond its current boundaries to exploit new opportunities. Exporting The means by which an organisation supplies customers in a

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country other than its own while operating from its home base. Focus group In marketing research, a technique where a small representative group (typically between six and 12) are brought together to discuss freely a concept or problem. The aim is to gain insight into attitudes and opinions. Franchising A commercial agreement that allows a business to deal (under strict controls) in a product or service controlled by another. Joint venture Co-operation between organisations for mutual benefit. Licensing An arrangement under which an organisation (the licensor) grants another organisation (the licensee) the right to manufacture goods within a defined market. Often used as a way of entering international markets. Market demand The total volume that would be bought by a defined customer group, in a defined geographical area, in a defined time period. Market research The systematic gathering, recording and analysing of information relating to markets. It has come to be seen as an important subset of marketing research. Market segment A discrete group of consumers sharing common characteristics (e.g. buying habits, patterns and preferences), who with other groups of consumers (segments) comprise the total market for a product or service. Market segmentation Helps companies identify and understand the characteristics of potential customers for their products and services. There are various bases for segmentation which can be used in a number of ways depending on the market and the product or service on offer.

Market share The percentage of the total market that is using a particular product or service. Marketing audit The initial stage in the marketing planning process that answers the question ‘Where are we now?’ It involves collection, analysis and evaluation of information both inside and outside the organisation. Marketing information system A system responsible for the collection, organisation and analysis of marketing information. It uses information from within the organisation, and from both secondary and primary sources. Marketing intelligence A term that encompasses a broad range of marketing information and sources that help in the decision-making process and is synonymous with the term marketing information. Marketing mix The combination of marketing variables that affect customer choice, traditionally product, promotion, price and place (the four Ps). Marketing orientation An overall approach where the needs and/or wants of the customer are the focus for marketing activities. Marketing research The systematic gathering, recording and analysing of information relating to the marketing of goods and services. Metrics Numerical measures of specific performance related activities. Objective A target that has to be achieved. In planning it answers the question ‘Where do we want to be?’ Price elasticity of demand The change in the quantity demanded in response to a change in the price.

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Primary research Original research, collected to solve a particular problem. Product depth The number of products in each product line. Product life cycle The typical stages through which a product or service passes from its introduction on to the market to its eventual decline. Product mix The total range of products or services that an organisation offers. Product positioning How an individual product/brand is perceived in relation to other competing products/brands in the same market. Product width The total number of lines offered by the organisation. Public relations (PR) A planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its publics. Pull strategy A strategy in which the manufacturer promotes directly to the final customers and hopes they will demand the product from intermediaries. The product is then ‘pulled’ through the distribution channels by customer demand. Push strategy A strategy in which the manufacturer promotes to the intermediaries. The product is then ‘pushed’ though the distribution channels by manufacturer and distributor effort. Qualitative research Qualitative research aims to discover attitudes and opinions and give insight into why people behave in the way they do; it is highly subjective. Quantitative research This is research that produces ‘hard’ data that can be measured and provides answers to questions such as ‘who’ and ‘how

many’ rather than the depth of insight into why. Relationship marketing A development in marketing concerned with building and keeping good customer relations. The emphasis is placed on the whole relationship between suppliers and customers with the aim of giving the best possible customer service and therefore building customer loyalty. Return on investment (ROI) Return on investment (ROI) measures the relationship between profit (before tax and interest) and the money invested to produce that profit. Sales promotion An inducement, such as a free gift or temporary discount, aimed directly at persuading a specified target audience to achieve one or more defined objectives. Secondary (desk) research Information or data that already exists as it has been collected for another purpose, for example government statistics SMART (Specific, measurable, achievable, realistic and timely.) A prompt to ensure that objectives are effective. Societal marketing A development in marketing that focuses on the benefit or otherwise to society of marketing activities. Sponsorship The support of an event, activity or organisation by providing money or other resources that are of value to the sponsored event. This is usually in return for advertising space at the event or as part of the publicity for the event. Stakeholders Individuals or groups who depend on the organisation to fulfil their own goals and on whom in turn the organisation depends. Typically stakeholders include

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customers, competitors, suppliers, employees, the local community, government and pressure groups Strategic business unit (SBU) The key characteristic of an SBU is that it is a profit centre in its own right. It could be an operating division of a large organisation or market(s) or product(s). Strategy The means by which an objective is reached. In planning it answers the question ‘How are we going to get there?’ SWOT analysis (Strengths, weaknesses, opportunities and threats.) An analytical tool used to determine the best way forward for a particular company, which builds on internal strengths and external opportunities and seeks to deal with internal weaknesses and external threats. Target market The segment of a market at which an offer is directed.

Test marketing Testing a new product or service on a limited basis in a defined geographic area, under conditions that are as realistic as possible. It is used particularly in consumer markets, before a decision to go ahead with a full launch. Time series analysis This is where data from the past is used to predict the future and is particularly used to try to predict future sales. Past figures are analysed to see what the overall trend appears to be. USP (unique selling point/proposition) A feature and/or benefit of a product or service, which makes it different from that offered by the competition and helps to give competitive advantage. Vertical integration The strategy whereby a company either moves backwards into ownership of supply or forwards into ownership of distribution outlets.

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Directory Further Reading Brassington, F. and Pettitt, S., Principles of Marketing, 3rd edition, Pearson Education, 2002. Kotler, P. and Armstrong, G., Principles of Marketing, 11th edition, Prentice Hall, 2005. Also available in a European edition. Adcock, D., Halborg, A. and Ross, C., Marketing Principles and Practice, 4th edition, Prentice Hall, 2001. Paliwoda, S. and Thomas, M. (eds), International Marketing, 3rd edition, ButterworthHeinemann, 1998. It is important to keep up-to-date by reading articles in the marketing press and the business pages of broadsheet newspapers.

Web Resources Chartered Institute of Marketing www.cim.co.uk Website of the Chartered Institute of Marketing – free access to some case studies and revision notes Chartered Institute of Public Relations www.ipr.org.uk Direct Marketing Association www.dma.org.uk Enterprise Network www.enterprisenetwork.co.uk Free access to limited number of case studies of small business problems with comments from ‘experts’ Marketing Teacher www.marketingteacher.co.uk Free access to marketing ‘lessons’ exercises and quizzes on a variety of marketing topics. Snapdata www.snapdata.com Limited free access that indicates the range of marketing information available on a wide range of industries worldwide. In addition, the websites of many large organisations will give information on their products and services and it is often possible to view or download recent annual reports.

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Index Advertising 5, 132, 140, 142–146, 161, 196, 197 Ansoff matrix 167, 179–181, 182 Augmented product 72 Bar code 16 Boston Consulting Group (BCG) matrix 166, 167, 171–174, 182, 185 Brand 71, 74, 126, 132 Brand loyalty 31 Branding 74–76 approaches 75, 90 Bribery 26 Business-to-business (B2B) marketing 5, 10, 39, 90, 104, 106, 108, 110, 135–136, 138, 144–145, 148–149, 150, 151, 154, 157, 182, 196 Buyer behaviour 125–138 Buying decision process 125–127 Cognitive dissonance 127,151 Competition 19, 20, 40, 94–95, 104, 147, 171, 193, 197 Confusion pricing 25, 27 Consumerism 13–14 Core product 72 Corporate Social Responsibility (CSR) 28 Decision making unit (DMU) 135 Derived demand 9–10 Differentiated marketing 29, 178 Diffusion of innovation 134 Direct marketing 152–153, 196, 197 Diversification 180 Forecasting 7, 155, 174, 175–176, 182, 183, 192, 193, 197 Franchising 58–59, 111, 117, 124 Imperfect competition 95 International marketing 37, 56–67 exporting 57 impact of the internet 118 marketing mix 63 PESTLE 60–63 promotion 141 Internet marketing 158–159, 161 Joint venture

58

Kotler

18

Licensing

58–59

Market demand 175 Market development 180 Market research 7, 86, 143 ad hoc research 42, 43, 51, 54 concept testing 85 continuous research 42 definition 40 primary research 42, 46–49, 52 secondary / desk research 42, 44–45 Market segment 29, 153, 185, 186 Market segmentation 29–34, 99 advantages 32–33 approaches 29–30 bases 30–31, 33–34 definition 29 differentiated marketing 29, 178 in industrial markets 31–32 individual marketing 30 mass marketing 29, 178 micro marketing 30 niche marketing 30, 178 one-to-one marketing 30 undifferentiated marketing 29 Marketing approach 12–14 audit 185–187, 199 by charities 4, 11 by governments 4, 11 by political parties 4 by pressure groups 4 differentiated 29, 178 ethical / unethical 25–28 individual 30 information (see intelligence) intelligence 37, 39–43, 54–55, 185, 186 international 37, 56–67 mass 29, 178 micro 30 mix 3, 14–16, 18, 40, 41, 54, 56, 60, 63, 67, 69–120, 123, 166, 184, 186, 190 niche 30, 178 objectives 96, 151, 174–177, 188 one-to-one 30 orientation 12 planning 166, 182, 184–199

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process 6–8 research 40 undifferentiated 29 Marketing environment 19–21, 40, 60, 63, 67,130, 181, 186 availability of capital and labour 19, 20 channels of distribution 19, 21 competition 19, 20, 40, 94–95, 104, 147, 171, 193, 197 legal restrictions 19, 21, 95–96, 104,136 PESTLE (external environment) 21–24, 34, 40, 60–63, 130, 166, 169, 181, 185, 193 supply of raw materials 19, 21 total demand 19 Marketing information (see intelligence) Marketing information system 53–54, 55, 192 Marketing intelligence 37, 39–43, 54–55, 185, 186 Marketing research 7, 41, 42–55, 146,196 definition 40 focus groups 49, 52, 196 qualitative research 46, 52 quantitative research 46, 50, 52 process 51–53, 55 reliability 50 Mass marketing 29 Metrics 194 Monopolistic competition (see imperfect competition) Monopoly 94 Not-for-profit marketing Oligopoly

4

94

Perfect competition 95 PESTLE (external environment) 21–24, 34, 40, 60–63, 130, 166, 169, 181, 185, 193 People (in seven Ps) 15–16, 17 Physical evidence (in seven Ps) 15–16, 17 Place (in four Ps) 7, 15, 65, 105–120, 176, 185 channels 106–109, 114–118 horizontal integration 180 intermediaries 109–111, 115, 120 physical 112 strategies 113–114, 190 vertical integration 117, 180 Porter 170–171, 177–178, 181, 182, 185 Price (in four Ps) 7, 15, 64, 89–104, 185 approaches 98–103, 190 break-even analysis 97 elastic demand 93, 99, 100, 191 inelastic demand 94, 99,100, 191

strategy 190 unitary demand 94 Process (in seven Ps) 15–16, 17 Product (in four Ps) 15, 64, 71–88 depth 73 life cycle 77–80, 100, 185, 191 mix 73 strategy 190 width 73 Product development 7, 83–87, 134, 146, 156, 176, 180 Product positioning 80–83, 172–173, 185 Promotion (in 4Ps) 7, 15, 41, 65–66, 139–161, 185, 196, 197 channel (see medium) exhibitions 154 medium 140 personal selling 150–151, 196 press relations 155–156 promotional mix 160 pull strategy 191 push strategy 191 sponsorship 156 strategies 191 Public relations 5, 132, 154–158, 161, 196, 197 Relationship marketing 13 Return on investment (ROI) 174 Sales promotion 5, 77, 124, 145, 146–149, 196, 197 SMART objectives 166, 188–189, 192,195, 199 Societal marketing 13, 23 Stakeholders 137, 154, 155, 168–169, 181, 196 Strategic business unit (SBU) 170 SWOT analysis 166, 174, 184–187, 199 Target market 12, 50, 81–82, 140, 142, 156, 196 Test marketing (see market research) Time series analysis 175 Undifferentiated marketing 29 Unique selling point (USP) 76, 186

Organisations cited Adidas 105 Airmiles 148, 149

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Amazon.com 118, 158, 190 Amway 119 Argos 17 Audi 157 Avon Cosmetics 116 Benetton 27, 64 BIC 33 Boosey and Hawkes 61 Burger King 116 Butlins 2, 6, 8, 13, 17, 24, 29, 33 Cadbury Schweppes 28, 87, 156 Calvin Klein 74 Channel Tunnel 137 Christian Aid 141 Clairol 65 Coca-Cola 29, 38, 42, 46, 49, 59, 62, 63, 65, 67, 76, 106, 180 Colour Eighteen 146 Coors 65 Cummins 138 Dell 170 DKNY 74 European Commission Exxon 74

62

Flora 156 Ford 73 Gap 74 Gerber 65 Gold Blend 145 Haagen Dazs 61, 74–75 Heinz 77 Hertz 65 Hilton 57, 65 HSBC bank 22, 66 Hoover 149 Ikea

61, 104

McDonald’s 57, 59, 116, 124, 128, 129, 134, 144, 148, 150, 159 Marks and Spencer 75, 76 Marriott 65 MFI 188 Microsoft 62, 171 Napp 96 Nestle 27, 28 Nielsen 45 Nike 57, 63, 105 Nissan 73 NPL 58 Office of Fair Trading (OFT) Oneworld Health 26

96

Panasonic 102 Parker 65 Pension Service 48 Pepsi 38, 42, 57, 62, 65, 67 Pilkington Glass 168 Polestar Group 182 Portland Direct 106 Prada 75 Procter and Gamble 23, 74, 75 Psion plc 168 Reckitt and Coleman Reebok 105 Rolex 74

75

Sainsbury’s 168 Scope / Spastics Society 74 Shell 21 Skoda 197–198 Snapshots International Ltd 44 Technics 102 Tesco 156 Travis Perkins 91 Toyota 177 United Airlines 23 United Students Against Sweatshops

Kellogg’s 64, 75, 79–80 Kraft Foods 111, 116, 164, 169, 174, 178, 181, 187,189, 195, 199

Virgin 180 Vodafone 131

Lego 30, 157 Levi’s 62, 74, 111 Lucozade 79, 180

Wal-mart 43 Wedgwood 114 Which Magazine 14

26

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