ZAMBIAN OPEN UNIVERSITY

Faculty of Business Administration and Management

ModuleName: Marketing Basics for Competitive positioning

Author: Elliot M. Mumba

BEng (Mech) UNZA, MBA(CBU), Msc(Finance-ebs UK) DBA candidate(ebs-

UK), PHD candidate (LIUTEBM), MEIZ, MZIM

December 2012

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Table of content

Unit Name topic

Unit 1 Introduction to marketing

Unit 2 The marketing concepts

Unit 3 Marketing SWOT analysis

Unit 4 Marketing research

Unit 5 Market segmentation, targeting and positioning

Unit 6 The marketing mix

Unit 7 marketing plan

Unit 8 Product management and Development

Unit 9 Pricing policies and price setting strategies

Unit 10 Distribution policy and management

Unit 11 Marketing communications

Unit 12 Advertising

Unit 13 Personal selling

Unit 14 public relations

Unit 15 database marketing

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Aims and objectives of the module

The marketing basics for competitive positioning module develops a basic

knowledge and understanding of marketing principles and fundamentals,
marketing process and marketing mix. Its aims to provide students with a
framework on which to build marketing knowledge and skills through the
modules of this stage, through modules at later stage and in the work place.
Students will not be expected to have any prior knowledge or experience in
a marketing role.

Learning outcomes

Students will be able to:

• Explain the development of marketing and the ways it can benefit

business and organizations
• Identify the main steps in and barriers to, achieving a marketing
orientation within the organization
• Explain the context of and process for, marketing planning and
budgeting including related models
• Explain the concept of segmentation and different bases for effective
market segmentation
• Identify and describe the individual elements of the marketing mix
• Identify the basic differences in application of the marketing mix
involved in marketing products and services within different marketing
contexts

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UNIT 1: INTRODUCTION TO MARKETING

The unit aims at introducing students to the subject

Objectives:

• To provide students with understanding of marketing

• Overview of basics in marketing
• To provide students with an understanding of the development of
marketing
1.1 Introduction

It would be a mistake to think that marketing is a phenomenon of the 20th

century. Its origincan be traced back to early civilization. When communities
began to specialize theyproduced surpluses in certain products which they
then sought to exchange with othercommunities. The need to exchange
goods encouraged the emergence of local marketswhere different products
could be brought together in one place for sellers and buyers totrade. In
these simple market structures, the sellers had a fairly good idea of what
pleasedtheir customers, since often they were neighbours of each other.
1.2 WHAT then IS MARKETING?
As we have already noted, marketing has been around for thousands of
years and has evolved from simple bartering to the highly complex systems
which are in use today. Marketing as a discipline has its critics. These are
the people who think of marketing as being a "poison pack" which is
responsible for all the evils in the world – mainly because of criticisms
relating to the effects of advertising. However, marketing also has its
devotees. Some people see marketing as a "magic wand"; they think that
when a company has problems all they need to do is to get in a Marketing
Manager and all the problems will disappear. Neither of these viewpoints is
correct. Marketing is now recognized almost as a science. It is seen as a
logical approach to business which involves the studying, and understanding,
of relationships and exchanges between buyers and sellers. Various
definitions of "marketing" have been proposed by practitioners of marketing:

Kotler (1982) defines "Marketing is a human activity directed at satisfying

needs and wants" "The management process responsible for identifying,
anticipating and satisfyingcustomer requirements profitably" (CIM).In
marketing terms, a customer's needs, wants or requirements tend to mean a
product orservice. Products are tangible, albeit the wider meaning of a
product includes intangiblebenefits such as after sale service and services
are intangible. However, there are still thingsthat the customer wants in
order to deal with a real or imagined requirement that they haveor, to put it

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another way, a customer has a problem to solve.People can satisfy their
requirements, or problems, in one of four ways:

• Self-solution (coming up with the answer to the problem themselves)

• Force (threatening/stealing)
• Begging (pleading/seeking sympathy)
• Exchange (offering something of value to the owner).

The last method, exchange, is based on a mutually beneficial outcome to

both parties.This value exchange summarizes marketing and applies in every
type of product exchange,from the simple purchase of a bar of soap by a
customer in a supermarket, to the purchaseof attack aircraft by a
government. In every case both parties give, or exchange, something
of value to the other.

For this to be possible, two parties must:

• Have something of value to exchange

• Be capable of communicating
• Be free to accept or reject the exchange situation.

The existence of these criteria does not necessarily mean that an exchange
WILL take place– only that it is possible.Successful exchanges will only occur
when there is some individual, or organization, withenough interest (and
available resources) who is prepared to enter into an agreement withthe
owner, or producer, of some particular item(s).

1.3 THE STRATEGIC ORIENTATION OF BUSINESS

It is very easy, on a marketing course, to get carried away with the total
ethos of marketing but we must remember that not every organization
adopts a marketing stance. Having identified what marketing means and its
development, we must, before we explore the nature of marketing any
further, take a look at alternative methods of carrying out business.
No matter what the market type is, the company has to deal with it on a
day-to-day basis and present itself as a successful concern. How the
company presents itself and its activities to the world will depend very much
on a combination of factors, including among others:

• The nature of the product or service being sold

• The beliefs of the decision makers
• The extent of the influences from the environments
• Customer expectations.
A company may be seen as being "aggressive", "caring", "ethical" or some
other identifying factor which summarizes what the company stands for in

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its marketplace. The perceptions held by the public may, to a large extent,
be influenced by the approach or stance that the company adopts. The
different approaches to markets are referred to as Strategic Business
Concepts or Strategic Business Orientation.

There are only really four different types as outlined below:

• Production Concept (or orientation)
• Product Concept
• Sales Concept
• Marketing Concept
These orientations are now discussed in detail
Production Concept
A company following this concept is operating on the idea that the more you
can produce themore you can sell. Managers assume that customers are
only interested in the availability ofproducts and low prices and that
marketing is not necessary. This may or may not be true.Consider the
following examples:
• A fashion company making exclusive dresses, selling on average at
£3,000, producesand sells 12 dresses each month.If they were to
double their production rate it is unlikely that they could retain
their"exclusive" appeal. This would mean prices would have to be
reduced and revenuewould fall – not to mention the increased costs in
materials and labour needed to makemore dresses.
• A company making electronic switching gear, on a batch production
basis, produces4,000 units each four-week period. The units are sold
at £3.00 each and are recognized as being "superior" products to
those of the competition, which sell at £2.50per unit. The competitor
sells more units than the company does.If the company were able to
increase production and reduce the price slightly theycould possibly
sell more units and increase their revenue. Of course, calculations
needto be made taking into account all costs incurred.

Current Potential
Level of production 4,000 6,000

Sales @ £3.00 =£12,000 @ £2.75 = £16,500

Fixed costs £2,000 £2,000
Variable costs (£0.25 per unit) £1,000 £1,500
Profit (per four weeks) £9,000 £13,000

Assuming that new production plant cost £4,000, and that all units produced
were sold,it would take only one month's production to recover the costs.
After that the companywould be making even more money than they are at
present. Even allowing for a pricematch to that of the competitor this would

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seem an advantageous move for thiscompany.However, let us take this one
step further with another example:
• Imagine a company that makes a small electrical product which can be
used inphotography.After introducing a small pilot batch, it appears
that sales potential for this product is promising. The company has the
production capacity to produce 3,000 units permonth. Managers fix a
target production level of 12,000, which will take four months
tocomplete, and production begins.Once the first monthly batch has
been completed selling activity takes place andeveryone stands back
waiting for the orders, but few orders are taken. An investigationis
begun after eight weeks as to why the product is not selling – by
which time thecompany has produced a total of 6,000 units.The
investigations are completed by the end of Week 10 (7,500 units
produced).The company discovers, by asking its current customers,
that a new digital camera has been launched which has made their
product obsolete almost overnight. The companies is left holding all
the stock, and now have to accept the losses or find other marketsfor
the product which, in turn, will involve them in even more costs for
research,marketing and other activities.In this last example the
"production concept" has failed miserably. To simply mass produceany
product on the outcome of meagre research is foolish in the extreme.
The companymight well find a market for their product but it would be
a "niche" market rather than a massmarket because of the changes in
technology. Producing in smaller batches appropriate tothe level of
demand makes much more sense.Using these three examples we can
see that there are times when a "production orientation"will work and
times when it will not. This concept works when:

• The market is low cost and high turnover

• There is high demand for the product
• Buyers are sensitive to price
• The organization has the capacity to mass produce, and
• The marginal production costs incurred are low.
•
BUT it does not work in the opposite circumstances.Companies following a
production orientation gain from:
• Economies of scale
• Reduced marketing and production costs
• Greater market share
• Strength over the competition.
However, they lose:

• Any degree of "exclusive" appeal

• Close contact with customer needs

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 • High levels of customer loyalty.

It is not enough for a company to simply make lots of what it is good at – if

the customers donot want the product it is a waste of resources and is likely
to end in financial ruin.

Product Concept
This type of orientation is present when managers in the company believe
that customers will recognize a good product or service and buy it when it is
made available. The managershave such a firm belief in the quality and
appeal of their product that they cannot accept thatcustomers may not
readily see the same advantages and they fail to undertake anymarketing or
even carry out essential research before beginning production.
Consequentlythe managers are dumbfounded when customers are not
beating a path to their door to buyup the existing stocks.Perhaps one of the
most quoted examples of this type of orientation concerns the SinclairCV5, a
small motorized vehicle which was introduced into the UK by Clive
Sinclair.Sinclair thought he had an excellent product which would help
alleviate pollution and lowertraffic levels on the roads of Britain.He did carry
out product tests – but they were in a gymnasium. When the product was
finallylaunched it proved to be dangerous and frightening when users were
faced with large trucksand other vehicles using the public roads. Sinclair had
underestimated the fact that his targetaudience liked their cars and that
they were not going to buy something which, in theiropinion, was inferior to
what they already had. Despite his belief in it, the product
failedcompletely.Although the CV5 is used to demonstrate how product belief
by managers can be dangerousit is not the only example in existence.
Currently there are many organizationsthat haveexcellent products of all
kinds but, because they do not market them or tell people aboutthem, they
are not selling. One of the most pertinent in my recent experience concerns
abranch of the armed forces in the United Kingdom.This particular branch of
the forces is known throughout the world for its superb trainingfacilities but,
because of the global reduction in defence forces, the facilities are
nowunderutilized. To make use of the facilities and to recoup some revenue
decisions weremade at senior levels to offer personnel training to other
national governments. There is nodoubt that the product is excellent and yet
it was not taken up to any large extent. This issimply because they thought
everyone would come running once the decision had beenmade and little
effort was put into finding out if what they had actually matched
therequirements of the potential customers.The good news is that
professional marketing help was sought and customer needsresearch was
undertaken. A major drawback to sales was identified as being the lack
offacilities for accompanying families while personnel were being trained.
This aspect has nowbeen addressed and sales are healthy. I am sure that

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this product will be a major earner inthe near future.We must not overlook
the fact that sometimes a good product does have a good future andthat
the belief of a manager can save the product from disappearing. Innovative
productsspring from creative minds and sometimes creative minds can be
far ahead of the majority ofthe public. It is only after a period of time, and
education, that people will appreciate thebenefits and begin to buy. The
product may then take off and become very successful.If every new product
that did not sell was dropped immediately we would never moveforward, but
to simply go ahead and produce a product because its creator believes in it
isdangerous. Companies followingproduct orientation can only be
successful if:
• There is a current demand for the product
• There is a potential demand for the product
• Products are given full marketing support
• Products meet customer requirements.
Thus it is obvious that product orientation MUST, if it is to be successful, be
adopted onlyafter research has been carried out.

Sales Concept
Orientation on selling means that the company sells what it makes – it does
not make what itcan sell. Managers believe that buyers have to be "coaxed"
into buying by aggressivetechniques.This will involve heavy activity on the
selling and promotional aspects with perhapsdiscounted prices being used
and incentives to buy being offered. The company is moreinterested in
"moving stock" than in stocking the right goods.Companies selling goods
very similar to those of the competition are often following this typeof
orientation as they can see no other way to get customers. Consider the
followingsituation.In a medium-sized town there are four outlets selling
carpets. They are all selling very similarproducts, many actually coming from
the same manufacturer. The managers think that theonly way they can get
customers in is to "attract them". So:

• One outlet offers 10% reduction (a reduction in profit)

• Another offers interest free credit (charges from the finance company)
• Another offers free fitting (labour costs incurred)

The last offers extended guarantees (insurance costs for potential

replacements).In each case the company is using money to attract money
and each gain will only be shortterm. It is likely that they will have to
continue on this round of competitive activity just to stayin the market.If
one of them were to break the cycle and research customer requirements
they might wellfind that customers are prepared to pay a slightly higher
price for good quality advice oncarpet buying – something which would not
cost too much money to provide but which wouldgive the outlet a

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competitive edge.Sales orientation usually implies the existence of an
aggressive sales-force and this canbring a company into disrepute. If a
salesperson is more interested in his/her commissionfrom a sale than in
repeat business from a customer they are more likely to use methodswhich
could be, to put it mildly, disreputable. Corporate reputations can be
damaged veryeasily, but can take a long time to be recovered.In the mid -
1990s in the UK the financial services sector was greatly affected by
previoussales techniques used by their representatives. Changed
government legislation resulted invast amounts of money being paid to
people who had been given bad, or misleading, advicefrom pensions and
insurance salespeople in the past. The result of this has been
thatsalespeople must now be qualified and are strictly controlled. Methods of
paying commissionhave been changed and there is now no advantage for a
financial services salesperson touse any aggressive methods.Despite the
above comments there is, and always will be, a place for sales
orientation.We have market traders who sell aggressively to move their
stock; and there are companieswho buy and sell inexpensive products which
customers may buy either on impulse or tomeet a short-term need. But it is
safe to say that if a company wishes to obtain and keep acustomer, they
must be looking to satisfy customer needs and not simply make a sale.

The sales concept only works when:

• There is little need for an after-sales service
• Companies are not interested in forming relationships with customers
• Buyers have low expectations of the product or service
• Repeat purchasing is unlikely.

Marketing Concept
Companies following the marketing concept firmly believe that the
customer is the key tosuccessful business. Unlike the three concepts
discussed above, the marketing conceptactually begins WITH the customer
and the company is trying to provide what the customerwants rather than
making the customer want what the company has.If an organisation is
following the marketing concept it will have three distinct characteristics:

• Customer Orientation
The organization must define customer needs from the point of view of the
customerand not its own. It will need to seek information actively from the
marketplace in orderto assess whether the offerings are meeting customer
requirements and, if not, whynot.
• Organizational Integration
All functions, sections or departments of the organization must work
together to meetthe overall objectives of the organization – which must be
to satisfy customerrequirements. When individual sections of a company do

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not fit in with the total effortthere may be friction or problems which can
result in lost opportunities or dissatisfiedcustomers.
• Mutually Profitable Exchange
The organization is entitled to a reasonable profit for a reasonable product.
The customer is entitled to a reasonable product for a reasonable price. In
other words– both should be satisfied. This satisfaction may well be the
result of negotiation wherethe customer has accepted an alternative product
or where the organization has had toaccept a lower profit – but they must be
satisfied with the exchange. If it is not amutually accepted exchange, it is
not marketing.

Exercise
Q1 a) Conflict is often reported between the marketing and research and
development (R&D)bdepartments. What possible causes of conflict exist
between R&D and marketing? Why is it essential, in marketing orientated
organization, for R&D and marketing to have a close relationship?

b) a customer contacts your company and asks whether it can make a

completely silent washing machine. This is not possible with the current
technology. What is your recation?

c) Did you get this manual because you wanted to read? Or Was it because
you want to pass your marketing basics exam? What is that you really
reality want?
Q2
a) Why do you mix the term mix is used, when talking about these
marketing variables?
b) What do you understand by “production orientation” “product
orientation” “sales orientation” and market orientation”?

UNIT 2: INTRODUCING THE MARKETING CONCEPT

Aims and objectives of the unit

• Summarizes the principles and theories of marketing
• The marketing mix -7 Ps
2.1 Introduction
Most companies already have some marketing activity, although there are a
few who do notuse the word "marketing" at all. When I taught marketing to
a class of buyers at a nightschool, one of them started by saying "No-one
does any marketing in our company and wehave been going 100 years; we
don't need marketing". A few weeks later the same man said"I am
astonished. I have been doing the marketing all the time and I am the Chief
Buyer!"The activities called "marketing" go on in most companies and it is
useful to identify just whatlevel they work at. If the marketing function can

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be shown to be useful to other departments,any changes which may be
recommended will be accepted more readily.Many examples can be quoted
of the way in which a formal marketing function can helpother departments.
I was told by a sales representative that a certain large company refusedto
buy from our company because of "group policy, which nominated
suppliers". I found thatthree companies in the same group were already
buying from us, so the salesman went backwith the information and made
the first of many sales.When "marketing" can be seen to be beneficial to
other departments, changes can be madeso the total marketing effort is
more efficient.Salesmen are probably the first to acknowledge that they get
some help from good publicity,so it may be logical to start by introducing a
better class of product literature and to run betteradvertisements. When
customers see the result and gain more confidence in the company,sales
may rise and salesmen will be glad of the help. Increased sales will affect
mostdepartments in a company and if marketing can get some of the credit
there are betterchances for improvement in other ways.Marketing depends
on information and the most specific information about the needs andwishes
of existing customers can come from the sales people who meet them, listen
to theircomments and note their dissatisfactions. The information flow will
grow more quickly whenit can be seen that marketing can operate as a two-
way system. Even simple activities, suchas clipping from newspapers any
items of news about customers, can be the start of a twowayflow. Salesmen
are grateful for sales leads and even such a simple service will usuallybe
appreciated.Once the sales team realizes the way in which marketing can
collect useful information, theywill soon start contributing their own items,
which may seem trivial at first glance. However, agood marketing
information system can put bits of news or even gossip into context and
whatlooks like a collection of trivial items may become quite significant
information when puttogether and related to other items. The growth of the
internet has meant that information ismore widely available and easier to
access than every before. Organizations and the salesforce can monitor
competitor activity, such as product launches, pricing and even
distributionstrategies, as well as changes in the external environment, such
as new technologies andchanging and emerging consumer trends.Part of the
marketing effort will almost certainly be sales forecasting; forecasts which
areeven reasonably close can be a big help to buyers, enabling them to
place orders formaterials and components ahead of their required delivery
time and possibly at better prices.The same applies to the finance manager,
the distribution manager and probably to everymanager in the
company.Most of what is covered above already happens in most
companies, but there may well be aneed to formalize efforts to make them
into a more coherent marketing activity.

Internal Marketing

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You might have deduced by now that the marketing manager has a
marketing job to dowithin his own company if he is to introduce the
marketing concept fully and effectively.Internally, there is a variety of
"customers", starting with the chief executive (to be handledwith care) and
including all the directors and senior managers. The marketing effort
requiredhere will be to persuade them that the inconveniences which
marketing will demand areworthwhile in the long run. They will be the ones
to make the lower ranks enthusiastic aboutmarketing.Perhaps we should
start right at the beginning and convince directors and senior managersof
the quality of the products. That may surprise you, but in this changing
world there may bemany managers who were happier "in the old days",
when the pace was slower and newtechnology could be picked up leisurely.
If they do not believe in the new products andpolicies how can they expect
their workers to believe in them?Many of the ideas used to communicate
with customers outside the company can also beused, with modifications, to
communicate with people inside the company. Good news canbe spread by
means of a company newsletter via email or intranet. A creditable mention
inthe newsletter can work wonders for an employee's morale; I have seen
the time when salesengineers went to great lengths to get unusual
applications of the firm's products written upfor the newsletter. The prestige
of being one of the few who were named easily justified thestrenuous efforts
which some of the engineers made to get the photographs and
diagramsneeded. I tried hard but never quite made the headlines.If a worker
is proud to work in a specific company, he or she will do more than the
minimumrequired to keep out of trouble. I am sure you will have met the
employee who does "justenough" to keep out of trouble and you can
contrast them with the dedicated companyenthusiast who does far more
than just keep the boss happy.If someone is "freewheeling" the cause may
not be within the control of the marketingmanagement, but overall company
morale is a fair topic for management meetings andfreewheeling is a sign of
poor morale.Skinner, in his book Marketing published in 1990 by Houghton
Mifflin, refers to "discretionaryeffort" which he describes as the difference
between the minimum effort to keep out oftrouble and the maximum
amount of effort an employee can put into the job.He goes on to suggest
that part of the marketing effort (and budget!) can usefully beallocated to
researching the opinions of staff at all levels and to internal publicity.This is
not just a matter of analyzing sales figures and comparing them with a
previously setstandard. Reasons for over- and under-achievement should be
found and lessons learned atall levels.Real benefit can only come from
internal marketing if management allocates enough timeand money to
making any improvements which may be required. This is where
internalmarketing may become very difficult.From time to time a company
may derive a lot of benefit from having a marketing auditcarried out by a
firm of specialists – the effort and the results may be agonizing, but

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theoutcome may be a company in better shape. I mention this with some
caution, because afirm I worked for was practically ruined by taking on
consultants who ignored the mostimportant people – the customers. Perhaps
the brief they received told them to ignore thecustomers? I do not know, but
I had to put up with some very strong comments from goodcustomers.
Clearly, the brief is vital and full co-operation of staff can only be obtained if
thereis adequate consultation before the experts arrive. In that case it was
disaster right from thestart, although the consultants were a big-name firm.
They got off to a bad start by making itclear they had little respect for us,
almost blaming the lower ranks for the problems of thefirm.

Exercise
Q1 . How does marketing orientation differ from product orientation?

2.1 STRATEGIC IMPLICATIONS OF A MARKETINGORIENTATION

External Changes
There is little point in changing attitudes towards marketing internally if
there is no equivalentchange in the company's external activity. Various
groups of people have an interest in theaffairs of specific companies and will
see external activities more clearly than internalchanges.The change from
sales orientation to marketing orientation was described this way by Levitt
in his famous article Marketing Myopia:"Selling focuses on the needs of the
seller; marketing on the needs of the buyer.Selling is preoccupied with the
need of the seller to convert his product into cash;marketing with the idea of
satisfying the needs of the customer by means of theproduct and the whole
cluster of things associated with creating, delivering andconsuming
it."Changes in the company's strategy, as it changes from sales orientation
to marketingorientation, will be evident to people outside the company in
various ways and we can look atsome of the more significant strategic
changes.

Product Design
Customers will see the changes which they asked for in design now begin to
beavailable, whereas the sales-oriented company just wanted to push what
they had orcould get easily. Customers will notice that the sales team will
ask more questions andthere may even be marketing researchers asking
questions about desirable features inproducts. Whereas the standard
products were offered for long periods and changeswere not welcomed, the
marketing-oriented company will offer new features or newmodels much
more readily.Competitors will also notice a difference – their products will
face more challengingcompetition from new or modified products.

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Suppliers
The old, long-run demands for existing products will be replaced by shorter-
rundemands for different products to suit customers' needs. There ought to
be a newenthusiasm in the company, which will be reflected in purchases of
raw materials andcomponents.
Product line changes will show in different buying patterns in the company
and ideasmight also come through for quite different types of supplies.

Publicity
A marketing-oriented company will be much more "visible" in appropriate
journals andmaybe in other media too. There will be more originality in the
design of advertisingcampaigns and evidence of co-ordination of different
media.PR campaigns will be evident and the company name will feature
more prominently intrade and other journals as articles are published by the
company's technical experts.If the new strategy runs to sponsorship of
sporting events, there will be dramaticchanges in publicity efforts; selling
activities ought to synchronise with sponsorshipactivities as far as possible.

Distribution
"When do you want it?" might surprise some customers who have become
accustomedto "You'll have it next Tuesday, when the lorry will be round your
way".Scheduled deliveries to fit in with the customer's production plans may
even feature inthe strategy of a marketing-oriented company. "Just-in-Time"
deliveries are part of themarketing strategy of some suppliers, who get the
benefits of long-term associationwith valued customers.

Prices
There are not likely to be any bargains simply because a company changes
its strategyfrom sales to marketing orientation, but the prices and terms
which are applied arelikely to be more realistic. Financial arrangements
should be more in line with thecustomer's individual needs, because the
marketing-oriented company will see the totaloffering, from analysis of the
customer's needs right through to satisfying them, as oneintegrated
concept.
Organizational Changes

When a company starts to put the needs of the customer first, there may
have to besignificant changes in the organization and it is unlikely that old
ideas of tightly regulateddepartments will survive. Customer satisfaction will
have to become everybody's job andthere will be changes in the handling of
customer contact especially where customers collectfrom warehouses or
company-owned shops.Management may well decide that changes have to
be made, but it is equally important thatthe same managers allocate
adequate facilities and money to make the changes smoothly.Although many

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people regard marketing as just the application of common sense, there
maybe times when the actions necessary to satisfy customers will be a
nuisance to someproduction people, who might well resist.Sometimes
activities which appear to be quite unrelated to marketing can cause
problems.A production bonus scheme was introduced in a factory which
made conveyor belts andoutput went up dramatically, along with
improvements in product quality. But so did thenumber of part-delivered
orders, because the operators had soon realized that if they madebig belts
they got more money than if they made smaller belts.Unfortunately,
customers wanted a full set of belts including both big and small, to fit
duringtheir plant shut-down which happened just once a year. Within two
years the company nolonger made conveyor belts – they still had the ability
but they just had no customers.In another factory a new buyer saw an
increase in sales so he ordered double the quantity ofone particular raw
material; but when it was delivered there was not enough storage spacefor
the extra quantity. If he had bothered to ask for predictions of production
and sales overthe next few weeks, he could have placed the larger order at a
better price and asked forscheduled deliveries to fit in with production
schedules.It is clear there can be difficulties in making the change from sales
or production orientationto marketing orientation and it would be easy to get
the impression that "marketing" are tryingto dominate the whole company.
A sales forecast (prepared by marketing) becomes animpossible target and
sales people are upset. Production is based on the forecast, along
with material purchases, and if the demoralized sales force do not sell as
much as the newmarketing people think is possible, the whole company can
be at loggerheads.Such desperate situations should not happen, of course,
and can be avoided if the chiefexecutive ensures that full and frank
discussions are held at all levels. People do notautomatically know about or
believe in marketing, so there has to be a period of training andadjustment
before a company can claim to have made the transition from sales or
productionorientation to marketing orientation.The transition period can be
easier all round if marketing people market themselves internallyto their
colleagues.Finally, I must stress that I have taken extreme (though true)
examples, so as to show theextent of potential problems. Many companies
already have some commitment to marketingand would not necessarily have
to go through all the difficult times described above.

2.2 COORDINATION OF MARKETING WITH OTHERMANAGEMENT

FUNCTIONS
The most important single element in the implementation of the marketing
concept is that ofcoordination – or bringing together and reconciling a
diversity of conflicting views andattitudes in order to design a uniform
customer-orientated plan of action.It is not a question of marketing dictating
policy or operations: it is to do with marketingcoordinating and cooperating

16
with the other departments which exist only because there is amarket for
the products or services of the company. Marketing, like any
managementfunction, takes its lead from the policy decisions of
seniormanagement.Marketing, however, through its research functions,
provides senior management with theinformation upon which it will make
decisions. In effect the marketing department has theresponsibility for
coping with all the vagaries of the marketplace. It provides the organization
with forecasts and estimates of sales volume, profitability and market
potentials, as well asthe limitations imposed by the company on resources
and policies. Marketing, therefore, hasan overriding responsibility which cuts
across the entire organization. Whilst this does notdirectly set the goals for
other management functions, indirectly it provides the informationbase from
which the goals and schedules of all other functions are determined.Clearly,
then, an effective working relationship between marketing and the various
otherfunctional areas of the business is vital to success. The task of the
marketing department inthis process is to represent the interests of the
customer to other departments in such a waythat customer needs are
adequately met. Here we will consider two of the most
importantinterrelationships, namely those between marketing and
production, and marketing andfinance.

Marketing and Production

(a) Role of Marketing before and during Production

The marketing concept requires that products are designed and made to
satisfy clearlyspecified consumer needs. The marketing function, therefore,
must provide accurateand timely information to the design and production
departments about the nature ofthese needs. In addition, where possible,
this information should be provided in termswhich the management of the
production function will understand. For example,phrases such as "we need
a better quality product" are too vague to provide clearguidelines to
production staff as to what are the specific requirements of themarketplace.
What are required, for example, are sizes, colours, fabrics, flexibility,weight,
standards, etc.Similarly, the marketing function should be responsible for
the provision of informationwhich will form the basis of production planning.
Sales forecasts and estimates ofmarket demand are essential for efficient
production planning and control.

(b) Role of Marketing after Production

Once the products have been designed and produced in the required
quantities, theymust be efficiently marketed to identify target markets. After
purchase, marketingmust monitor customer attitudes to the company's
products; any adverse comments orcomplaints must be noted and, if
necessary, passed back to the production departmentfor action.

17
(c) Cooperation between Production and Marketing
Marketing, therefore, plays a role both before and after the production
effort.An effective working relationship between production and marketing is
an essentialrequirement for efficiency. To illustrate this point, we will
examine three aspects of thisrelationship.

Making a New Product

Before an elaborate marketing plan is implemented, it is essential to ensure
that theproduct will be available when and where it is required. For this
reason, a productionscheme is needed, and the marketing team must liaise
with the production team inorder to achieve this aim.Where an entirely new
product is involved, it is usual for the manufacturing departmentto produce a
quantity to be introduced to the customers on a sample basis.Such sampling
frequently reveals flaws, either in the production technique or in thequality
of materials used, which can be easily rectified before mass production
begins.
Whilst it is essential to avoid the overproduction of a new line before it is
satisfactorilyestablished, it is equally undesirable to accept orders for large
quantities of a newproduct when such quantities will not be available at the
time required.It is exciting to contemplate the prospect of a successful
market research andadvertising campaign, culminating in a massive
launching of a new product, with theresult that very large orders are taken
within the first few days and the productcontinues to sell well over a long
period of time. However, the introduction of a newproduct needs care, with a
steady advertising build-up and an order book which beginsmodestly and
develops gradually over a period of months.A steady expansion is much
easier to deal with from both the marketing and productionpoints of view
than an initial onslaught which may or may not be maintained.

2.3ORGANISATION FOR MARKETING

You will be aware that there are all sizes of organizations in existence,
ranging from the onemanoperator to the huge multinational conglomerate
business group. Despite thedifferences in size, they all have one common
characteristic: they exist to provide somethingto other parties, and survive
by making a profitable return on their output. Regardless of thereason for
existence, every organization needs to be structured to make it efficient
andeffective.Basically the structure is the skeleton, or the back-bone, of the
organization and is generallyused as a means of grouping the necessary
activities together in some way that makessense.Structures are drawn as
diagrams, or organization charts, and I am sure that you haveseen many
examples of such charts during your studies to date, as well as in your own
workexperience.An organization chart can serve many purposes:
• Identifying responsibility for activities

18
 • Showing who is in a decision-making position
• Giving the hierarchy of command
• Enabling the chain of communication to be seen.
Alternative Structures
A business, of any kind, may be organized in several ways. The most
common structuresare as described below.
• Regional/Geographic
This is a very simple way of splitting up responsibilities. The region can be
small (localtowns) to very large (Africa, Indonesia, United States, etc.). As
the business developseach area can then be sub-divided to cope with
increased work, e.g. north, south, etc.or perhaps in one of the ways we
consider below.
• Task/Function
Typical functions to be found in organizations are: Finance, Production,
Purchasing,Marketing, Personnel, etc.Structuring a company by this method
means that, irrespective of the region involved,there are people who are
responsible for certain activities with the resulting benefits ofexperience
and expertise. If a company organises in this way and then
subsequentlygrows in size, it may further sub-divide the activities into
regions.

Market/Customer
Depending on what is being offered by the company this may be a very good
way ofstructuring.For example, a company which provides diagnostic testing
media will have manydifferent types of customers: hospitals, agricultural
testing laboratories, foodmanufacturers, public health laboratories, cosmetic
manufacturers. Having personnelwho deal with specific customer groups
means that expertise can be built up and specialized knowledge is available
to deal with any relevant problems.
• Product/Technology
This type of structure is usually found in the large conglomerates which have
a widerange of products, e.g. ICI has paint, chemicals and textiles, which
are used bydifferent people for different purposes. The production processes
can vary greatly andmay have their own requirements which demand that
they are regarded separately.Add this to the different customers they are
likely to be dealing with and you can seewhy such a structure might be used.
• Matrix
This is a form of management structure which involves bringing personnel
from varioussections of an organization together for specific reasons.
Predominantly used for aproblem-solving exercise, it is most commonly used
for managing complex projectsand has the benefit of multiple-skilled and
experienced people working together.NASA (North American Space Agency)
was one of the first organizations to use thistype of structure when they
wanted to land a man on the moon!Sometimes a member of the team will

19
 be acting as a "leader" and sometimes just as a"member", depending on
which skills are needed at any given time.

Organization Structures for Marketing

So far we have looked at possible structures for the total organization. We
have seen that acompany can be structured in a variety of ways according to
its needs and circumstances.For the purpose of this course, we will take the
following as a "typical" structure for an organization. The marketing function
is expanded to show further detail. Please rememberthat this is only an
example and is not meant to infer that this is the "ideal" structure –
eachcompany will have its own priorities.

Figure 2.1 functional structure

Marketing Director

Communications Market Research Sales manager

Product Manager
manager Manager

From this structure you can see that power emanates from the Managing
Director andcascades down the hierarchy of command. The structure is
based predominantly on afunctional basis in that there are people at senior
level who are responsible for definedactivities for the company overall, i.e.
Finance, Marketing, Purchasing, etc. With a high leveland central control of
these activities expertise can be accumulated, cost savings can bemade and
a much greater degree of control can be achieved.
Marketing itself is also organized on a functional, or task, basis but is then
splitgeographically into USA and Europe and, within the two
geographicareas, a task structureis used for the operational levels.The
alternatives for grouping marketing activities are exactly the same as for the
organization overall, i.e.
• Functional structures
• Regionally-based structures
• Product structures
• Customer-based structures
• Product/customer-based structures.

20
 Let us look at each of these in turn.

(a) Functional Marketing Structure

The organizational chart below shows the functional marketing organization
of amedium-sized company.Under this structure, personnel are grouped by
functional specialism and their activitiesare coordinated by the Marketing
Director (or manager). The system benefits fromclearly designated areas of
responsibility. On the other hand, it has a rather restrictedoutlook with each
department tending to plough its own furrow. Problems can arise ifthe
organization grows into a top-heavy hierarchy of specialists, with strictly
functionalinterests.
(b) Regional Marketing Structure
Most organizations will be structured at least in part on a regional or
geographicalbasis. This is particularly true of sales forces operating
nationally, where the nationalsales managers supervise regional managers,
each of whom may supervise severalarea managers or field sales people.
The structure is typical in the case of multiproductcompanies, or companies
with large exporting operations.
Figure 2.1 Regional marketing structure

Marketing Director

Communications Market Research

Product manager Sales Manager
manager manager

Regional sales manager

District Sales manager

(c) Product Marketing Structure

Companies that have broadly differentiated product lines frequently organise
theirmarketing activities on a product or product group basis. The
organization as depicted in Figure 2.3 is only viable where each
product/product group generates sufficient salesrevenue to offset inevitable
duplications of effort. Not surprisingly it was first adoptedby the large
multinational FMCG (fast moving consumer goods) companies, but haslater

21
spread to other sectors including industrial manufacturing and financial
services.
Figure 2.3 product marketing structure

Marketing Director

Communication Market Research Product Manager Sales manager

manager Manager

Manager Product B
Manager product A

When a product group structure is used it is normal to appoint product or

brandmanagers with specific responsibility for the performance of a product
in a market.The term "product manager" is usually used in industrial
marketing and "brandmanager" in consumer marketing.Essentially, the
duties of the product or brand manager are to coordinate all
activitiesassociated with the marketing of a given product or brand. The
product managerprepares a marketing plan for his product and defines the
sales volume, market shareand profit objectives. Forecasts and budgets are
prepared and the resources requiredfor advertising, sales promotion and
sales force efforts determined. In addition, theproduct manager will make
recommendations and changes to the offer in terms ofproduct modifications,
pricing, and distribution or in terms of deleting or adding
newproducts.Product managers must compete with other product managers
for the company'sresources. Although they work to guidelines set by top
management, who imposeceilings on their expenditure, they have a right of
appeal based on the worthiness oftheir marketing plans and the objectives
they seek to achieve. Once the plans areagreed the product manager is
responsible for implementing and coordinating allactivities. He must liaise
with other functional specialists as well as outside agencies indelivering the
bottom-line sales and profits included in the plan. As these are the
sameskills required of top managers, often the product manager's position

22
acts as theproving ground for senior management appointments.The great
advantage of the production management structure is that it guarantees
afocus and specialization of management at the product/brand level, so that
all themajor profit earners of the company get the benefit of a full-time
champion dedicated totheir well-being. The potential drawbacks to this
structure relate to the productmanager having too much responsibility and
not enough authority. Problems invariablyarise in terms of reporting
relationships and decision-making authority, while thehealthy rivalry
between product managers may develop into unproductive competitionand
conflict.

(d) Customer-based Marketing Structure

Market or customer-based structures and the product-based structure are
quite similar.In a company like Unilever, which is producing a group of
nearly identical products fromthe same manufacturing facility, all of which
are to be sold through the samedistribution outlets, the product manager
system ensures that the individual brand isgiven the individual attention it
deserves. However, where a company is selling oneproduct or line of
products that appeals to different segments of the market, the marketor
customer approach may make more organizational sense, since it puts
appropriatefocus on each of the marketing opportunities.The following
organization chart illustrates a customer-based structure for ahypothetical
manufacturer of crockery ware.

You could argue that this structure represents the closest means of
implementing themarketing concept, for it is implicit that customer
requirements will take precedenceover all other activities. It is recognition
that customers often have needs for a seriesof related products which may
be usefully combined with a company's product offer.For example, IBM does
not just sell computers – they sell computer systems andsoftware tailor-
made to end-user specific requirements. Emphasis only on the productcould
well result in the employment of salespeople specializing in certain products
andmissing out on such opportunities.If we were to generalize, then, where
a company's product has mass appeal acrossindustry or user categories,
then the responsibility for marketing should be vested inproduct managers.
However, where there are marked differences in the needs orbuying habits
of separate customer groups, then these should be regarded as
separatemarkets and market managers appointed.

(e) Product/Customer Structure

23
Where companies have many products being distributed into many markets
they couldchoose to use either a product or customer-based structure. In an
effort to resolve thisdilemma, a composite to the two structures has been
formed. The textile company Du Pont has chosen a composite-style
organization in employing separate managersfor yarns, rayon, acetate, nylon
and dacron, and separate market managers for itsapparel such as men's
wear, women's wear, home furnishings and the industrialmarket.
The grid line structure as illustrated below operates across the
dimensions.The product managers plan the sales and profits of their
respective fibres and seekinformation or forecasts of fibre usage from the
market manager.
The market managers are only interested in meeting the needs of their
customermarkets rather than pushing a particular fibre and, in preparing
their market plans, seekinformation from the product manager on prices and
availability of different fibres.This structure appears to be suited to large,
multi-product organizations in terms ofgreater coordination of activities and
faster decision making. Against this is the factthat the system is costly and
can lead to interdepartmental conflict.

Marketing Budgets
A marketing budget shows how the organization intends to spend carrying
out the marketing plan.

Setting marketing budgets

Marketing budgets may be set using a number of methods, of which the use
expenditure is very dependents on the level of sales, because that is hard to
predict. There are a number of setting marketing budgets:

Percentage of sales method

Research in the Zambia has shown that some marketing budgtes are fixed
by some rule-of-thumb, non-scientific method e.g.
• A percentage of the previous year’s sales
• A percentage of the budgeted annual sales
• A percentage of previous year’s profit
There is no reason , however, why marketing costs should relate directly to
either total turnover or profits. Given that large amounts of expenditure may
be incurred on advertising, these arbitrary guesswork systems reveal an
alarming lack of proper financial control.

Competitive parity method

That is fixing marketing expenditure in relation to the expenditure incurred
by competitors. This is unsatisfactory because it presupposes that the
competitor’s decision must be a good one.

24
All you –can-afford method
Crude and unscientific , but commonly used. The firm simply takes a view on
what it thinks it can afford to spend on marketing

The objective and task method

The marketing objectives are set and then the tasks needed to accomplish
them are identified. The budget is set by estimating the cost of these tasks .
this is the most scientific method, but obviously it is much more difficult and
time-consuming to prepare such a budget. The example below shows a
typical marketing budget

Marketing budget
Zambian kwacha
Salaries and wages of marketing staff 250 000
Advertising expenses 150 000
Travelling and distribution costs 45 000
Market research activities 170 000
Promotional activities 300 000
Selling and agency commission 100 000

Total 1 015 000

Cost items such as salaries are fixed costs being allocated regardless of the
amount of activity or sales although there will be some variable costs, such
as sales commission which will vary according to the volumes of sales. Some
of the salaries require different levels of marketing support. The balance of
the budget may be determined by activity anticipated from new products
which may be launched during the year, and which will need extra
promotional support
Advertising costs
Advertising is an important feature of the marketing budget. It operates on
the theory of diminishing returns. For every extra K 1 of advertising spent,
the company will earn an extra x Kwacha of profit, but the marginal return
x kwacha typically diminishes until it is less than the amount spent in
achieving it. Further expenditure cannot be justified past this point.
Unfortunately, the marginal return from additional advertising cannot usually
be measured easily in practice.
• Advertising is only one aspect of the overall marketing mix.

25
 • Advertising has a long term effect, which goes beyond the limits of a
measurable accounting period
The US merchant Johnn Wanamaker is supposed to have said: “I know that
50 percent of my advertising is wasted, but I do not know which 50 percent”
Recommended practice for fixing advertising cost budget would include the
use of the following.
• Empirical testing e.g. with direct response advertising, web advertising
or retail sales. It may be possible to measure the effect of advertising
on sales by direct observation
• Mathematical models using data about media and consumer
characteristics, desired market share and using records of past results

Monitoring and control

Marketing plans should be monitored using the full range of available

management information to make sure they are progressing as intended.
Control action should be taken if things start to go wrong. Once the
marketing plan is implemented, the task of management is to monitor and
control what happens. Monitoring means checking that everything is going to
plan. Control means taking corrective actions as early as possible if things
are not going to plan. Monitoring and control is accomplished in the following
ways
• Regular comparison of actual sales and marketing costs against budget
• Analysis of the performance of individual products, individual
distribution outlets, individual sales people etc. information collected
by accounting system and other performance measures as regularly as
is felt necessary
• Collection of feedback from customers and other stakeholders
• Analysis of media coverage for instance reviews of new products in
trade press
• Continual observation of the environmental. Have competitors
unexpected launched a new products? Is the economy going into
recession?
Exercise
Q1.What would be the characteristics of a market-based approach to
organizing marketing departments in a banking environment?

Q2. What do you think are the advantages of adopting a matrix structure?

UNIT 30: MARKETING SWOT ANALYSIS

Aims and objectives of the unit:

26
 • To enable students to understand and appreciate the importance of
identifying marketing opportunities and threats
• To enable students to understand and appreciate the importance of
identifying company strengths and weakness
3.1 Introduction
The overall evaluation of a company’s strengths, weaknesses, opportunities
and threats is called SWOT analysis. It involves monitoring the external and
internal marketing environment.
Opportunities and Threats Revealed by Audits
(a) Opportunities
An audit which is done by an outside consultant may be very expensive, but
there is abetter chance of getting an objective study of the market in which
you operate thanthere would be if your own staff did the audit. People
working in a company have splitloyalties – they know they ought to be
objective but they have friends on whom theydepend for future Cupertino.
Outsiders have just the one loyalty – to their client.We have looked at
marketing opportunities, but we can quote Skinner's definitionagain:"Those
opportunities that arise when the right combination ofcircumstances and
timing allows an organisation to take action to reach aparticular market."
An outsider might have wider experience than an internal manager, which
could enablehim or her to recognise an opportunity that would not be seen
as such by the insider.I knew a manager who was quite sure there was no
scope for selling his products to aparticular company. However, a consultant
was called in and knew of a buying policy change which enabled the
manager to sell to that company. This was an opportunityrevealed by the
open-minded approach of the outsider.An internal manager must be deeply
involved in his own department, so he might notbe fully familiar with the
capabilities of other departments, especially if they are indifferent locations.
Even if internal politics do not come into his judgement, it is unlikelythat a
manager would recommend his company to take up an opportunity that
would doaway with his own job. Further, he might not have the time or
knowledge to see howtwo situations could be brought together to create an
opportunity that neither of themcreated on its own.

(b) Threats
A business can be threatened in several ways, as we've seen, such as the
loss ofmarkets due to advances in technology. These are more predictable in
fast-movingindustries and it is often possible to take some action so that
profits do not sufferunduly.The more subtle threats are those from new
competitors, who can appear on themarket without any warning. Your sales
force might have some idea that something isabout to happen, and your
suppliers may give a hint or two, but no one is obliged to tellyou of new
competitors.Threats may come from within the company too, owing to
inefficiency in selling ormanufacture. Markets change, sometimes in a subtle

27
way which has to be taken intoaccount. Yet few managers like change –
there is an inbuilt resistance to change inmost of us. Most changes are more
tolerable if there is recognition at top managementlevel of the time and
effort that will be needed.If a marketing audit reveals a threat to the future
of the company then it has served auseful purpose.

(c) When Opportunities Become Threats

It may not be obvious but it is possible for an opportunity to become a
threat to thecompany: usually that happens if the management is not fully
co-ordinated.An example from my experience may help. In a company that
was organised indivisions dealing with specific product ranges, one divisional
manager saw anopportunity to make some profit by marketing the coated
fabric from which anothercompany made floating oil barriers to control oil
spills in harbours. That was fine, butthe manager of another division that
made assembled products saw the opportunitydifferently and he started
marketing complete oil barriers.So the major customers of one division had
a competitor in the other division, and theystopped buying the products. The
same situation provided an opportunity for onedivision and a threat to the
other.In a different company the Research and Development Department
designed aconveying system that was brilliant and attractive. The
enthusiastic R and D Managertook the product into a full launch, even
though the company had not invested in theresources to make the product
on a production basis. A major exhibition brought inhundreds of serious
enquiries, yet there was no sales force to visit the prospects.The directors
disagreed so strongly about the allocation of resources that the designwas
sold off and the R and D Manager was dismissed, along with his entire
department,which included me. That seemed bad at the time, but I turned
the threat of poverty intoopportunities that have kept me solvent.In these
two examples you can see that the element missing was the overall control
ofthe company's marketing effort, and the reason for that could only be a
lack of topmanagement expertise. Another situation which involved a big
opportunity causedserious problems because the company was too small to
handle one big order, broughtin unexpectedly by their star salesman. The
order was worth more than a normalyear's turnover and the
managementwere seriously embarrassed. They could notafford to pay the
people and buy the materials, yet they did not want to lose the order.

UNIT 4.0 : MARKETING RESEARCH

4.1What is Research?
"Research is the gathering, recording, analysing and reporting of all facts
relatingto the transfer and sale of goods and services, from products to
consumer. It isusually based on statistical probability theory and always uses
scientificmethods".(Max Adler – "Lectures in Market Research 2006").
The process of research describes the steps taken in the research activity:

28
Gathering
Analysis
Storage
Retrieval
Dissemination.
We can represent this diagrammatically as follows:
RESEARCHis theGATHERING ,ANALYSIS ,STORAGE,
RETRIEVALAndDISSEMINATIONof information to aid decisionmaking

Figure 4.1

Setting research objectives

Problem definition

Design of the research

Data collection

Analysis of data

Presentation of report

Management decision

Understanding the process of research is very important to marketing

students.To illustrate the concept I sometimes describe the research process
as being similar to thatof a primitive fisherman using an open boat and a net
to catch fish for food. He would casthis net upon the water wide enough to
allow the fish to enter. Once fish had entered, hewould gather in his net and
look at what he had caught. He would discard or throw back anythat were no

29
use to him, but store those that he could use. If he had enough he would
stopfishing; if he did not he would cast his net again and repeat the process.
This would continueuntil such time as he had met his immediate needs, then
he would stop. He would thenretrieve the fish he had stored and use them
for his required purpose – eating.This is exactly what happens in research –
gathering in information, analysing it, storing it,
discarding it, and using it.The main understanding of the research procedure
must be that information is gathered andassessed – decisions are made on
the basis of the assessment either to eliminate options orto proceed with
further research until such time as a final choice can be made.Research is a
systematic process, as you can see by the model above, and is one of
themost common and oft-repeated activities to be found in the marketing
discipline. There arevery good reasons for this.

Why Research?
If we accept that planning is a necessary activity for marketing
effectiveness, it follows thatwe need to be as certain as we can of any
decisions that we make. This certainty will onlybe present if we are confident
in what we are doing.
Confidence comes from knowledge
Knowledge comes from investigating
Investigating means research.
There could be thousands of answers to the question as to why research
should be carried –for example:
• To find out costs involved in advertising
• To find out what customers want to buy
• To determine which distribution methods are more efficient
• To analyse what the competition are doing.
The reasons shown above, and thousands of others, could all be described
as very validreasons for researching. However, they are primarily "research
objectives" in that theyactually outline the task in hand. They highlight a
problem which needs addressing and aproposal is then made to carry out
research as a component of some form of assessment.The main reasons that
lead to research being carried out are:
• To reduce risks
• To help in planning and forecasting results
• To aid "mix decisions"
• To improve decision-making capabilities.
Thus, research is necessary in marketing if the organisation is to reduce
risks and carry outits plans successfully and with minimum effect. To put it
another way: research is amanagement tool which, in tandem with other
available management techniques, can help amuch more effective outcome
to be achieved.

30
4.2 The Research Plan

Do not confuse the research process with the research plan. The process and
the plan arerelated – but they are not the same thing! The benefits of
research can be improved in twoways: by designing it properly, and by
conducting it at the right time. This means planningthe process.A plan for
research is not really any different to any other plan. It should include all
thenormal elements of objective, strategies and programmes and, above
all, it should belogical and structured.
The key elements are as follows:
Outline the problem: could be investigation into new markets; research
into buyingpatterns; trends in market size, etc.
Define the objectives: obviously based on what the problem is
Determine the target to be researched: crucial in a research plan
Decide HOW the research is to be carried out: questionnaires; panels,
etc.
Decide WHO is to carry out the research: in-house or external agency
Determine the time scales
Set or agree the budget: this may be done initially in order to help in
making otherdecisions
Implement the plan: set everything in motion. This is where the
PROCESS comesinto being
Monitor and control: constant checking to make sure that all activities
are being doneand time targets, budgets, etc. are still on course
Reach conclusions

And, just as in every other plan, there may be amendments made owing to
changes whichtake place. A plan always needs to be flexible enough to cope
with adaptations to meet thecurrent situation. Having said that, if the
planning activity is carried out correctlyenvironmental conditions will have
been anticipated and amendments should be minor.Some respected
authorities reckon the acronym CATS should be applied to every proposalfor
marketing research and should underlie the research plan.
The initials stand for:
Cost
Secondary information already exists and is less expensive to use than
new research
some secondary information can be bought in standard, regular forms
which can showtrends
The cost should not exceed expected benefits and benefits should
preferably be much higher than costs.
Accuracy
How accurate will be the information you collect?
How accurate do you want it to be?

31
Greater accuracy costs more money – do you really need it?
How good are the researchers and their methods?
Time
Research takes time – can you wait?
Whilst you are waiting, could a competitor be taking your market?
Research can reveal your plans, or at least your intentions, so can you
afford that?
Will your decision be any better for being delayed?
Will the research have to be repeated at intervals so as to keep up with
changing
trends – and if so, does the cost/benefit analysis justify the expense
involved?
Security
Some marketing decisions are best kept secret; marketing research may
alert yourcompetitors and may even encourage customers to hold back
orders
New products particularly may suffer from being revealed too early
Even your own salespeople may slacken off if they suspect that a new
product is coming soon
4.3 TYPES OF RESEARCH
The costs of researching can be very high – even if the organisation uses its
own staff tocarry out the entire process – so it must be done in a
structured and logical way, with clearobjectives and an appropriate
strategy related to those objectives.There are a number of approaches to
consider in this.
Desk or Secondary Research
Desk research is carried out by using information which has already been
published byanother party, (i.e. it is secondary).
The information can be obtained from:
Internal information available in-house (past enquiries/sales records, etc.)
External information available from sources which have reasons to publish
information(market surveys, annual reports, etc.).
Desk research is so called because it can literally be carried out from a desk
in an office.Using published sources – books, journals, articles, statistical
information services, theInternet, etc. – researchers can obtain a vast
amount of material which can help in makinginitial assessments of a
market.Remember, though, information collected in this way is secondary –
i.e. it is not new, butsecond-hand. Further, such information will have
originally been prepared, in its publishedform, for someone other than the
organisation wishing to use it.This can present problems:
It may be out of date
It may be irrelevant to the needs of the organisation
It may not be accurate (e.g. if collected for tax purposes)

32
It may be based on a different statistical basis to that used in the home
country, whichwill make nonsense of the information.Desk research can,
though, help in eliminating unsuitable markets or segments, which canmean
reduced costs and certainly reduced risk factors.It is only when researchers
are satisfied with the results of their desk research that anorganisation
should consider moving on to more specific field research. Insufficient
orincorrect information can lead to unnecessary costs and expenditure as
this may mean thatan entirely unsuitable market/sector was not eliminated
at the appropriate time.
Field or Primary Research
Field research is new (primary) research done by, or for, the organisation
itself. It relatesdirectly to the problem in hand and should never be
undertaken until desk research has beencompleted satisfactorily.Field
research can be carried out by an assortment of means – including
visits,questionnaires, and surveys – all of which will involve some form of
sampling. The size ofsample researched will depend on the nature of the
product and market being investigated,but the sample must always
represent the whole target market. If it does not, it will give aninaccurate
picture of the overall outcomes which can be expected.Field research should
be carried out by people who have good knowledge and experience ofboth
the product and the market itself. Failing this, they should at least be
experienced inundertaking research.Field researchers should be capable of
producing unbiased reports and recommendations. Amajor problem to
overcome in field research is personal bias on the part of a researcher, orthe
"self-reference criterion", as it is sometimes called. This simply means that
people holdsuch strong opinions that they superimpose their own ideas on
what they hear or see – thusnegating the results of the research activity.
This is more common in international researchin that, very often,
researchers think that methods used in their home market will work
inforeign markets and they do not "hear" what is being said to them by the
people beingsampled.Apart from aspects of interviewer bias which may
occur, field research has two majorproblems – money and time:
Field research can be expensive in that external agencies need to be
engaged toconduct the research or, if personnel from the organisation are
being used, time will belost while researchers are "away" from their normal
duties.
As field research is based on people finding out about people – their likes,
dislikes, etc.– it can inevitably mean delays. People being researched may
not be available; peopleundertaking research may be ill or tied up with too
many projects; people who areresponsible for analysis may have too many
projects, etc. When planning fieldresearch, potential delays should be
considered and, where possible, some timeallowed accordingly.
Market and Marketing Research

33
It is easy to get "market" and "marketing" research confused. However, the
differencebetween the two terms is important to a professional marketing
manager, so let us clarify theterms now, so there will be no
misunderstanding in the future:
Market research is an investigation into aspects of the market – the
size, trends,competition, legislation, barriers to entry, etc. Market research
assists in the auditstages of marketing planning. It is a general view of the
market and is used as a basisfor decision making. It is really concerned with
the comparative analysis of marketsand market sectors.
Marketing research is the investigations into how to reach, or serve, the
customerand/or the end-user in the best way. Marketing research is
concerned with themarketing mix elements – product, price, place and
promotion and, in mostcircumstances, will include the "soft" elements of
people, physical evidence andprocesses. This type of research is undertaken
by an organisation to make sure that itis offering the best possible mix to its
target audience.The confusion between the two may well be because of the
fact that, when researchingmarkets, the researcher will take into account
such aspects as the level of pricing which isbeing charged in the market, the
type of distribution which is preferred by the current market,the nature of
the promotional activity undertaken by the competition, etc. The
researchersmust do this if they are to form reasoned opinions – they then
move on and carry out theirown individual research to see which is the most
appropriate mix to offer to the chosensegment and whether the organisation
has the resources to cope with the ideal mix. If theorganisation does not
have the resources, further research may be carried out to see wherecosts
can be reduced, etc.
Quantitative and Qualitative Research
"Quantitative" comes from quantity – meaning numbers. Results can be in
the form ofnumbers or percentages. This type of research is used to assess
trends, potential and actualgrowth or decline, etc. Data is relatively easy to
collect and analyse and because of this, canbe done by people who are not
completely familiar with the product or market. However,researchers do
need to understand what they are doing if they are to be effective.The
internet and recent developments in web analytics software are able to
providemarketers with continuous quantitative data, which they can use to
analyse their customers,markets and marketing performance. Gathering,
maintaining and storing this data is knownas 'Data Warehousing' and the
primary purpose of this is to allow marketers access toquantitative
information to support decision making.For example, marketers are able to
gather information on the number of visits to a site, apage, response to a
campaign, with the use of data fusion techniques (using two sets of datato
analyse trends) marketers are able to build a picture of which customers are
responding towhich campaigns etc.Qualitative research is all about ideas
and opinions, or likes and dislikes. Becauseopinions are involved it

34
requires greater skills on the part of the interviewer and the analyst.The
results from qualitative research are often extremely difficult to analyse in a
systematicway. It is common, therefore, to construct questions which can be
answered using someform of scale – such as the Likert scale or a semantic
differential scale. This allowsqualitative responses to be quantified. For
example, questions are posed and theinterviewee is asked to give the
opinion which is nearest to their own – ranging from "verytrue" through a
possible of five minimum options to "very untrue" (see Figure 4.2).

1.0 The service is good.

Strongly agree

Agree

Neither agreesnor disagrees

Disagree

Disagree Strongly

4.4 SOURCES OF INFORMATION

The information we are concerned with here is that which forms the basis of
desk research.As we noted earlier, this will be published information and will
come from a wide variety ofsources and in a wide variety of forms. It will
need careful sifting and analysis to establish itsrelevance to the specific
research being undertaken.(In respect of field research, the source of
information is the market itself – or morespecifically, consumers themselves,
whether existing customers, potential customers,individuals or
organisations.)
External and Internal Sources
One method of characterising the sources of published, documentary
information is inrespect of whether they are external or internal to the
company.
External sources include:
Government departments
Employers' federations
Trade associations
Private firms

35
Professional institutes
Public and private research agencies
Newspapers
Magazines
TV and radio
Banks; embassies
Chambers of Commerce,
Internal sources include:
Past history of customer buying
Sales results
Return on investment
Money spent on promotional campaigns
Details of enquiries received from unserved markets
Production capabilities
Personnel details, etc.
Website – databases.
Two external sources are worthy of additional comment here since they are
rarely consideredas specific sources in the research process.
Suppliers
Information from suppliers may be less formalised than the published
documents or,indeed, a company's own internal records, but small items of
information about industrytrends can come out of discussion between sales
representatives and buyers.It depends, of course, on the buyers
understanding the need for information and theiradoption of the marketing
concept.It is often in the interests of suppliers to help keep their customers
profitable andexchanging useful information may be to the advantage of
both sides. The peopleinvolved must be aware, of course, of the necessity to
comply with the professionalcodes of conduct and avoid giving information
about any specific company.
Competitors
They may seem to be an unlikely source of information, but if you study the
activities ofcompetitors you might be able to deduce what their marketing
policies are and howthey will affect your business.I mentioned a conveyor
belt manufacturer earlier, part of whose demise was due to thefact that their
sales people only ever visited the head office of their largest customer.
The sales manager thought his team would be wasting their time talking to
people whodid not have authority to make decisions. (He had read that in
textbooks on selling.)However, the principal competitor ensured that his
sales engineers visited everymaintenance engineer involved with conveyor
belting, because he knew the engineerswere "influencers" contributing to the
choice of supplier. Competition was so severethat prices were always very
similar, so the fact that people asked for a specific brandensured the
competitor got most of the business.Watching job advertisements put out by
competitors may give some ideas on how wellthey are managing to keep

36
their sales staff; and the odd comment from customersshould be reported by
your sales people. Several small items of information which lookinsignificant
individually can add up to a trend when put together in a
MarketingInformation System.

Macro-statistical and Micro-statistical Information

This is an alternative way of looking at the information needed for desk
research.
(a) Macro-statistical Information
This is the data produced by external organisations which relate to a country
or amarket as a whole. All governments produce this type of information, as
well as manyother public authorities and organisations covering whole
industrial sectors (such asemployer federations, professional bodies, etc.
Macro-statistics can help marketing organisations to:
Assess the market share trends
Monitor the size/growth of markets
Count the numbers of potential customers
See who the main competitors are
See which countries are dealing with which
Monitor regional patterns.
(b) Micro-statistical Information
This is data which is specific to the organisation. This type of data is
compiled bymonitoring the activities of the business itself, e.g. production;
sales; labour supply;return on investment. In effect it is the result of the
internal records system of thecompany.Every company has to keep copies of
orders, invoices and payments for normalmanagement purposes. If these
records can be analysed in detail, they can provide alot of useful information
about which customers buy which products and when. Withsmall additional
inputs the analysis may be made more useful; if the system iscomputerised
it will be fairly easy to relate details to other information collected
fromdifferent sources.Databases which store raw data in an organised
format and data mining, which is theterm used to describe the analysis of
this data have made the storage, retrieval andanalysis of electronic data
more efficient and timely. Using databases and data miningwith website data
means that organisations have accurate, up-to-date, quantitativeinformation
available to them on a daily basis.It is important for records to be kept in
the same way for long periods for them to beuseful. Consistency is very
important in the analysis of information.Micro-statistics can help
organisations to:
Plan for the future
Adapt their activities to meet changing market conditions
Attack competitors who are missing opportunities
Defend market share in the face of increased competitive activity
Grow in market share or size as and when conditions dictate

37
Shrink activities to defend themselves
Consolidate forces before renewed action.
It is arguable as to which type of information is most useful to a marketing
planner, but youshould remember that information is the lifeblood of the
planning system and, as such,should be kept "flowing" into the company. To
keep it flowing, research is needed.

Government Sources
Most governments collect information about consumers and industries,
thenpublishsummaries in a standard format at intervals.Clearly, the
statistical offices must avoid publishing any information which could reveal
thesales of any specific company, so there is often quite a lot of processing
and amalgamationof categories. Even so, regular analysis of appropriate
statistics will enable the detection oftrends and maybe the identification of
the causes of variations in company performance.In Britain, most
government statistics are available on subscription from Her
Majesty'sStationery Office (HMSO) and include:
Business Monitors, which show imports, exports, production and sales of
specificindustry groups, usually on a quarterly basis. Some production
monitors are dividedinto product groups which can be quite specific and the
Service and Distribution Seriesdeals with the activities of shops, catering
establishments and finance houses.
Census of Population, which is carried out every 10 years and gives
acomprehensive analysis of the population of Britain. Every individual is
required by lawto provide quite detailed information about their status on a
specific date. There areprovisions for personal secrecy for people who live in
lodgings and computerisation hasspeeded up the analysis, so some
information can be available within two or threeyears of the census date.
A 10% sample census is also taken halfway between the main censuses. The
statisticsare used extensively by organisations attempting to evaluate
potential markets.Information is analysed for over 100,000 enumeration
districts, each one having about150 households, so you can see that the
information collected is quite detailed.
Employment Gazette, which publishes monthly statistics of people
working, byindustry groups; also movements in wages, hours of work and
retail prices.
Economic Trends, showing activity in terms of prices or volumes of
imports andexports, retail sales, new car registrations, savings and
borrowings and a lot of otherinformation about the British market.
Monthly Digest of Statistics, probably the most useful starting point for
manymarketing researchers because the latest information is published on a
wide range ofitems.
External Databases

38
There are many organisations which collect and interpret information
regularly and provide avariety of statistical and other data to subscribers.
Many industries have a trade associationwhich may collect statistics from
members and publish extracts. There are also many tradedirectories
published which can give useful information. You will find that most large
librarieshave a "directory of directories"; many of the more important
directories will be on theshelves.There are also several regular publications
which can be useful, such as:
Kompass Register, which is published annually for several countries and
usuallyshows companies of any importance, listed by area, industry,
turnover and employees.Names of directors are usually given, along with
any associations with other companiesor groups. Some businesses also take
advertising space to add more information.
Key British Enterprises, published annually, shows ownership, directors,
turnover andnumber of employees for about 20,000 companies, arranged
alphabetically. There arealso indexes based on geographical location and on
industry.
Times 1000, gives details of the top 1000 companies in Britain and some
otherinformation.
Who Owns Whom shows the ultimate owners of companies in groups.
Sometimesgroup affiliations are difficult to trace and if this publication is
kept up-to-date by thelibrarian it is a big help.
Extel Cards provide brief details of annual reports and statements.
Research Index, published every two weeks, shows what has been
published in anumber of major newspapers and journals about specific topics
and selectedcompanies.
Marketing Surveys Index, a publication supported by CIM, shows
references tovarious market surveys published by a wide range of
companies.
4.5 RESEARCH METHODS
Once you have a clear idea of the nature of the information you want to
collect from fieldresearch, you can decide how to obtain it economically and
at the right time. There are avariety of methods available, and the main
ones are described below.
Interviews and Discussions
Interviews – generally with one individual at a time – can be structured or
informal.

Structured interviews are easy to analyse as there will be a definite

pattern to thequestions put to respondents and to the type of answers
received – usually basedaround the use of standard questionnaires.

Informal interviews are much more difficult to handle and analyse and
require highlyskilled interviewers.

39
Group discussions – often referred to as "focus groups" – are conducted
with small groupsof people who have been chosen as a representative
sample of the target population. Theycan be "led" by an observer or be more
formal in that the group undergoes tests at the sametime. Often groups are
kept together and re-interviewed several times over a period tomonitor
changes in attitudes and opinions.Such matters as new product research, for
instance, often involve discussion of futuredevelopments of a company's
product range. It is necessary for the researcher to have agood product and
industry knowledge, so as to be able to recognise useful information whenit
appears in conversation. It is also helpful to be able to ask questions
spontaneously andgive some information to the respondent, so discussion
does not get down to a newspaperreporter-style question and answer
session.
Observation
Watching people can be an effective means of collecting information – not
the "private eye"type of watching you may see on television, but more likely
the automatic watching providedby the machine which counts the number of
people who enter and leave a shop. This issimply a beam of light broken by
the passage of feet, the break in the ray of light operating acounter which
can then be used to ascertain shopping flows, movements and
behaviours.Observation may also be used to examine behaviour in respect
of, say, the attractiveness ofcolour options or to monitor patterns of
interaction – for example, the way a child plays with atoy, or the impact of
different physical surroundings on customers in a shop.You may see
occasionally a person with a hand-operated counter, clicking as they
recordssome sort of activity, but it is not a frequent happening these days,
often due the cost andtime involved.Two particular forms of observational
techniques are "hall" and "laboratory" testing.

Hall tests
These are where members of the public are invited to take part in a product
test, in alocation large enough to handle the number of people to be
"tested". For example, anairline might use this method to test out new
seating in an aeroplane. The companywould hire a hall and have a "mock-
up" of a plane with seats in it. They would then askpeople to undertake
certain activities – put the seat back into reclining position, switchon the
seat video, reach for the bell to call cabin staff, etc. They would also have
cabinstaff serve meals and drinks to the "passengers". These activities would
allow thecompany to assess such factors as passenger comfort and
convenience, safety issues,ease of access for cabin staff and so on – all of
which are vital to ensure safe andeconomical use of limited
space.Respondents can be recruited by invitation or by simply asking them
in off the street.Usually for this kind of test there is an incentive offered –
perhaps a small fee, freemeal or something of that nature.The point of a

40
"hall test" is that all respondents are tested at the same time and resultsare
recorded immediately. Not all tests touch the entire target population at the
sametime.

Laboratory tests
These are where representative members of the target audience are asked
to look at,for example, certain adverts, products, etc. Instruments are
available which can beused for measuring the reactions of vision to colour,
cameras which will record thespeed with which the eye is attracted to certain
aspects of an item, instruments whichwill measure the changes in activity of
the sweat glands (psycho galvanometer) etc.The problem with this type of
test is that it is held in artificial conditions and may not beaccurate in
reflecting the individual's responses under normal conditions.
Questionnaires
Questionnaires are the most frequently used research method, mainly due to
their flexibility –they can be as simple or as complex as required, and may
be conducted in a variety of ways.They also ensure standardisation and
consistency in both the questions asked and theresponses.There are a
number of general principles about the use of questionnaires – they should:
Be well planned, with strict objectives
Be based on obtaining the required results
Not be too difficult for the respondents – if they are complex they may
deter therespondent from answering fully
Avoid leading questions
Contain unambiguous questions
Follow a logical sequence
Include some control questions.
If you are planning to use questionnaires, it makes good sense to get the
details checkedbefore the formal process starts. There are two ways to do
this: either send questionnairesto a selected test sample and wait for replies
or visit them (by appointment) and watch themfill in the questionnaires. This
can be a very useful activity – if you can stand the commentson your
masterpiece!There are various ways of using questionnaires. They may be
used as the basis of individualinterviews – for example, the surveys
conducted by stopping people in the street – but wetend to think of the main
types of questionnaire as being those conducted by post or by thetelephone.
Postal surveys
These are questionnaires sent to representatives of the market in order to
clarify itemsbeing researched. Although these are relatively inexpensive to
issue, there can be agreat deal of wastage unless some form of incentive is
offered to the respondents.Of course, once an incentive is offered it can
cause bias to the results in thatrespondents may answer in a manner
whichthey think will "please" the researcher.The one big advantage of the
postal questionnaire is that you can reach everyone inthe postal system,

41
usually at the same predictable cost. If you enclose a reply paidenvelope you
can raise the response rate considerably. Since it is possible to do so
formany overseas countries now, you can operate almost worldwide.
However, you dohave to be careful with translations – when my boss
decided to send a questionnaire tocompanies in Belgium and France he
thought the French questionnaires would begood enough for the French-
speaking part of Belgium, but our Branch Manager inBrussels insisted on
altering some of the phrases. There were many more examples ofthat type,
too.

Telephone Surveys
Modern telephone systems connect so quickly that it is tempting to use the
telephonefor questionnaires and there are some advantages in doing so. The
main advantage isspeed and it is possible to gather a lot of opinions in a
short time.It is essential to keep the questionnaire short and simple to
ensure the respondent islikely to be able to give an opinion without
searching through records. On a specificsurvey I collected over 200 useful
answers in 2 days of intense telephoning, from anoffice with no windows and
no other distractions except a clock and a classifiedtelephone directory. A
dedicated, well-trained telephone interviewer could do evenbetter and might
well enter the responses direct into a computer data base.There is a danger
in such intensity – one of the people asked "Is that a machine or are
you real?" and I realised my presentation had become rather mechanical and
boring.It was time to stop for a break. It is also helpful if the interviewer
tries to avoid givingthe impression that they are simply working through a
pre-determined questionnaire. Iftelephone interviewing is not handled
correctly it can become a nuisance to the personbeing interviewed which will
result in answers being given which may be untrue (orgiven to "get it over
with") and the whole purpose of the exercise will be lost.It is sometimes
useful to follow up a postal questionnaire with a phone call to clarifysome
point or to ask for more information, or to provide some reassurance to
therespondent.With itemised telephone bills, it is now much easier to check
on the costs involved inconducting a telephone survey.The response rate
from questionnaires may be increased if the respondent can beguaranteed
confidentiality of any replies, which must be assured if the claim is made.
Therecan be difficulties when the research is done by in-house staff, so the
researcher must besure of management support on this delicate matter.
Some salesmen find it very difficult toaccept they should not be given names
and addresses of respondents. However, theinformation provided should be
used only in such a way that it cannot be traced to thesource. Professional
researchers would automatically take care of the matter.

Test Marketing

42
Test marketing is a much more extensive type of research in which the
product is launched ina selected area; thus the product and marketing
methods can be tried out in real lifesituations. It is then possible to judge
whether or not a substantial amount of money andeffort should be
committed to a national launch. If the test marketing programme
showsserious faults in the products, the costs of a full launch will be
avoided.Test marketing requires very detailed preparation and analysis of
results. There are lots ofopportunities for false results to be received,
indicating a successful product which may notturn out to be profitable. Also,
the test must go on for an appropriate period – long enoughfor consumers to
buy a second time if they like the product. That gives your competitors
achance to see what your ideas are and perhaps launch a similar product
without waiting totest their version.
Sampling
All of the above methods of gathering information are based on some form
of sampling.This involves selecting part of an entire group (a population)
which is representative of thewhole group, since it is easier to take
information from a small number of people than froman entire target
market. Providing the sample is truly representative, the results gained
willprovide a relatively accurate prediction of the way the entire target
market will react in anygiven situation.
There are several types of "samples":
Random – any one item/person can be included
Purposive – based on the choice of the selector (18-25 year olds)
Systematic – definite system used (e.g. every 10th house in street)
Stratified – sample divided into groups (age, etc.) and then random
selection
Quota – interviewer given basis of selection (50% male/50% female)
Cluster/area – breaking area into sub-divisions and then random
sampling
Multi-stage – e.g. country, then county, then town, district, street
Panels – groups who are interviewed at regular intervals on various
topics.

Unit 5.1: MARKET SEGMENTATION, TARGETING ANDPOSITIONING

5.1 market segmentation
Apart from the highly specialised companies which deal with very few
customers,organisations have to find their buyers. However, the number of
people, and organisations,in the world make it almost impossible for any
organisation to reach, and serve, everypotential customer. This means that
there must be some way of "splitting up" the overallmarket into smaller,
more manageable portions. This is done by segmentation.Segmentation is
an important element in the marketing mix and you will see in the following

43
pages the different ways that you can segment a market. Targeting and
positioning thenfollow and the latter affects all aspects of the marketing mix
but in particular thecommunications elements.The purpose of segmentation
and positioning is:
• To establish which segments of the total market your product or
service is selling to andhow efficient it is
• To ensure that the product's position in those segments is how you are
seen in theminds of the target market.
Segmentation can be defined as:"The act of dividing the market into specific
groups of consumers/buyers whoshare common needs and who might
require separate products and/or marketingmixes" (Adapted from Kotler
1981). Segmentation is the single most important aspect of promotion,
perhaps even of marketingtoday. It is the foundation which enables
promotional campaigns to be constructedeffectively and efficiently.Marketing
is consumer-centred. It is marketing's job to identify specific consumer
needs, andto satisfy those needs through the creation of a "package",
making it available to theidentified consumers and making the very same
consumers (and associated customers)aware that the package
exists.Obviously it is wasteful to make a product available when there is no
consumer need; equallyobviously there is no point in advertising a service in
media that are not seen by the targetconsumers (and/or customers).It
follows that it is necessary to examine a potential market to identify
particular parts of it thatshare a common need, have a similar psychological
make-up and can be reached with bothpromotion and product.When this is
done one has segmented the market.

Bases for Segmentation

There are a number of ways in which markets may be segmented. The main
bases are:
• Geographic – the market is divided into geographic units: a nation, a
country, a city, atown. This is more likely, now, to be a TV area –
certainly an area for which secondarydata sources exist.
• Demographic – people-based segmentation, where the market is
divided on criteriasuch as age, sex, family size, family life-cycle, job
type, income, etc.
• Psychographic – segmentation based on such things as lifestyle,
attitudes, beliefsand intentions.

Alternative bases can be developed from behavioural issues such as:

• Occasions – when the product is used
• Benefits – those sought by the consumer
• Usage – heavy users are of more value than light.
There is no right or wrong way to segment a market and so marketers are
always developingtheir own approaches to segmentation because each

44
market must be approached from theperspective of their own organisation.
We shall review the general criteria used forsegmenting markets before
going on to consider some of the main bases applied.

(a) Criteria for segmentation

The rules for segmentation are easy to accept as they are simply common
sense.Always remember that while the marketer is trying to identify a
segment which matchesthe product or service being offered, a profitable
outcome is also required which meansthat the segment must be:
• Identifiable
It must be capable of being identified as a separate section of the overall
marketand must display some common characteristic which sets it apart
from the overallmarket.
• Recognisable
Do the members of the segment recognise themselves as being "different"
anddo other organisations in the chain of distribution recognise the
segment?If neither the buyers nor those who serve them recognise the
segment it isunlikely to be a successful option. It is more likely to be a
"created" segment inthe mind of a person who believes strongly in the
benefits of a particular product:but remember this is not true marketing – it
is "product led" marketing.
• Substantial
It must be large enough to warrant activity on the part of the marketer. In
theextreme example above, the woman with green hair could not be
described as a"substantial" segment.
• Profitable
It must be capable of achieving the desired objectives. This may not be
infinancial terms. Segments can be identified and used as a means of
enteringamarket even though they produce little or no profit. This type of
situation is oftenfound in international marketing if an organisation just
wants to get a "presence"in the marketplace for some reason or another. A
segment, which produces littleprofit, can also be chosen as an "investment"
because of potential add-on salesat a later date.
• Accessible
The marketer must be able to reach the segment. It is no good identifying
apotential segment if you cannot serve it because of government regulations
orlocation, etc.
• Measurable
You need to know the size of the segment before, during and after your
activities.If you cannot measure, you cannot assess your success. Someone
once said "IfI cannot measure it, I cannot manage it" and this is very true.
• Reliable or Stable
The chosen segment must demonstrate a history and a future. If a
segmentsuddenly appears, say because of a fashion fad, it may not be either

45
stable orreliable. Unless the organisation is able to move quickly and satisfy
theimmediate need, the segment may disappear just as quickly.
• Sustainable
The organisation must be capable of serving the segment in the longer term.
It ispointless identifying a segment which is so big that it is impossible to
maintain.All this will do is to create dissatisfied customers and wonderful
opportunities forcompetitors to come along and take the segment over –
with the resulting lossesof investment and effort for the original
organisation.Another aspect which should be considered is whether the
segment "fits" with thecompany image and objectives. For example, a
company which sells high qualitygoods and relies on brand image would be
unwise to suddenly start marketing to alower income group – they could lose
their credibility with the loyal customers theyhave in the higher price bracket
which might mean greater losses than the incomederived from the new
segment.

(b) Organisational Segmentation

Unfortunately the segmentation techniques available to those marketing to
individualsare not available to the organisational marketer. On the other
hand the strictly limitedsize of organisational markets is a major bonus. In
organisational segmentation,groupings of customers can be broken down:
• Using the Standard Industrial Classifications (SIC) of the country
census of production
• By the technology of the industry, e.g. chemical or electrical, etc.;
extractive,processing or manufacturing
• By size of organisation
• By seasonal purchasing trends
• By geographic location
• By the type of product needed.
This organisational demographics approach to segmentation assumes
thatorganisations operating in similar industries, etc., have similar needs,
and will exhibitthe same kind of buying behaviour. Unfortunately this
assumption is likely to be false insufficient cases to warrant a serious
attempt to locate a more effective method ofsegmentation.Other bases for
segmentation include:
• Benefits sought
• Title/position of key decision-makers
• The degree of formality in the buying organisation
• The type of people involved in the buying decision.
The type of product needed is a great help in segmentation. Office
equipment is inuniversal demand and is almost a mass market. It can break
down to users of types ofmachine, for example, which require specialised
support (e.g. determine the users ofMacintosh computers as against IBM
and IBM clones). Medical X-ray equipment is inlimited demand, and those

46
requiring it can very easily be identified. New uses for X-rayequipment can
also be identified, and provided for (e.g. the increased security need
atairports, and now in shopping centres, hotels, museums – wherever the
public gathersin sufficient numbers to make a target).Additionally to the
comparative weakness in segmentation criteria, we are short ofinformation
regarding the diffusion process for new products. How quickly will they
beaccepted? Can the adoption process be hurried up? How can innovative
organisations be identified?Fortunately for many selling to organisations
there are major benefits that haveaccrued over the years. Organisations:
• Tend to be more stable in their requirements than individuals,
especially thosewhich are highly capitalised, and those which engage
in long production runs
• Are more visible than individuals, and can thus be individually
researched
• Are fewer in number, and thus individual sales research is cost-
effective
• Tend to congregate around trade associations, exhibitions,
conferences, etc. andcan thus be identified and accessed.
The individual nature of the target audience generally precludes the use of
mass media– but the very need for highly targeted communications brings
major benefits with it.
• Sales records can be highly detailed, and extend over a long period
• Individual contacts can be fostered and developed, again over a long
period
• Trade and specialist press exist to target virtually every type of
organisation
• Direct mail lists can access virtually every individual of significance by
job titleand in many cases, by name.
Note: In some cases where a supplier is marketing to individuals, it has
been possibleto achieve a "double strike" in communications by transferring
the retail brand into theorganisational market. Thus, when Dulux paint is
advertised an important subaudienceis the organisational buyers, who have
the opportunity to decide which brandof paint they will buy in bulk.

(c) Geodemographic Segmentation

The powerful tool of geodemographic segmentation is made possible by the
computerand the system of Post Codes (Zip codes) which it enabled the Post
Office tointroduce. There are over 24 million homes and businesses in the
UK and everyonehas a post code.The post code breaks into constituent parts
to provide a lot of vital information. Let usexamine the post code MK42
8LA:MK The Outward Code, which identifies one of 120 Post Code areas. MK
is MiltonKeynes.42 A district within the area. There are 2,900 districts in the
UK. MK42 is theKempson district of Bedford in the Milton Keynes area.8 The
first digit of the Inward Code which identifies one of 9,000 sectors. MK42 8is

47
a sector within Kempson.LA Narrows down to units, which may be a handful
of houses on a street or a singlebusiness. 174,000 "large users" have
individual post codes.Thus, MK42 8LA encompasses a group of houses on
King's Road, Kempson.By cross-referencing post codes with government
Census data it is possible to identify
clusters of households that share similar characteristics. Thus "geo" from
geographicand "demographic" come together as geodemographic.The
originators of the technique have marketed it under the acronym ACORN(A
Classification of Residential Neighbourhoods). Several competitors have
joinedthem and use the same basic technique, but provide uniquely tailored
services.MOSAIC, for example, claims to be "the standard for packaged
goods, groceryretailing, door-to-door distribution, and local media and list
owners' selection services".Choosing between rival suppliers is a question of
matching your need to their exactprovision.Geodemographics depends for its
success on the high probability that like people livetogether and that like
people behave in similar fashion. Thus if a grouping can beidentified,
labelled, and its behaviour studied, it is probable that a similar
groupingelsewhere in the country will share similar behaviour. The Census is
taken every tenyears, with a sample Census every five. The most recent was
taken in 1991 and thenew geodemographic data became available at the
end of 1993.The major providers all use the same basic methodology, so we
can illustrate how thedatabase is constructed by reference to ACORN.ACORN
takes as many as 79 data items from the 9,000 items produced by the
Censusauthorities for each of the 150,000 small geographic areas that cover
Britain. Theseinclude significant facts such as sex, age, marital status,
economic position, education, home and car ownership. Where the small
geographic areas with similarcharacteristics cluster in the Census data they
form the 54 ACORN Types, which arethen used as a means of defining and
understanding the people in any given area – forexample, "Families with
Mortgages and Younger Children".Choosing the right geographical area is
vital. Different markets need to view theircustomer base in different ways:
• Retailers are interested in store catchment areas
• Direct marketers are concerned with postal geographies
• TV advertisers deal in ISBA TV regions
• Health-care marketers are interested in administrative areas.
ACORN can take individual clients' data and include it within the basic
ACORN system.It can then be profiled in whichever geographic areas are
most appropriate – frompostal areas to the abstract (such as a contour line
on a map) Additionally, all geodemographic surveys provide easy cross-
referencing to two majormarketing research databases. The Target Group
Index (TGI) and the NationalReadership Survey (NRS) allow ACORN profiles
to be extended to include data onproduct usage, holidays, readership, etc.
Using geodemographic data one can, for example:

48
 • Be given an exact count of the target households to leaflet, an exact
number ofleaflets to print, and road maps that specify on which houses
to drop leaflets.
• Match a target segment against media (who show their readership by
geodemographic classification).
• Select sites for retail shops so that they are close to their target
customers.ACORN data helped retailers to prove that customers
choose stores by time andsimplicity; not by distance criteria. In other
words being close to the customer isnot enough. If the journey is
difficult – or perceived as difficult – the shopper willgo elsewhere.
Shoppers will go 25 miles on a motorway rather than three
milesacross town, for instance.
• Adjust stock range and levels so that the correct goods are in areas of
demand.One simple way to secure customer information is through the
guarantee cards thatmost manufacturers ask buyers to complete and
return. In the UK there is no need toregister a purchase with
themanufacturer, one's contract is with the retailer. Yet manyof the
cards are filled in and returned. You will notice that they normally ask
for moredata than is needed simply to register a purchase. Every card
that is returned extendsthe manufacturer's database, and provides
more information about its customers.Geodemographic data is very
easy to obtain on contract. Individual prices arediscussed with those
who have a serious interest, but the service is proven to be
costeffective.Another well-established geodemographic system is
MOSAIC, which wehave already mentioned. This offers 12 lifestyle
groups, which in turn are split into 52different types.
(d) Social Grade Segmentation
The UK market is divided by the National Readership Survey into six Social
Grades,which are often described as segments. The classification has
become so useful that itis almost universally known, and is in very wide
usage.Unfortunately the division is based upon the data appertaining to the
chief income earner,which means that all in a household are graded
identically no matter what their differencesmay be in education levels, work,
disposable income, lifestyle, etc. Thus the only marketingvalue is to assist,
as a form of shorthand, the broad description of a market area – "This is
aproduct for the A/B market".
The classifications are:
SocialGrade Social Status Occupation% of UKPopulation(1998/99)

Upper middle class Higher managerial, professional A 2.8%

Middle class Intermediate managerial, B 18.6%

professional
Lower middle class Supervisory or clerical C1 27.5%

49
Skilled working class Skilled manual workers C2 22.1%
Working class Semi-skilled and unskilled manual D 17.6%
workers
Those at lowestlevel of subsistenceState pensioners, E 11 %
widows, casualor lowest-grade workers

Source: National Readership Survey (NRS Ltd) July 1998 – June 1999

(e) Life-Cycle Segmentation

Life cycles provide a useful basis for segmentation in some markets. The
NationalWestminster Bank, for example, set out the stages of the life cycle,
and the financialimplications, in a leaflet focused on savings and pension
plans:
• You're born – and are reliant on somebody else for everything.
• You go to school – with 11 years to look forward to. It costs about
£139,000 toeducate a child at a boarding school and £55,000 at a day
school. Paying out ofincome is almost impossible – take out a regular
savings plan early.
• You get a job – the last thing you think about is life assurance and
pensions, butremember if you start a personal pension at 20 instead of
30 you could pay 9%less of your salary each year and still secure the
same pension.
• You start a family – a real need for protection. One in five men die
before theyare 65. Take out insurance!
• You buy a house – you can choose between term assurance and an
endowmentplan.
• You plan time off – you will need money to live on. Banks and building
societiescan help with saving and investment plans.
• You run your own business – you may need to borrow, to arrange life
assurance,a tax-efficient way to save for the future.
• You save for your daughter's wedding – an average wedding costs
over £10,000.A bit of a shock if you don't save for it.
• You think about retiring – the State pension is (from April 2000)
£67.50 + £40.40for a spouse assuming full contributions. Only one
person in 100 in a companypension scheme will receive maximum
pension benefit so the sooner you thinkabout a personal pension plan
the better.
• You're worth more than you think – without careful planning you could
leave anunnecessary tax bill for your dependants to pay. Take out a
life-assurance policyunder trust.Sagacity grouping looks at the life
cycle in conjunction with job type. The basic thesisis that people have
different aspirations and behaviour patterns as they go throughtheir
life cycle. Four main stages are defined which are subdivided by
income andoccupation groups.

50
 •
(f) Psychographics
Lifestyle segmentation is made possible by ascertaining the typical lifestyle
of a typicalcustomer and then confirming that there are sufficient similar
customers and potentialcustomers to form a viable segment. The TGI survey
is an important tool in lifestylesegmentation.
• Target Group Index (TGI)
Run by the British Market Research Bureau the TGI is a long-standing
andgreatly respected continuous survey of 24,000 adults. Since 1968 it has
beencontinuously in the field and its reputation is well deserved. Published
annually(April to March) it also provides six-monthly figures for April to
September.The TGI has 34 volumes and provides considerably detailed
information on over3,000 brands.The TGI works with the full range of
standard demographics and offers specialbreakdowns on such things as
working status and TEA. It has a "lifestyle"section consisting of nearly 200
attitude statements against which the level ofagreement or disagreement of
each respondent is measured. This allows crosstabulationof attitude against
demographics, media and brands to assist with verydetailed market
targeting.
Benefit Segmentation
This is segmentation based on the consumer benefits – those of the
users/buyersof the product. A motor car can be sold on such features as
economy, safety andacceleration. It is essential to know what a potential
customer wants from apurchase – will he or she appreciate acceleration as a
benefit? Should the offerbe made in terms of convenience and safety?
Sought benefits vary with lifestyle and circumstances. Thus a young
man'sbenefit needs are likely to change remarkably as he becomes a father
for the firsttime and convenience, safety and economy replace acceleration,
speed andstatus as priorities.Similarly, a sufferer from chronic arthritis is
likely to need an automatic car,whatever he or she may have previously
preferred.
Attitudes
Crucially important within marketing, attitudes, beliefs and intentions can be
thekey to any form of segmentation. It is possible to segment on individuals
holdingthe same attitudes – fans of a particular football team, for example –
but moresubtle is the influence which attitudes, beliefs and opinions have
over every day behaviour.It is important always to consider attitude when
segmenting a market becauseindividuals will have a unique approach
whatever general classification you canslot them into.Geodemographics
coupled with lifestyle surveys comes closest to providing anunderstanding of
the prevailing attitudes within a segment, but an understandingof the
particular attitudes that affect a specific product/market is necessary fortruly
effective segmentation.As technology advances, markets are becoming more
fragmented, as can be seen throughnew media providers such as Sky

51
television with Sports Channels, DIY channels, Babychannels etc. Also the
use of websites and related technologies means that organisationsare able to
not only communicate individually with customers but are able to tailor
theirproducts to an individual's requirements. An example of this can be
found with Dellcomputers, whose website allows individual customers to
tailor their computers prior todespatch.

5.2 Market Targeting

This has been defined by Kotler as:"The act of developing measures of
segment attractiveness and selecting one or
more of the market segments to enter."
(a) Target-Market Selection
There are five patterns of target-market selection, as shown in Figure 2.4.
Single-segmentconcentration

M1 M2 M3
P1

P2

P3

Multi-segment coverage

M1 M2 M3
P1

P2

P3

Market specialization

M1 M2 M3

52
 P1

P2

P3

Product specialization Full market coverage

M1 M2 M3
P1

P2

P3

M1 M2 M3
P1

P2

P3

P = Product
M = Market

• Single-segment concentration allows tight focus and concentrated

effort.It does, however, involve higher risks since a market change will
leave onevulnerable.
• Multi-segment coverage is the selection of several segments, which
may havelittle or no synergy. Risk is spread.
• Product specialisation focuses on the production of a single product,
which issold to several segments. Reputation is built on the quality and
the range; therisk is that the product itself can be superseded. Hence
the focus needs to be onthe task, not the product. The classic example
is the American railways whichwere product- and not task-focused.
Their future lay in transportation, not inrailway trains.
• Market-specialisation requires coverage of a market's needs, e.g.
"All you needfor your office".

53
 • Full market coverage is possible only for organisations since the aim
is tosupply all consumer groups with all the products they might need,
e.g. IBM(computers), Microsoft (software), Ford (vehicle)

(b) Differentiation
In undifferentiated marketing an organisation will ignore market segment
differencesand offer a single product to the whole market. Note how even
the mighty Coca-Colahave revised their approach by the introduction of
targeted versions of their originalproduct.Undifferentiated marketing is only
sustainable in conditions of monopoly or wheredemand greatly exceeds
supply. As competition enters, and when demand slowsdown, it is no longer
a tenable policy.
Differentiated marketing requires the design of products to be tailored to
segmentneeds. Thus Ford will produce up to 18 or 20 versions of each model
to cater firstly forthe basic needs of a generalised segment and then for
individual needs within thatsegment. For example, the need may be for a
small car to use in the city. Thus theFiesta is first choice. But then one can
choose from a range of options:
• Manual or automatic transmission
• Engine size
• Tuning for performance or economy
• Colour and upholstery options
• Status additions – exclusive models, customisation, etc.
Transcending product and service are the differentiation potentials of
personnel andimage.Personnel differentiation can be secured by a hiring
and retention policy that attractshigh quality staff. High quality personnel
more than justify their higher cost if managedcorrectly within an appropriate
corporate policy. Without management support fromcorporate level, high
quality personnel will become frustrated and leave.Image differentiation
refers to a perceived difference, part of which can be expressedas branding.
An image must convey a singular message in a distinctive way
withemotional power. Those who succeed in establishing a corporate image
haveimmediate recognition within their target markets. This is sufficient – it
is wasteful todevelop an image in markets where there is no intention to
trade.Image is normally encapsulated in a symbol, and an effective symbol
immediatelyconjures up the whole emotional appeal associated with the
organisation and/or itsproducts and services. Thus even a split second's
peripheral glance at a Happy Eatersign on a busy main road alerts the driver
to the restaurant and provides an immediateand powerful image of exactly
what type of food, ambience, service and price areavailable – far more
powerful than a sign for Priscilla's Restaurant about which nothingis known,
especially when a decision has to be made in seconds as the car speedsalong
at 65 mph.

54
5.3 Positioning
There need be no such thing as a commodity. Convert a commodity into a
product that canbe targeted in two stages:
• Consider it an undifferentiated product.
• Identify a way to differentiate. This will come from identification of a
target market – aniche market – with consumers who have unfulfilled
needs.Developing an overall "package" of benefits that can be
positioned in the minds of the targetconsumers completes the
transformation.
Thus positioning is the act of designing an offer so that it occupies a
distinct and valuedplace in the minds of the target customers (Kotler).
Note that products are not positioned – the term "product positioning" is
incorrect.Positioning refers exclusively to a mental concept. The package
that comprises the offer hasto be positioned – remember that consumers do
not want products, they want what productsdo for them. They want their
needs to be fulfilled.
Example
How is a Mars Bar positioned? Is it a filled bar of chocolate, a piece of
confectionery to befound on the sweets counter? No! A Mars, we are told,
"helps you work, rest and play".So it is positioned as a nourishing snack that
is fun to eat.Who eats Mars? According to the adverts (the pictures, not the
words) the eaters are young,healthy, virile, active, fit, happy.Where do we
find Mars? On the confectionery counters; but also on the
biscuits/snackscounters, in vending machines, in cafés – and we now also
find "fun", "standard" and "extra-large" bars as the Mars brand is
extended.Further brand extension has seen the introduction of Mars ice
cream which carries the samepackaging and symbolism as the traditional
Mars Bar.A Mars Bar, by virtue of its wide appeal and low price, could have a
very wide market atwhich to aim. But it is actually aiming at several
different market segments. Mars are nottargeting individuals, they are
instead targeting identified groups that individuals move intoand out from as
they pass from stage to stage through life.

(a) Positioning Maps

By taking two of the key variables influencing consumers it is possible to plot
organisations or offerings against one another. This gives a picture of the
market interms of competitive position and facilitates the identification of
market gaps(otherwise known as niches).Positioning maps are usually
shown in two dimensions for simplicity but it is normal formultidimensional
mapping to be used, i.e. several key variables are plotted againsteach other
in order that an identified niche can be accurately defined. Thus asequence
of positioning maps may be required to illustrate even a static
position.Obviously a series of maps will be needed to describe a dynamic
situation.Positioning maps are a very effective tool because not only do they

55
force detailedmarket study, but they also present information in a readily
understandable form.

(b) Positioning statements

Positioning statements are succinct descriptions of the exact position that
the productis to take in the minds of the target market. Very great care and
considerable time aretaken to ensure that the statement is accurate and
detailed. It will become the focus forall marketing effort and so the creative
management time devoted to it will be repaid inlong-term benefit. We shall
return to positioning statements later in the course.It is difficult to challenge
a competitor who holds a position; usually it is better to define,establish and
protect a position that is unique in the market.

CONVENIENTEXCLUSIVELOW PRICE HIGH PRICE

• Fortnum & Mason
• Harrod's Food Hall
• Marks & Spencer
• Cullens

Exercise

Q1. Using a consumer and an industrial product or service by way of

comparison, list and justify sets of segmentation bases for each of these

UNIT 6.0 : THE MARKETING MIX

Aims and objectives
• Understand how the marketing variables support each other in
stimulating demand
• How the marketing mix changes at different stages of the product life
cycle
• How to implement a marketing mix
• Understand the importance of marketing strategies
• Understanding the models in marketing strategies

6.1 Introduction to marketing mix

Companies who follow the marketing concept will use the marketing mix to
conduct theirdealings with customers.The "mix", as it is affectionately
known, is really a combination of factors which can beamended or adapted
to suit the requirements of individual, or groups of, customers. It is the"tool-
box" of the marketer.
7.2 The Seven Ps
The term "marketing mix" covers the seven controllable variables of:
• Product
• Price

56
 • Place
• Promotion
• People
• Processes
• Physical evidence.
You will note that seven is emphasised. There is a good reason for this.
It is likely that if you were to ask someone what the marketing mix was,
they would say"The 4 Ps – Product, Price, Place and Promotion". Until
relatively recently this would havebeen correct.However, the marketing mix
has been extended! We now have the 7 Ps to play with: theoriginal four,
plus People, Processes and Physical evidence.These last three are
sometimes referred to as the "soft elements" of the mix and areregarded as
being relevant to internal rather than external aspects of the
organisation,although they are all relevant to the customer. Increase in the
service industries, during thelatter half of the last century, has aided the
importance of the 7 Ps as People, Processes andPhysical Evidence play an
important role in adding value and creating competitiveadvantage.We will be
looking at mix elements later in the course, but it may be appropriate to
give someattention to the "new" or "added" mix elements at this point.
• People
This aspect covers the training and motivation of the people involved in the
marketingeffort – in other words, everyone in the organisation. It is
important that the correctimage is portrayed to a customer at all times and
the staff is the people who deliverthis image. The attitude they have to the
customer is important, and may be shown bythe way in which they answer
the telephone. Are they polite? Do they understand theproduct range
enough to help a customer? These considerations and many more,
areimportant.Because of fierce competition and the heightened awareness of
today's customers,organisations are having to pay greater attention to
customer care and it is with theinternal staff that customer care begins and
ends.In the delivery of services there is no tangible product for consumers to
experience andtherefore, it is people who add value and provide quality.
There is no product to repeatpurchase and therefore, customer loyalty is
developed through the relationship of the staffdevelop with customers at the
point of the service. Therefore, as with customer care,delivery of service is
dependent on staff.The search for improvement in this element of the
marketing mix has led to theintroduction of internal marketing programmes
which are designed to make staff awareof the importance of the customer,
as well as to motivate them to work towardsachieving customer satisfaction.
• Processes
This element refers to the systems used in the organisation which contribute
to themarketing effort. It may seem a strange organisational aspect to
include in themarketing mix but, if you consider that the marketing mix is
the "tool box" whichcontains the controllable variables used by the marketer

57
to satisfy customer needs, itmakes sense.The customer comes into contact
with the organisation in many ways: makingenquiries; making a purchase;
seeking advice on delivery dates; receiving invoices andstatements; and
after sales. If the marketer can influence, or modify, the organizational
processes in such a way that they become customer friendly it can only add
to theoverall marketing effort. Recent examples of improving or competing
through processimprovements can be seen by organisations offering e-
commerce capabilities throughtheir websites, such as on-line banking
services. Process improvements can not onlyadd value and gain competitive
advantage but they can also be used to develop closercustomer
relationships. An example here would be where customers get personalized
text communications such as reminders, promotions etc.
• Physical Evidence
This aspect refers to what the customer "sees" surrounding a purchase.
Overall theterm covers the physical appearances and ambience that
collectively imprint on thecustomer's mind. It could be the appearance of the
showroom, the trimmings that arein a hotel, the quality of information
leaflets, the external aspects of the building, thetype of music played in the
background or any of the additional facilities thatorganisations provide which
give additional service to a customer.Services are of course intangible and it
is therefore important that organisations try tofind a way to make a service
more tangible for its customers, an example of physicalevidence being used
in a service industries would be an insurance company who issuecustomers
with physical pieces of paper/insurance policies.Although marketers have
always considered the above aspects, their importance was neverformally
acknowledged until the 1980s and even then they were regarded as applying
only toservice industries.It has now been recognised that they are equally
important to all types of marketing activities.This recognition is helping
marketing professionals to give improved levels of customerservice, thereby
providing more and more customer satisfaction.
Kotler's Seven Cs
The concept of the 7 Ps has developed from the marketer's viewpoint of
what is required;Kotler now considers marketing's role from the perspective
of what customers andconsumers need, and he has introduced a C
concept. Kotler's 4 Cs cover the original 4 Ps(Product, Price, Place, and
Promotion) but it is relatively simple to add Cs to People, Physicalevidence
and Process.When we do this we see that the marketing focus is made far
clearer from a Cs viewpoint. Itfollows that marketers should produce as Ps
only what customers and consumers value asCs:
Seven Ps Seven Cs
• Product Customer value
• Price Cost
• Place Convenience
• Promotion Communication

58
 • People Consideration
• Processes Co-ordination andconcern
• Physical Evidence Confirmation

Customer Value
Value is a combination of many factors, all of which are subjective and
dependent onthe perceptions of individuals. Often what is valued is not the
major benefit, especiallywhen branded goods are functionally so similar.
Kotler says that the car he valuedmost highly was a Ford because it was the
only one with a gadget to hold his can ofCoca-Cola.
• Cost
When judged from the C viewpoint, price becomes only one element of cost.
Howmuch time, energy and effort have to be committed to the product?
What are thestatus and reputation issues? Cost is a blend of issues that far
outweigh "mere money"in importance.
• Convenience
People want the function and/or the symbolic values – and they want them
where theyare needed. Thus convenience is the factor that matters.
Obviously a package has tobe placed in a channel of distribution, but all that
matters to the customer is that it isavailable where, when and how it is most
convenient.For example, when buying a new computer the cost involves
such price issues as thetotal cost of the CPU, monitor, keyboard, cables and
VAT. But the time and effort to setup and then become experienced on the
new equipment are also cost factors. Willthere be a need for new software?
Can the existing data be read directly, or easilytransferred? Is the package
conveniently packaged (physically)? Is it easy toassemble? Is it delivered –
complete? Is the basic software pre-loaded?

• Communication
The customer and the consumer both have to learn about the package, and
in termsthat both comprehend and, hopefully, believe. Messages must be
tailored to the needsand perceptions of the members of the target
audiences.
• Consideration
Marketing is people orientated. Individuals differ and each must be provided
for.Therefore all contacts have to be established on a procedure, but with
provision forflexibility where possible. Staff must be trained to show
consideration in theirexplanations and in showing why in certain
circumstances there can be no flexibility.
• Co-ordination and concern
This double C shows the need to co-ordinate efforts throughout the whole
process.Everybody must be focused on the need to satisfy identified
customer needs. Theremust be concern, demonstrated in the

59
aftermarketespecially, to check that thepackage is delivering to requirement
and to promise.
• Confirmation
Everything about the package – about the offering – has to be consistent so
that eachsucceeding message, in whatever order they happen to be
received, confirms what hasgone before. An unkempt salesperson can
destroy confidence built up by superbpromotion even if he or she has
excellent product knowledge.

Exercise
Q1. What are the elements of the marketing mix? Outline some of the
factors to be considered for a company to arrive at an appropriate marketing
mix?

6.3 Marketing Strategies

The marketing strategy is the means of achieving the corporate objectives.

As such it laysdown longer-term goals and targets for the marketing
personnel to follow.The marketing strategy gives measurements which can
be used as controls, but it also givesmessages to the stakeholders, or
publics. It says:
"This is where we are going", and
"When we will get there", and
"This is our stance".
The fact that the strategy is longer term gives both internal and external
involved parties anindication of confidence and belief in the future.Perhaps
the most important purpose of marketing strategy is to give purpose to the
rest ofthe marketing activities. This means that the overall strategy should
give clear guidelines onpractices and substrategies which are developed as a
result of it.

Types of Marketing Strategy

One of the most fundamental issues which a company must decide on is the
type ofmarketing strategy, or approach, that they will adopt.There are three
basic marketing strategies which any company can follow:
Undifferentiated marketing
Differentiated marketing
Concentrated marketing.

Undifferentiated Marketing
Here there is a standard, unchanged product and a standard, unchanged
marketingeffort. The product will be aimed at a large sector of the market.
This strategy canreduce costs (e.g. marketing, production) but will
encounter wastage in promotionalactivity and possibly in distribution. Not

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too many companies are in the fortunateposition of producing a product
which is suitable for everyone in the world. (Try to thinkof some examples
other than Coca Cola.)
Differentiated Marketing
Here the company segments its markets and offers modified products to
differentsegments. The marketing mix elements will also be modified to suit
the requirementsof the chosen segments. Using a differentiated strategy will
mean higher costs, butultimately the profit levels could be higher as the
offering has been targeted to thesegments. This should mean that there will
be less wastage of effort.
Concentrated Marketing
Here the total marketing effort is aimed at one market segment. This
strategy is reallyaimed at the exploitation of a limited market area and tends
to be used by thosecompanies who have highly specialised products. It is
"niche marketing" by anothername.Concentration on key markets can be
very beneficial to an organisation, e.g. control iseasier – especially in times
of difficulty. Market knowledge will be improved with little,or no, wastage of
resources on unprofitable segments and non-price factors, such as delivery
or customizing, etc., are much easier to exploit.

Undifferentiated marketing
Product
Market

Concentrated marketing

Product
Target market

Differentiated marketing
Product A
Product B Target market A
Product C Target market B
Product D Target market C
Target market D

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It is common for organisations with a diverse product range to use a
combination of allthree strategies for different parts of their product
mix. There are no rules. Decisions willdepend on the prevailing conditions
within the markets being approached and otherinfluencing factors outlined
below.Some marketing authors will tell you that segmentation is a result of
the decisions made onthe type of marketing approach which is to be used.
Others will tell you that segmentation isthe cause of this type of decision
having to be made.The reason for the differences in opinion is likely to lie in
"when" each of the two activities isundertaken. Some believe segmentation
comes first, whilst some believe "approach" comesfirst.In my opinion it
makes little difference. Segmentation and the type of marketing
approachare irretrievably linked. It is the old puzzle of: "Which comes first –
the chicken or the egg?"I cannot differentiate between which causes which.
If we do not know our segments, wecannot know how to market to them. If
we do not know which type of marketing we, and ouroffering, are most
suited to, what is the point of segmenting the audience?I can give you no
easy answer to the question of which comes first, or which creates theneed
for which – segmentation or type of strategy. All I can say is that I believe
they areboth essential in the marketing effort.Remember that there are no
"water-tight" boxes in marketing to keep things "tidy", and this isanother
grey area. Try to understand the "spirit" of the processes involved and don't
getbogged down in petty issues.

CORPORATE OBJECTIVES
Corporate objectives relate to the entire organisation and are essentially
longer term andbroad in their coverage.There is a general maxim about the
expression of objectives, as encompassed by theacronym SMART. Objectives
should be:
Specific – Measurable – Achievable – Realistic – Timed.
These overall corporate objectives will represent the expectations of senior
management andother important stakeholders, and may be expressed in
either quantitative or qualitativeterms.
(a) Quantitative
Quantitative objectives (in terms of numbers) can relate to money,
percentages,periods of time, output figures, etc. Examples are:
• "To achieve 5% year-on-year growth in profit after tax for the next
fiveyears."
• "To effectively reduce operating costs by a total of 20% over the next
fiveyears and, in the same time period, to achieve growth in profit
after tax by8% each year.""
• "To achieve 15% return on investment in the next tax year.""

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Sometimes the actual target figures will be given in the statement:
• "To achieve £5,000,000 increase in profit in 1999, which represents a
growth of 15% on 2012 profit levels?"

(b) Qualitative
Qualitative objectives (in terms of "ideals") can relate to service levels to be
achieved,image, position, ethics, etc.The following is an excerpt from a
statement of objectives published in the annualstatement of a police force in
northern England:"Within five years, or as soon as is practicable, to have a
police forcewhich:
• Is more open, relaxed and honest with ourselves and the public;
• Is more aware of our environment, sensitive to change and positioning
• ourselves to respond to change;
• Is more closely in touch with our customers, puts them first and
delivers
• what they want quickly, effectively and courteously;
• Is the envy of all other forces."?
You can see from all the examples we have given that a statement of
objectives can besimple or quite involved; there can be one aim or several.
It will depend on thecircumstances and the nature of the organisation.

MARKETING OBJECTIVES
Irrespective of the nature of the corporate objectives, corporate strategies
are selected as themeans of achieving the stated corporate objectives. The
corporate strategies are thenpassed down the hierarchy of command and
communicated to the functional levels.Accepting the fact that the corporate
level has decreed what must be done, it is then up tothe functional levels to
translate the corporate strategies into workable functional objectives.For
obvious reasons, we are only dealing with the marketing function from this
point on inthe course, but please remember that the marketing function is
part of the organizational network and, as such, is irreversibly linked with all
other functions.
• Nature and Purpose of Marketing Objectives
Marketing objectives, in exactly the same way as corporate objectives, can
be expressed ineither qualitative or quantitative terms, e.g.
• "To increase market share by 5% each year for the next five years."
• "To be recognised as the leading supplier of pre-packed meals to the
airline industry by the end of 2013."
• "To achieve recognition as the leading company for customer service
andtechnical support by the end of 2013."
The main purpose of marketing objectives is to achieve the corporate
objective(s).Over and above that prime function, marketing objectives
should give direction to thepersonnel immediately involved, and send
signals to the rest of the organisation as to what isbeing aimed for. If people

63
have no sense of direction or do not understand the targets whichhave been
set, they will never cooperate to the best of their ability.Following on from
that, if a marketing objective is not clearly defined it will be impossible
toformulate effective strategies and the whole planning process will be
invalidated almostimmediately.

Defining Marketing Objectives

Gilligan et al, in Strategic Marketing Management (1992) present two
published viewpoints ofresearchers who have identified possible marketing
objectives:
McKay (1972) ,The authors state that McKay suggested that there were
only three possible marketingobjectives:
To enlarge the market
To increase market share
To improve profitability.
Gultinan and Paul (1988): They also tell us that Gultinan and Paul argued
that six objectives should be givenconsideration:
Market share growth
Market share maintenance
Cash flow maximisation
Sustaining profitability
Harvesting
Establishing an initial market position.
Gilligan et al then go further to suggest that the supportive thinking for both
of theseviewpoints can be said to reflect the thinking of Ansoff on marketing
objectives.

Ansoff (1968): Ansoff argued that marketing objectives can only ever be
about:
Products, and
Marketsand that products and markets are either
Existing, or
New.
This means that, according to Ansoff, marketing objectives should always
beexpressed in terms of existing or new products or markets – or a
combination of all fourfactors, as expressed in the following model.

Figure 6.1: The Ansoff Matrix

Products

Existing new
Product

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 Marketing development
penetration strategy
Existing Moderate risk
Markets Diversification
new Market strategy
development
strategy High risk
Low risk

Factors Influencing Marketing Objectives

The influences on marketing objectives can be related to the external and
internal forces wehave considered previously – for example:
The external environment:
A rapidly changing environment
Government legislation
Uncertainty on competitive activity or actions
Changes taking place in technology, in particular internet based
technologiessuch as SMS, downloads, broadband etc
Different patterns of population or buying behaviour
Recessionary economics, etc.

The internal environment:

Unrealistic corporate objectives
Poor planning skills
Narrow viewpoint of the planners
Lack of resources
Fear of failure to achieve limiting creativity
Lack of knowledge of the market environment, etc.
What often happens is that marketing objectives are only loosely defined
until such time asall of the available strategies have been considered. Then,
once a realistic strategy hasbeen selected, the marketing objectives are
"firmed up" or even re-defined.This process is quite acceptable as long as
the final marketing objectives still fit with thecorporate objective and will still
work towards achieving the corporate goals.To illustrate this, we can work
through the example of the general goal of maintainingcompetitive
advantage and consider the implications of this for marketing.

Maintaining the Competitive Edge

Every company that is in business for a reasonable length of time must do
something betterthan its competitors – at least in the opinion of a number of
customers. That somethingbetter may involve various factors, ranging from
location and delivery to product performanceand marketing. Service

65
industries need to consider how competitive advantage is gainedthrough the
delivery of the service and how process improvements can be made to
addvalue. Therefore, in service industries organisations will need to work
with the whole servicedelivery chain to create value for consumers.The
marketing audit should show what it is that the customers find the company
does betterthan its competitors, even if the audit is a simple internal affair.
If the product is a fast-moving consumer product there will probably be
dozens of productscompeting for the consumer's disposable income. The
consumer is quite capable of goingout shopping for gardening equipment
and coming home with a set of pans instead. Thecompetition is not just
those other products in the same category: they are the
immediatecompetition, but everything else in the neighbouring stores could
be a competitor too. Whenthe product is a non-essential purchase, the
situation is at its "worst".Generally speaking, food is a priority and most
basic foodstuffs are only competing againstsimilar products, so quite modest
research can reveal what consumers think about thevarious brands.It is
worthwhile looking at some of the factors that make one product or service
moreattractive than another. If you are buying a personal service such as
haircutting or dentistry,it is unlikely that you will travel a long way when
there are suppliers near home. Location isimportant for many consumer
products – the opportunity to see and touch the product, tohave it delivered
if necessary, and to be able to get service quickly, may ensure that a
localsupplier is preferred. Speed and convenience are the two great
attractions of shopping onthe net, which is growing rapidly. For others the
most important factor may be performance –if you do not like the taste of a
food or drink product, it does not matter about other features.So what can
the marketing manager do to maintain the competitive edge? Well, first he
canfind out why his customers buy his products instead of others. We can go
through a list ofthe possibilities and suggest ideas for keeping one step
ahead of the competition:
(a) Product/Service Quality
There are what can be considered "normal" standards in every product, and
there canbe grades of quality, so you must position your products in the
appropriate grade.Your marketing researchers should have been able to
identify the grades and you mustjudge which of them to aim at. That might
not be the top grade in terms of features, butthe grade you choose must be
identifiable by the customers.It is essential that different models of your
product can be seen to fit into differentgrades, or have different features
that make them better. There are sometimes toomany models to choose
from, and the customer could get confused. That makes itdifficult to decide
on a model, and the decision may be deferred, which means it maygo
against your product. If you open a catalogue such as Index or Argos, you
will seeseveral models of electric shavers, for instance, all from the one
maker, and it is difficultto see why there are so many.

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(b) Availability
There is so little to choose between some products that if one is not
availableimmediately, the consumer will choose a different one. That means
your products haveto be widely distributed if they are to be highly
competitive. There is more involvedthan just getting the goods into lots of
shops, because the retailers have their ownviews of what will sell and make
them profit. You have to convince them too, that theproduct is worth having
on their shelves.Quite often the retailers and wholesalers will want to know
what promotional efforts youare making, because they know that television
advertisements help to move productsoff their shelves.
There are sometimes problems in ensuring delivery, and many people can
tell ofhaving taken a morning off work for a delivery man to bring, say, a
new washingmachine, then he comes in the afternoon. Control is possible in
the warehouse but assoon as the van gets on the road some control is lost.
The company may appear tohave failed to keep a promise owing to a road
accident or traffic hold-up which was notthe delivery van driver's fault. If
you can do better than your competitors on this, youwill have a competitive
edge.
(c) Price
Price matters most where there are few product features which are obviously
betterthan those of competing products. You can get a competitive edge by
making a specialoffer of some sort (such as three for the price of two), if the
retailers will go along withyour policy.Remember also that lowest price is not
necessarily the competitive edge you need;buyers can be suspicious of a low
price with some goods.
(d) Promotion
If you tell people your products are the best, and you can show examples
that "prove"the claim, some people will believe you and others will test your
claim. In all cases it isnecessary to tell people your product exists before
they have any chance of buying it.There are many ways to promote products
– but some of them can appear excessive,making people think that the price
could be cut if the advert were more sensible.
(e) People
Employees play an important role in adding value to a product and in
particular aservice. The performance of employees will have either an
indirect effect (for aproduct) or a direct effect (for a service, or service
element of a product) and therefore,it is important for organisations to be
able to train and motivate their employees todeliver excellent customer
service. Human Resource Management, therefore, plays avital role in
recruiting employees with the correct skill set and ensuring
existingemployees are well trained, motivated and loyal. Loyalty of
employees is particularlyimportant in industries where personal selling is
used. The marketing department canalso contribute to the training and

67
motivation of employees by using internal marketingtechniques, such as
newsletters, to improve communication with employees.
(f) Processes
Processes are a set of activities that are linked together to either produce a
product ordeliver a service. In fact, delivering a service is largely about
processes. Value andcompetitive advantage can often be achieved by
excellent or innovative processes,both internally within the organisation and
throughout the whole value chain. Managersneed to be aware of those
processes that add the most perceived value from acustomer's point of view.
(g) Physical Evidence
Physical evidence most applies to the delivery of services. Services are
intangible andare consumed at the point of delivery, therefore, organisations
will need to look forways of making services more tangible for customers. An
example would be an airline;the flight is the delivery of a service. However,
airlines look for ways of making theservice more tangible and therefore
adding value for the customers. For example,airlines will issue tickets,
confirmations, will provide magazines that customers can takeaway, award
air miles etc.
Benefits of Marketing Objectives
Providing marketing objectives are defined clearly and communicated
correctly, they canbring many advantages:
They give a clear direction to the personnel involved
Everyone involved knows exactly what is expected of them and how they are
supposedto be working. People who do not have a clear idea of what it is
they are workingtowards become disillusioned and demotivated.
They can create unity
A common goal unites people in all circumstances, particularly when the goal
is seenas being worthwhile. If the objectives are seen to have been set with
a good purpose,everyone will work together to achieve them.
They allow for measurement of achievement
Because the objectives specify targets and time scales, monitoring can be
carried outto check progress. This allows for either the achievement of
success, which creates a"feel good" factor, or for adaptation and fine-tuning
of activities to get progress back ontarget. The setting of standards can
become a powerful motivator for personnel asthey will strive to do better.
They can reduce risk
If all personnel know what it is they are working towards, there will be less
risk of"mavericks" doing what they think is best, rather than what has been
laid down by theobjectives.
They can improve decision-making
Managers at lower levels will be able to make day-to-day decisions based on
theirknowledge of the objectives and the progress made in achieving them.
This ability tomake decisions away from the higher level can save a lot of

68
time which mightotherwise be wasted in trying to communicate with higher-
level people. It alsoenhances the capabilities of lower-level managers.
Problems in Formulating Marketing Objectives
Despite the fact that so many advantages can be gained, it is a sad fact that
manyorganisations find it almost impossible to define good marketing
objectives. There can beseveral reasons for this.
Fear of Failure
If previous objectives were not achieved, planners may be reluctant to
define newobjectives and will not strive to achieve.
Apathy
If the personnel in the company are demotivated for some reason, they will
not beinterested in any new objectives as they will see them as "just another
ploy to get us towork harder".
Success
When a company is doing well, a new objective is often seen as being
unnecessary.This is the "If it works why try to fix it?" syndrome.
Unfortunately complacency of thiskind can often lead to a company losing its
market share to a competitor.
Organisational Culture
A lack of marketing orientation in an organisation can prevent objectives
from beingformulated. Lack of marketing often means lack of "vision" and
short-termism. Insteadof a strategic stance being adopted, only short time
scales are set or activities aremanaged on a basis of "as we need to do it".
The result is that the future is not takeninto full consideration, which may
end in disaster.
Lack of Knowledge
Perhaps the biggest problem in formulating marketing objectives is the fact
thatknowledge is necessary.To formulate an objective which says:
Where we want to be?
Planners need to know the answer to:
Where are we now?
Knowing "where we are" implies investigation and a full search for
knowledge. Do youremember the fictional example I used earlier about you
going to New York? Well, ifyou hadn't known that you were in London, or
how much time and money you had, howcould you have realistically planned
to get to New York? The answer has to be thatyou would not have been able
to. You would have had to investigate all of the factorsinfluencing your plan
before you could even begin.This is exactly the same for marketing. Before
we can really be happy that we aresetting good objectives we have to
consider our current position. This means that weneed to undertake a full
marketing situational analysis in order to define marketingobjectives and
then select appropriate strategies to achieve those objectives.
6.2 MODELS FOR FORMULATING MARKETINGSTRATEGIES

69
To achieve marketing objectives, strategies must be formulated for each
section of themarketing function or individual SBU. (Remember, these
strategies must also be Specific,Measurable, Achievable, Realistic and
Timed.)Marketing planners have to deal with an enormous amount of
information. They need torepresent the information in a way which is easy to
understand – models help them to dothis. A model is simply a diagram
which summarises a given set of circumstances, and isdrawn up to help you,
not to confuse you. Please try to remember that. If you can acceptthe
usefulness of models, you will soon find yourself using them in your working
life as wellas in your studies.We shall now concentrate initially on two
models which can help in deciding which strategy toadopt: Ansoff, and
Porter's Generic Strategy Model.
Ansoff
Ansoff's is perhaps the most quoted model of all in marketing theory and
practice. It is usedas a strategy choice model, in that it helps a planner to
see which strategy is appropriate atany given time and in various sets of
circumstances.Ansoff claimed that in marketing we can only ever be talking
about products and markets,and that these can only be old, or existing, and
new, or potential.
Thus marketers have:
Existing products which they can sell to existing markets
Existing products which they can sell to new markets
New products which they can sell to existing markets
New products which they can sell to new markets.
Using these combinations gives a choice, according to Ansoff, of four
possible basicstrategies, as shown in Figure 7.1 .
Strategy 1: Market Penetration (same product/same market)
This strategy will be appropriate when a market is growing and not yet
saturated.Penetration can be achieved by:
Attracting non-users of a product
Increasing the usage, or purchasing rate, of existing customers.
The strategy will often be implemented by increasing activity on one or more
of the mixelements, e.g. using more intensive distribution, aggressive
promotion, pricing, etc.
Strategy 2: Market Development (same product/new market)
This strategy is often found when a regional business wishes to expand or if
new markets areemerging because of changes in consumer habits. It can
also occur when a new use hasbeen discovered for an existing product.
Implementation of this strategy involves appealing to market sectors (or
geographicalregions) not currently catered for and may mean a repositioning
of products as well as, veryoften, new distribution methods or channels.
Strategy 3: Product Development (new product/existing market)
With this strategy an organisation develops new products or services to
appeal to its existingmarkets. It may simply be a product "refinement", e.g.

70
change of packaging or taste, etc.Product development is most prevalent
when branding exists. Promotional aspects willemphasise the added qualities
of the "new" product and link it specifically to the security of,and confidence
in, the brand. This strategy builds on customer loyalty and the benefits to
begained by purchase. Other mix elements, e.g. distribution, may remain
unchanged.
Strategy 4: Diversification (new products/new market)
This strategy is sometimes introduced so that a company does not become
too dependenton its existing SBUs. It can be a form of "insurance" against
potential disasters that couldoccur in the event of drastic environmental
changes. It can also simply be a means ofgrowth and expansion of power,
etc."New" might be a totally innovative product, which has never been seen
in the marketplace,or it can be a product which is already available in the
market but is new to the firm. In eithercase, Diversification means catering
for market sectors which are also new to the firm. If anew product is
developed for the existing market it is Product Development and
notDiversification.Firms can diversify by producing their own new products
or by taking over some otherproduct. In the latter case there are two main
types of diversification – integration orconglomeration.
(a) Diversification by Integration
Vertical Integration
This involves the acquisition of some other enterprise in the chain of
distributionbetween the manufacturer and the customer. It can be either
"forward", i.e.towards the customer, or "backward" towards the source of
raw material.For example, a company dealing in writing stationery may
vertically integrateforward by taking over a retail outlet to sell its products,
or backward by takingover a paper mill. Although there will obviously be
control benefits to be gained ineither of these examples, the company will be
dealing with a product, or products,and markets which are new to them.
Horizontal Integration
This is the acquisition of another organisation which has a feature that is
desired,i.e. the acquired organisation may be using similar materials or
components forwhich they have a monopoly of supply. This is particularly
relevant whenmaterials, etc. are in short supply. The company that is
acquired may use similarproduction methods and have greater capacity; or
its distribution channels maybe highly effective and would prove
advantageous; or it may have some otherquality which could be seen as a
benefit, e.g. Johnson Brothers (chinamanufacturers) taking over the
Wedgwood china company and capitalising on theWedgwood brand and
reputation.
(b) Diversification by Conglomeration
This strategy moves the firm away from its existing product-market situation
into anentirely new area in order to satisfy a primary objective. Quite often
this is done as ashort-term activity that will allow an organisation to recover

71
from a temporary setback inmarket conditions. For example, a company that
produces ladies' lingerie, and is facedwith cash problems in the short term,
may reap instant profits if it invests in "spotbuying"and "selling-on" of oil on
the open market. This type of activity can also be partof a longer-term
strategy to spread risks.
Ansoff applied
Here we shall look at Ansoff's model as applied to Coca Cola, who use all
four strategies(adapted from Evans and Berman (Marketing, 1990)).
(a) Market Penetration
More adults used in commercials – "You can't beat the feeling" theme
Price discount and promotions (fun caps) to existing customers
Increasing sales through fast-food outlets
Strengthened distribution network.
(b) Market Development
Greater emphasis on China, Eastern Europe, South America, Middle East,
Africa
Appeal to men with Diet Coke
Changing image of soda from children to "family".
(c) Product Development
New brands/flavours
New containers.
(d) Diversification
Manufacturer of water treatment and conditioning equipment
Acquiring Columbia Pictures, Embassy Communications
Licensing company name for clothing range.
Conclusion
Ansoff's model is one which is so widely used that you cannot afford not to
know it really well.There is no doubt that the model is extremely useful in
deciding which strategy to adopt in agiven set of circumstances; however,
you should recognise that it is not perfect as it does notcover everything.
It takes no account of any environmental factors
It does not give any room for judgement on profitability
It can inhibit the creativity of planners.
Despite the shortcomings it is very useful. It can also be used to assess risk;
the furtheraway from its present position a company moves the more the
risk increases.For example, a company selling the current product to the
current market is in the safestposition. All factors are known – buyers,
distribution, competition, etc. Once the companybegins to change some
aspect, risks occur. With "new" products to existing markets there isalways a
danger that the customers will not adopt the new product and, possibly, that
thenew product will have an adverse effect on the existing range. Likewise,
unknown marketsectors, or regions, can be risky (hence the need for market
research) and, of course, theunknown variables involved in diversification

72
make it the most risky strategy of all. Marketersneed to consider all
influencing factors when selecting which strategy, or strategies, to adopt.

Porter's Generic Strategy Model

Michael Porter is a widely quoted authority. This model claims that there
are only threemain strategies which a business can follow:
Cost leadership
Differentiation
Focus.
A business which followed none of these strategies would become "stuck in
the middle" andbe unlikely to succeed in the long term.

Differentiation strategy

Cost leadership focus strategy

strategy

Strategy 1: Cost Leadership

Following this strategy means that the company aims to produce in large
quantities, at thelowest cost possible and sell at lower prices. By doing this
they can capitalize on economiesof scale and defeat any competitor who has
not got equal production capacity, or who cankeep prices to a minimum. This
strategy will also attract price-sensitive buyers away fromthe competition,
e.g. moulded plastic garden chairs which are not seen as being "different"are
often bought on the basis of the lowest price.
Strategy 2: Differentiation
This strategy involves offering some unique selling (service) proposition
(USP) that thecompetition do not have. Prices may not be too important to
buyers of products sold underthis strategy and it often follows that
customers become brand or product loyal, e.g. a whiskydrinker may prefer
to buy Macallan whisky despite the fact that it costs more than Bell's, oran
own-label make from a supermarket. Another example could be that of a
fashioncompany producing a diverse range of clothes to suit different
requirements for differenttarget sectors (military
uniforms/workwear/leisure).
Strategy 3: Focus

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The company aims at very select market sectors and will be charging higher
prices or offerspecial USPs. The company can concentrate on its key
products for specific targets, acquirea reputation for being "specialist", or
can simply attack sectors of the market which are beingignored by the
competition. They are, to some effect, niche marketers, e.g. Rolex watches,
Rolls Royce cars or bespoke tailoring.

Competitive scope

Broad Narrow

Cost focus
Cost leadership Examples: hard competitive
Examples: ford, to find- Daewoo advantage
Vauxhall
Costs

Differentiation
Differentiation focus
leadership Example: TVR
Differentiation Example: Jaguar

6.3 Portfolio Analysis Models

The Ansoff and Porter models can help in deciding which strategy to adopt
and are easymodels to use. However, marketers need more than these
simple guidelines; they need tobe able to analyse their product offering
and measure progress. Because of this variousmodels have been developed
which can be used in this way. The more important areoutlined below.

(a) Boston Consultancy Group Matrix (BCG)

High low
Question mark
high star or problem
Market child
Growth Dog
rate low Cash cow

Relative market share

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The BCG matrix is as well known as Ansoff and is one which you should be
fully familiar withfor your examinations. Using the variables of market
share and market growth rates,planners can plot their products/SBUs
onto a grid which will then suggest certain strategiesthat can be used.
Because analysis is undertaken on an individual basis (SBU/product) itmeans
that firms can mix and match their efforts in order to achieve optimum
results at anygiven time.Note the following about the diagram:
• The circles on the grid represent the position of SBUs in one company
in accordanceto the growth rate of the market(s) and the share held.
• The size of the circle is proportionate to the percentage of total
income produced bythat product/SBU for the actual organisation.
• The location of the circle indicates market growth rate and relative
share in relation tothe leading competitor in the field. In Figure 3.6
market share of 0.1 means that theproduct has only 10% of the
volume of its leading competitor. Market share of 10means that the
product is leader and has ten times the sales volume of its
nearestcompetitor. It is important to remember that the mid-point of
the axis diagramrepresents the point where a product/SBU has equal
share to the leading competitor.Changes in proportionate share, or
market growth rates, will move the position of thecircle(s) on the grid.

BCG Classification of Products

Using the BCG means that planners can classify their products/SBUs into
four categoriesaccording to their position on the matrix. This classification
can also help in understandingthe "nature" of the products/SBUs, i.e.
whether they are "cash providers" or "cash users".

Question Marks (sometimes referred to as Problem Children or Wildcats)

Question Marks are products which have low market share and are in high
growthmarkets. The product/SBU has not yet reached a dominant position in
the market.Although it may be generating funds, it still requires a lot of
investment for developmentand the company must decide if they want to
keep investing. For example, in above figure the company has three
Question Marks. Planners may decide that it would bebetter to concentrate
all efforts on one of them, in order to make it successful, and keepthe others
just ticking along until they have secured the position of the most
favourable.The product which is producing a greater proportion of revenue
for the company (theone with the largest circle) may be chosen for
additional effort as it obviously has goodearning potential. A greater market
share should be gained as soon as possible.Decisions of this type would be
based on a variety of factors relating to the product(s)and the competitive
environment.
Stars

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If Question Marks succeed they become Stars – leaders in high growth
markets. Starsare the "providers of tomorrow" and a company with no Stars
should worry. The company depicted in Figure has two Star products – one
which has the leadingshare in its market and one which has only slightly
more share than its leadingcompetitor. Efforts should be made to increase
the share of the second product inorder to secure its future profitability,
particularly as the market has a very high growthrate – this could be where
future earnings lie.This, of course, means investment, which can be a cash
drain on the organisation.Even Stars with high market share may involve
investment in promotion or distribution,etc. if the competition is attacking.
Stars can therefore both produce revenue and use resources – which can
mean"breaking even". Investment decisions must be based on the future
potential of theproduct and its market. Companies want to retain the share
that Stars hold, but theyalso want the market to stabilise as stable markets
are much easier to cope with thanhigh growth markets which can mean
difficulties in production and distribution.In Figure the Star with the leading
share is moving down the spectrum whichindicates that growth in that
market is slowing or stabilising and, providing no share islost, the Star
should become a Cash Cow.
Cash Cows
When market growth reaches a stable level (10% is used in our diagrams as
anexample but this will vary according to the particular market) Stars
become Cash Cowsproviding they hold a leading share of the market. If they
lose any market share to thecompetition they will "slip" into either being a
marginal Question Mark or, at very worst,a Dog. Cash Cows produce good
revenue, do not require high investment and oftenmean that economies of
scale can be gained.The money earned from Cash Cows should be used to
invest in other products/SBUswhich are placed in the other classifications on
the BCG matrix. The Figure shows that the company has only one Cash Cow
so is vulnerable. A loss inmarket share could mean trouble, even more so if
there is no Star to come in and takethe place of the Cash Cow. In this
situation a company would have to pump in financeto support its Cash Cow,
thereby deflecting support from the other categories. If thecompany
continued to support other categories and neglected its Cash Cow, the
CashCow could eventually become a Dog.In our example it would be very
dangerous if the Cash Cow slipped to being a Dog, asthe Star which could
come into the Cash Cow category is not making as much moneyfor the
company as the current Cash Cow. Given these circumstances it is likely
thatthe company would invest in its current Cash Cow to retain market
share.Sometimes Cash Cows which are losing their share can be turned into
QuestionMarks, which is preferable to becoming Dogs, but this situation will
only really occur ifsomething happens to revitalise the market – perhaps a
new use for a particularproduct may be found and the market will begin to
grow again.

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Dogs
Dogs have weak market share in low growth or stable markets. These
products canoften take up more time than they are worth. They usually
produce low profits and oftenincur losses. They will always consume cash,
even if it is just in the time taken tomanage them.Given the fact that Dogs
consume cash many are often dropped by companies, but it isnot always
wise to do that immediately as they may still be making money. In Figure
you can see that the proportion of the company's revenue for one of itsDog
products is actually higher than the proportion of revenue gained by one of
its Starproducts. If the company were to drop the Dog, they would have less
cash coming in,which could have serious repercussions.The competition
must also be considered, as well as the effects on customers.Dropping a
product from a range can upset buyers who will then look for
alternativesources for that product. The alternative sources may also be able
to offer otherproducts which the buyers want and they may place their
future orders with the newsuppliers – resulting in the loss of even more
sales overall. Decisions on productdeletion must therefore not be taken
lightly or without full investigation.Dogs that are retained tend to be kept
because they are recognised as being a productwith "other" benefits. For
example, the customer will have to come back to thecompany to buy
consumable supplies which are actually highly profitable for thecompany, or
perhaps the product has such a high image and reputation in the market
that the company prefers to maintain it.There is also danger in keeping on a
Dog if it is proving to be useless as this justwastes resources that could be
better employed elsewhere. Decisions to retain Dogspast their useful life are
usually based on someone's great belief in, or favour for, thatproduct – they
become "Pets". For example, the owner of a company may wish tomaintain a
product which was the foundation of the company's current product
rangedespite the fact that the market has changed and technology has
bypassed the originalproduct. Sentimentality, and the power of the owner,
will ensure that the product isretained and money will be wasted.We should
also not overlook the case of products which have just been launched andthe
market has not really taken off. Such products could be classified as Dogs
but,given more investment, the market might be stimulated into a faster
growth rate andthe Dog could actually gain more share. Sometimes the faith
of one manager in aproduct can turn a company's portfolio around
completely.
As we noted earlier – product deletion decisions can be risky. They should
always becalculated for effects.
Cash Position for Products
We have seen that the various types of products or SBUs each have different
characteristicsas far as revenue generated and money for investment are
concerned. After positioning all products (SBUs) on the BCG matrix, the
company must decide if it has abalanced portfolio. (Too many of any one

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type means it is unbalanced.) It then must allocateobjectives, strategies,
etc. to each of the SBUs. Strategies suggested by the BCG matrix canbe one
of four:
Build – (for Question Marks) to increase share, even if it means giving up
short-termprofit
Hold – (for strong Cash Cows) to preserve share
Harvest – (for weak Cash Cows where the future is dim or for Question
Marks andDogs) to increase short-term cash flow regardless of long-term
effects
Divest –(Dogs and Question Marks draining resources) to sell off, liquidate
or deletean SBU or a product.
Changes in Product/SBU Position
The BCG matrix shown in Figure indicates the life of an SBU which moves
from QuestionMarks to Stars to Cash Cows to Dogs. The solid arrow shows
the ideal route for any product,or SBU, as far as a company is concerned,
with the dotted line showing the possible route aCash Cow can take.Because
the BCG plots the current position of an SBU, or product, it can be used
periodicallyto assess any changes in position. It can also be used to project
future positions, either likelyor preferred. If we keep to our original example
of products on the BCG matrix, Figure shows how positions can change for
four of them. Two are shown as "planned" and two as"forecast". For
"planned" positions, strategists will be taking the initiative in one way or
another; for "forecast" positions, defensive or remedial action may be
necessary. In eithercase it will be the marketing mix which is used to
achieve the desired objectives.
6.4 General Electric Business Screen (GE)
The GE matrix is an improvement on the models we have looked at so far in
that it coversmore qualitative aspects. It allows for judgement on the part of
the planner and takes intoaccount not only the nature of the market, but
also the capabilities of the company. SBUsare assessed in terms of the
Attractiveness of the Industry and the Business Strengthsof the
company.Typical aspects which are taken into account are:

Industry Attractiveness Business Strength(s)

• Market size (numbers/value) Differential advantages
• Market diversity Share (number/value)
• Growth rate (total/segment) Sales (volume/growth)
• Profitability (total/unit) Breadth of product line
• Competitors Mix effectiveness
• Social/legal environment Innovativeness
Planners, with their knowledge of the market and the company itself, can
decide how anSBU, or a product, can be assessed in terms of the market
attractiveness and the company'sstrength and can then place that product,
or SBU, on the matrix. Assessment can be basedon "High", "Medium" or

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"Low" or, more likely, on a basis of "weighting" where the planner willgive a
score to each of the factors under consideration and then the total is taken
as the pointat which the SBU is placed on the grid.
General Electric Business Matrix

Industry attractiveness
High medium low
Invest for harvest
high Invest for growth
Company growth

Medium Invest harvest

Strength Invest for selectively
growth
low
harvest
Divest

Although this model uses circles, similar to the BCG model, it is different in
that the circlesrepresent the overall market sales (BCG circles represent
the income for the companyonly). The share held by the company is then
shown as a proportion of the circle.Looking at Figure above we can see the
characteristics of various products in a company'sportfolio. The company has
major shares in three markets:
(i) A highly attractive market, with a large overall market potential
revenue; the companyhas high business strengths. The company
is in a very strong position with this SBU.
(ii)
(iii) A market which is viewed as being mid position in attractiveness
but the company hashigh business strengths. The overall market
income is not major, in terms of the otherSBUs, but activity
could generate further interest which could increase
theattractiveness of the market. Given the share held, this SBU
could potentially be afuture high earner for the company.
(iv)
(iii) A market which is not seen as being highly attractive coupled with the
fact that thecompany does not have any high degree of business strength in
that field. The factthat the company has such a major share of the overall
market may indicate that the competition has withdrawn because of costs
incurred, or some other reason, and thecompany has acquired share by
default rather than activity. It is unusual to find a highoverall market income
in such a market but it can happen, e.g. the potential of sellingspecialist

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tooling equipment to manufacturers. The market may be lucrative in terms
ofpotential earnings but not attractive in terms of size – hence the
classification as a"medium – attractive market". It really does depend on
what planners consider to beimportant when assessing market
attractiveness. In the circumstances shown by theexample grid, planners
may decide to develop their business strengths in order tocapitalise on the
overall potential market and to keep the competition out of the
field(providing the forecasts for the market show stability or growth). The
placing of theSBU on the grid would then change in accordance with its new
"classification".The other products on the grid in Figure show a variation in
the potential of themarket(s), the share(s) held and business strengths.
Strategic Options
Strategic options for SBUs placed on the GE matrix cover three types of
marketingmanagement activity. Each strategy covers three of the nine cells
Investment for Growth
This is a strategy for use with strong products in markets with high or
mediumattractiveness (similar to BCG Stars), where the company also has
high or mediumbusiness strengths. Full resources should be used:
innovations, product-lineextensions, product/brand advertising, intensive
distribution, good price margins, etc.Profitability expectations would be high.
Manage Selectively for Earnings
Strong position in weak market (like BCG Cash Cow); company uses
marketing toretain loyalty.Moderate position in moderate market; company
can identify underserved segmentsand invest on a selective basis.
Weak position in attractive market (like BCG Question Mark); company must
decidewhether to increase investment, concentrate on the niche(s), acquire
another businessor trim off activities.
Harvest/Divest
Here the SBUs are similar to BCG Dogs. The strategy can be to minimize
marketingactivities and concentrate on selected products rather than the
whole range. They candivest products from the range, closing down or
deleting an SBU which is seen as nonproductiveor to have little future.
Profits are "harvested" because investments areminimal.
Gap Analysis
The idea of gap analysis links up with portfolio analysis, which asks if you
are offering theright products to the specific market segment. Markets
change and it is usually necessary tochange with them. You are familiar with
the example of the home music industry, which hasgone from records to
tapes and then to compact discs in a fairly short time. If you run acompany
that is still making records you had better do a bit of portfolio analysis –
there isgoing to be a big gap to fill!

New Product Development

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Gap analysis and product portfolio analysis can show the need for
development of newproducts, so the strategy might be to go in for
continuous new product development.This has some attractions – there are
many people who would much rather work onnew products than on the old-
established models. There is an excitement about newideas and making
them work.However, there can be drawbacks too, and these are usually
expensive.The electronics company Philips had a difficult time with their
interactive CD player,which got off to a very slow start. Some years ago two
types of video recorders/playersfought a battle for market supremacy, and
one won. (Incidentally, there seems to havebeen some rebellion among
consumers against the increasing complication of videorecorders, and one
enterprising company has brought out a machine with simplercontrols.
Maybe that is the way forward? That manufacturer must have had a strategy
of taking note of complaints and then modifying the product to suit the
demands of theconsumers.)In the earlier years of computing as we know it
today, IBM and Apple went theirdifferent ways, but someone has now made
it possible for an Apple computer to readIBM-compatible programs. A lot of
effort and potential profit was dissipated on the way,and a strategy of
cooperation at the start would have been better than straight rivalry.
New Market Development
You may not need to change the product – there may be people out there
who wouldbe glad to have your "old-fashioned" products if these would be
an improvement ontheir present situation. Wind-powered water pumps died
out in Britain when relativelycheap electricity came along, but the makers of
the pumps found new markets in partsof Africa where electricity was not
available.Similar examples can be found in many industries and the extra
costs of developing anew market can often be offset by the fact that there
are no product development coststo pay. However, you must check that the
market segment which looks good will reallytake your products. There are
instances of whole market segments that want to skip ageneration of
development and go right up-to-date in one step instead of three or four.It
is almost inevitable that the new market segment, if you can find one, will
beoverseas in a less-developed country, so there may be a need to change a
lot of thepromotional activities and maybe adapt the product slightly.If you
are very lucky, consumers in existing markets may find new uses for
yourexisting products and that could improve sales so much that the profit
gap closes. Itdoes happen sometimes.

Evaluating Services
The evaluation of service is often harder than the evaluation of a product
due to itsintangibility and the fact that they are heterogeneous in nature, i.e.
unique or differenteach time. Also for services it is only the customer that
has any experience of theservice and therefore it is only the customer's
perception that is relevant.However, in order to develop marketing strategy,

81
it is important marketers try toevaluate the quality of its services and a tool
for doing this is call 'GAP'.The GAP model tries to analyse the difference
between consumer's expectations andperception of a service. If customer
expectations are greater than there perception ofthe service then there will
be dissatisfaction and it is unlikely that the customer will usethe service
again and/or may switch to a competitor. The GAP model identifies
fourlevels of potential differences in expectations versus perception.
GAP 1 Difference between Customer Expectations and Managements
Perceptionof Customer Expectations

GAP 2 Difference between management's perception of customer

expectationsand the service specification

GAP 3 Difference between the service specification and the delivered service

GAP 4 Difference between what is the communicated to customers and what

isdelivered to customers

Measuring Customer Expectations

One of the difficulties with measuring customer expectations and perception
of aservice is that the customers may value different aspects of a service,
using theexample of an airline some customers may value the friendliness of
the staff, somemay value the punctuality of the flight, some may value the
ease of check-in etc.The SERVQUAL model, therefore, provides us with a
model for evaluating customerexpectations.SERVQUAL assesses five
dimensions of a service:
(a) Reliability
• Providing services as communicated
• Customer complaint handling
• Punctuality
• Getting things right first time
• Keeping accurate records.
(b) Responsiveness
• Customer communication about delivery
• Promptness of response
• Willingness to assist customers
• Readiness to respond to requests from customers.
(c) Assurance
• Employees who instill confidence with customers
• Customers feeling safe during the transaction
• Courteousness of employees
• Knowledge of employees.
(d) Empathy
• Individual attention to customers

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 • Caring attitude of employees
• Understanding needs of customers
• Acting in best interests of customers
• Convenience of delivery.
(e) Tangibles
• Standard of equipment
• Standard of facilities
• Appearance of employees
• Standard of materials.
As you can see from the above the SERVQUAL dimensions can be used to
developquestionnaires that can be used to evaluate customers perception
and expectations ofa service and this information can help marketers
identify the activities that createvalue in the eyes of the customers and then
develop service marketing strategyaccordingly.

Exercise
Q1. using a product of your choice , distinguish between objectives,
strategies and controls as key elements in the marketing plan?

UNIT 7.0 Marketing Plans

Unit 1:1 DEVELOPMENT OF THE MARKETING PLAN
The growth of competition and pressures on finance over recent years have
resulted in amuch greater emphasis on formal planning for every area of
business, not the least of whichis marketing.These formal plans tend to be
for the longer term and take in the general direction which thecompany and
its various sections are heading towards. More detailed plans are
developedto cover the shorter term and the activities which are necessary
on a day-to-day basis. Theannual marketing plan is one of the latter type. It
gives details of responsibilities andprogramming of schedules, etc. which,
when all put together in one document, give cohesionto the marketing
effort.
7.2Purpose of the Marketing Plan
The marketing plan can be described as being both the "output" and the
"input" of themarketing effort.It is the "output" because it is the culmination
of all the planning and analysis which isundertaken by the marketers, and it
is the "input" because it gives guidance and direction for
all the activities which are needed in the marketing function.Accepting this
viewpoint, we can see how the main purpose of the plan is to
integratemarketing activities – planning, implementation, measurement and
control. (This is, ofcourse, underpinned by the requirement to achieve the
corporate objectives.) If integrationof activities does not take place, the plan
is unlikely to succeed.Many marketing managers have difficulty in accepting

83
the word "integration" because theythink it takes away some of the specific
planning aspects required for each section of themarketing function. They
prefer to do piecemeal plans and then try to match them together –all of
which can waste a lot of time and effort. This approach to planning is not to
berecommended.It is far better to plan overall and then to expand on the
various parts of the plan which needfine-tuning for specialist actions. At the
very least, this will mean that the main sections ofthe plan are all in line with
each other and objectives are more likely to be met. The mainbenefit of
planning overall is that everyone knows what is happening and what is
beingaimed for – it helps to remove the risk of "mavericks" who try to work
outside the agreedparameters, e.g. the advertising manager who wants to
advertise in a prestigious pan-European publication every month, when the
main target market for the next six months is inItaly only.
Benefits of Marketing Planning
We have already discussed the benefits of planning in general but, more
specifically, some ofthe important benefits of marketing planning are that:
Greater understanding of customers will be achieved
Decision-making will be improved
Motivation levels will be higher because of involvement
Less risk is attached to actions
Diverse activities can be coordinated
There is less likelihood of the need for crisis management
Measurement and control will be improved
Corrective actions can be taken very quickly.

You can see that the list I have given is very similar to a list of benefits to be
gained from anytype of planning – common sense should tell you that once
you begin to think in terms ofwhat is to be gained from planning you do not
have to learn "lists of benefits" by rote – youonly need to understand to be
able to discuss. Always think in terms of your ownexperience and what have
been, or are, good and bad examples of planning in thecompanies you have
worked for. It is always better to speak from experience.

Contents of the Marketing Plan

You could argue that the contents of the marketing plan are: Objectives,
Strategies andTactics – the same as any other plan. But simply saying that
does not really give justice towhat the plan covers.A marketing plan is much
more complex and contains a range of "sub" or "mini" plans whichall join
together to form the whole document. These subplans, in their own right,
may well bevery complex if the marketing function is serving a huge
organisation. We have to acceptthat the complexity and depth of any plan
will be determined by the size of the company andthe enormity, or
otherwise, of the task being undertaken. The marketing plan is no

84
exception.Figures 4.1 and 4.2 show how marketing plans can change as an
organisation becomesmore complex.
NATURE OF A MARKETING PLAN
Form and Content
There is no ready-made standard marketing plan, because every plan may
be different as itrefers to the situation in one company at one time. Even
plans for the same company candiffer greatly from year to year as markets
change.Marketing plans are often quite detailed documents and a fully
comprehensive plan wouldinclude the following elements.

a) A management summary, for those who do not need to see the full
text
b) Mission or business definition statement

c) Product and market background, with market shares and market size,
trends, outsideinfluences

d) SWOT analysis – a statement of the perceived strengths and

weaknesses of thecompany, and the opportunities and threats that are
seen to exist

e) Marketing objectives, properly quantified over a time-scale (which is

usually, but notalways, a year)

f) Marketing strategy, including target markets, product, pricing,

distribution andpromotion strategies, and possibly some indication of
the tactics to be used

g) financial projections and controls, including sales and profit forecasts,

budgetarycontrol procedures and the main budget levels

h) Operational considerations, personnel and internal communications

and marketinginformation system
i) Controls and contingency plans
j) Tentative ideas for next year
k) Appendices showing the supporting information for the detailed items
in the plan,including any market research results.Various marketing
authors present slightly different ideas on just what should be included
in amarketing plan.

In Marketing Management (8th edition) Kotler suggests that the strategic

marketing planshould contain the following:

85
 a) An executive summary which gives a brief overview of what the plan
contains .This is not always given as it is really a matter of practice in
anorganisation
b) A summary of the current position in respect of products, pricing,
competition, etc.This section may, or may not, be merged into the
executive summary
c) Opportunities and issue analysis
MAJOR aspects only – the SWOT analysis; this may also be given as part of
theexecutive summary
d) BusinessObjectives
For each section of the plan (volume, share, ROI, profit, etc.)
e) Marketing Strategy
The broad marketing approach that will be used
f) Action programmes
What will be done, who will do it, when it will be done, and how much it
will cost
g) Projected profit and loss statement
Forecasts of the expected outcomes
h) Controls
The way the plan will be monitored and measured.

Malcolm McDonald (1991, Journal of Marketing Management) suggested that

the marketingplan should contain:

a)Mission statement
b)Financial summary
c)Market overview
d) SWOT analysis
e) Assumptions
f) Marketing objectives and strategies
g) Programmes (with forecasts and budgets).
If you consider the various suggestions here, you will soon realise that they
are more or lesssaying the same thing. Basically, then, the marketing plan
says:
a) where we are now
b)Where we want to be
c) How we could get there
d) Which way is best
e) How to know when we have arrived.

This is all very well, but does it help to structure the plan? The answer is
yes, it does,because, depending on what you think should be included in
your plan, you can simply usethose headings to form your structure. There
are, though, no specific rules on how a planshould be structured.Remember,

86
plans are statements of intent and the presentation of a plan can be done in
anyway that suits the presenter and is appropriate to the reader. Plans will
include some, or all,of the following:
• written statements;
• models showing projections;
• Tables of data, etc.
The table shows the hierarchy of marketing plans you cansee that the
common feature in marketing plans will always be the marketing mix. As
long asyou make sure that you cover all of the relevant mix elements, you
can present plans:A useful system is to take, say, a four-year view of the
business every year. The annualmarketing plan will have appendices
projecting forward the activities of each maindepartment, and forecasts of
sales for each product group, for four years. It will be acceptedthat years 2,
3 and 4 ahead will not be very accurate, but this system does at least set
outthe pattern.
Method of Preparation
There are two main approaches to planning generally:
Top-down is the type of planning in which top management sets the
objectives andplans for the lower levels. This is based on the military
example, where the seniorofficers tell the lower ranks what to do. It fits in
with Douglas McGregor's Theory Xview of people – that they do not like work
and responsibility so they have to bedirected. However, what works in a
military situation is not necessarily the best way torun a civilian company.
Bottom-up is the type of planning in which each department puts forward
what theythink is the best they can do, then top management sorts out what
the whole companycan achieve. There may be differences in the level of
achievement that each managerthinks his or her department is capable of,
and there may be no synchronisation ofresults, so there could be a lot of
wasted capability.Neither of these methods of planning quite matches the
needs of a marketing plan, and thebest plans are usually based on a blend of
the two methods. As a result, marketing plans areoften far from perfect
when the company starts to use them; they get better with experienceand
practice.Top management will set objectives based on the profit figures
which they think will satisfythe shareholders, and the departmental
managers will suggest what they can achieve if theycontinue as at present,
or have this or that new machinery.The planning process is usually one of
iteration – ideas bounce up and down themanagement structure until all
levels are satisfied that they have a workable, achievablemarketing plan.
There is potential for considerable conflict between managers of different
functions. Forexample:
The marketing manager may say he can only achieve a specific level of
profit if pricescan be raised, and that would be possible only if the products
were of better quality.

87
The production manager may agree, if only he could get some better
machines in andget rid of the old stuff.
The finance manager may say he could only accept that idea if more profit
was comingin, or some costs could be cut.
And so on ... Few managers will suggest that their department could be cut
down, and itneeds a strong chief executive to choose a course of action that
all managers will accept andsupport wholeheartedly.We now need to look in
some detail at the components of a typical marketing plan, some ofwhich
will be familiar to you from previous study units.

SWOT Analysis
SWOT = Strengths, Weaknesses, Opportunities and Threats, and every
company has its fair
share of all four components. It is not easy for a manager in a company to
sort out just whatare the strengths and weaknesses of the company, and it
is important to allow for the factthat the perception of the customers is what
really matters. A manager may see a feature ofthe company as a strength,
but if the customers do not see that, the feature may be quiteirrelevant.
Make sure your SWOT analysis takes into account the views of the
customers.
Strengths are what the company does better than other companies; you
could ratequality of staff as a major strength. Location could be a strength
too and companiesmay gain by moving nearer to their major markets. A
strength not to be missed is thereputation of the company – goodwill may
not appear on the balance sheet but it doesshow in customer relations.
Other strengths may include design capabilities, money inthe bank,
production capabilities and, of course, marketing skills.
Weaknesses are more difficult to define, because they could be seen as
criticisms ofthe managers of the departments concerned. You must have a
clear idea of what youare comparing the company with. It may be weak
compared with competitor X butstrong compared with competitor Y. It is
usually only possible to know about theproducts, not the manufacturing
facilities of your competitors, but your MkIS may beable to tell you enough
to enable you to get some ideas together.It would be constructive to regard
identified weaknesses as opportunities forinvestment, instead of criticisms of
the people involved.
Opportunities include those which can be aimed at now and those which
can be seen"on the horizon". You will realise that all the work that may be
done in a marketingaudit could contribute to the marketing plan.
Threats may come in visible form – competition, new products and
processes, and inless obvious forms such as action by governments (local
and national) and theEuropean Union.

You will find it useful to plot a SWOT analysis on one page, like this:

88
Financial Projections
The allocation of resources can be a difficult area: departmental managers
will all want toshow they could do better, and that nearly always means
spending more money on newmachinery, more people, better buildings and
so on. There is such a logical need for allthese demands that there can be
real jealousy if one demand is refused, yet the topmanagement must choose
a course of action and get the agreement of the managersinvolved,
because plans that are imposed instead of agreed will not work well.The job
of the chief executive is to work out which course of action will give the
company thebest chance of achieving the objectives which he/she thinks the
company must aim for.Eventually, this is achieved by judgment, because
there is nothing in planning that isanything like a guarantee.With so much
investigation into the company's activities, it is inevitable that control of
workingfunds will be involved, and budgetary control is, therefore, a key
aspect of the planningprocess. Every activity in marketing, except the selling
activity, takes money out of thecompany, and that needs careful
control.Briefly, budgetary control is a system in which an amount of money
is allocated to eachdepartment at the start of the working year, and that has
to be used to run the department forthe whole year. There will be
fluctuations in the demand for money, and there will be a needto check quite
often that the budgeted amount for each period and for the year has not
beenexceeded.This control system works in well with the marketing plan,
because the plan should includeforecasts of sales for each month, and that
will show when the money will come into thecompany. On a company-wide
scale, the finance manager should be able to see when therewill be a
shortage of money that will involve borrowing, or other ways to keep going.

Marketing Strategies and Tactics

Just as every other department comes under scrutiny in the marketing plan,
so the marketingdepartment's plans will be written in detail. The plan will
show planned profit targets for eachproduct line, possibly phased over the
year, in some detail. How the targets will be achievedis probably the most
important section of the plan, because the company stands to lose a lotif the
ideas do not work.It should be possible to show the marketing strategy,
describing the targets such as marketshare increase, market penetration,
market expansion and new markets entered, if that isappropriate. Market
penetration is a matter of increasing your share of an existing
market,whereas market expansion is persuading more people to use the
products to create a biggermarket. If you maintain your share of a bigger
market you will increase sales just as youwould if you penetrated the
present-size market more deeply.The marketing strategy for a big company
may leave a lot of the tactics to the individualbrand or product managers,
and their ideas may or may not be included in the appendices tothe
marketing plan.A brand manager may have seen scope for increasing his or

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her market share by makingsome product more attractive, and then telling
customers of the change by a series ofadvertising campaigns. The marketing
manager must ensure those tactics fit in with themarketing activities of
other brand managers, and that production can cope with theincreased
work, or subcontract it.There are other marketing tools available as well as
advertisements, of course, and theappropriate mix of marketing tools will
have to be considered when the marketing plan is puttogether. Every
activity must benefit the whole company as well as the specific brand
orproduct. This is the purpose of planning – to make sure all the activities of
the company worktogether to achieve the planned objectives.

IMPLEMENTING THE MARKETING PLAN

I have, on several occasions, referred to the importance of implementing
plans correctly. Nomatter how good the planning is, if plans are not accepted
and followed they will be oflimited, if any, use to an organisation.
Implementing a plan simply means setting it in motion. It means giving
people instructionsand letting them get on with it. It should not mean that
one person does everything. A planfor a marketing department encompasses
the activities of all involved people. These are thepeople who carry out the
implementation – not simply the planner!The manager is the person who
sets it in motion and then watches to see if it is working.If all the managers
who have to implement the marketing plan do so with enthusiasm
thereshould be few problems, but managers are human and it is always
possible that someproblems might arise. In theory, just as the finance
manager will have budgeted for theallocation of money every month, so the
marketing manager will be looking at sales figures tosee if the month's
quota has been achieved. Other managers will be comparing
eachdepartment's achievements against the budgeted figures and against
other departments.New products will require the R and D department to
provide ideas and models, and that willbe mentioned in the plan, but not in
detail because that will be part of the R and Ddepartment's annual plan.
They might also need new manufacturing processes and differentmaterials
as well as different packaging. The new products will have to be advertised
andpromoted – see again the need for synchronisation. The company's
reputation will suffer ifthe new products are advertised and sold before they
are ready.I have seen a whole range of new products, brilliant in concept
and superbly made, fail to sellbecause no one bothered to set up a sales
force, and the existing salesforce were notencouraged to sell them. This was
a case of extreme jealousy among managers who saw anewcomer getting
more and more money allocated, whilst their budgets were being cut.
Astronger chief executive would have seen the problem and done something
about it.Above all it is important to realise that the market is not static – it is
constantly changing andthe marketing plan must take note of the changes.
All the ideas mentioned on marketingaudits must be applied and the

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reactions of customers, wholesalers, retailers andcompetitors must be
analysed.The benefits of such activity can be seen in the example quoted by
Sally Dibb (in "TheMarketing Casebook") of JCB, which grew from a small
lock-up garage in rural Staffordshireto become the dominating company in
the world market for middle-sized earth-movingmachines. Sally
writes:"Planning and analysis have enabled JCB's marketers to better
understand theirmarketplace. The company has invested heavily in
researching its core customergroups throughout Europe, utilising well the
strengths of its subsidiaries'personnel in the field. Extensive evaluations of
their competitors' strengths andweaknesses, their competitive positions and
likely strategies have led JCB to preemptsuccessfully competitors' thrusts
and to establish new product launches intarget markets very quickly."It is
essential, in all this planning, to keep in mind the impressions made on the
customers byany changes. What looks good on your plan might be
disastrous to a customer, yet if he istold of the plans before they are fully
implemented, he may be able to adapt to fit in with yournew schemes. If
not, you will lose him to a competitor.When I was a sales engineer for an
engineering company, we did a major study every year ofthe important
customers for each product. If a product had a falling demand for a series
ofthree years, it was considered for deletion from the range. However, we
always had thechance to talk to our main customers before a decision was
made, and quite often we foundthat customers were willing to predict how
long they would need that product before theirown development plans made
their machines obsolete. On some occasions we found thecustomer could
estimate their three-year needs and our company would supply them all
atonce, before ending production of the product. Our customers appreciated
the consultationand we seldom lost out by this tactic.The same applies to
other elements of the environment with which the company mustcooperate,
such as the suppliers of materials and services like transportation.
Friendlydiscussion should not go so far as revealing information that would
be useful to a competitor,of course, but there is some merit in treating your
environmental partners with consideration.
Barriers to Implementation of marketing plans
Reasons for poor implementation will be caused by environmental barriers
either within, oroutside, the organisation. At various times during this course
we have considered theseenvironmental factors to one degree or another.
But, to summarise, barriers can be causedby a number of different aspects:
Internal External
• Management culture
• Political intervention
• Leadership skills Competition
• Organisational structure Distributors
• Resources Suppliers
• Attitude to planning Customers

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 • Measurement procedures Economic conditions
• Communications Changes in technology
We should perhaps recognise that while external factors are likely to result
in changes to themarketing plan, it is the internal factors which bring most
pressure to bear upon successfulimplementation.No-one can doubt that the
support of top management and the involvement of staff in theplanning
process are the main keys to successful implementation of any plan.
Successfulimplementation of the plan will vary in accordance with how the
two variables are balanced.

UNIT 8: Product Management and Development

8.1 NATURE OF PRODUCTS AND SERVICES

Some Introductory Definitions
Skinner(1969) defines a product as "anything that satisfies a need or want
and can be offered in anexchange". He goes on to say that a good is a
tangible object (one you can touch), aservice is not tangible but provides a
benefit, and an idea is a philosophy or concept. Allcan be included in the
word "product".Kotler also offers the following definition:A product is
anything that can be offered to a market for attention, acquisition,use or
consumption: it includes physical objects, services, personalities,
places,organisations and ideas.Theodore Levitt, in his text Differentiation of
Anything, puts forward four concepts which go tomake up his idea of the
total product:
The physical product or service
The expected product, which includes price, packaging, availability, after-
sales serviceand so on
The augmented product, in which augmentation is the way in which the
manufacturerdifferentiates his products from others by adding some extra
benefit
The potential product, which is the ultimate combination of product and
service which itis possible to achieve.This introduces the idea that products
and services have depth – or different dimensions – tothem which
consumers find attractive and contribute to the decision to buy.We can say
that a product has three main dimensions:
Physical
This refers to the materials from which a product is made, e.g. cotton for
bed linen,metal for shelving units, etc. The actual raw material may have no
real value until it isformed into a "product" of some kind, which is there for a
purpose.
Functional
Functionality refers to the use of the product. What is it for? What does it
do? It maybe that it plays music, or it keeps out the cold, or whatever. The
fact is that the rawmaterials have been turned into something which has a

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purpose. The "function" of aproduct may change at times because someone
has found another purpose for it, e.g.house bricks can be used as supports
for beds, seats or shelving units.
Symbolic
The symbolic attributes of products are also sometimes known as
"psychological"attributes. This is because the symbolic attributes refer to the
"value" which a usergives to a product. Value is intangible and will vary from
person to person, e.g. thevalue ascribed to a pair of Nike training shoes by a
style-conscious teenager is muchhigher than that given to a similar pair of
shoes by a middle-aged keep fit enthusiast.It is the "symbolic" attributes
that play on the "esteem" and "belonging" needs of thebuyer and,
consequently, help in the marketing of branded and high value
goods.Another explanation is that a product has three "layers":
Core or generic product
What the product does – its function. For a refrigerator, for example, this
could be thatit stores, preserves and cools.
Tangible product
What is offered – the features, style, quality, packaging, etc. For the
refrigerator, thiscould be that it fits under worktop, is self-cleaning and is
offered in a range of colours.
Augmented product
The add-on benefits provided along with the product – after-sales service,
guaranteesand warranties, credit facilities, availability in the market,
delivery, etc. For our fridge,this might include image, guarantee, free credit
and the particulars of the after-salesservice.In addition to these two
methods of explanation we could describe a product as a "solution toa
problem" or a "bundle of benefits". Using these last two descriptions also
allows us to takeinto consideration the supply of a service.
Services and Products
When you buy the product you automatically get the benefit of a lot of
service which you mayor may not know about – after-sales, guarantees, etc.
However, when we talk of "services" inthe marketing sense, we do not mean
the backup behind the products you buy, but ratherthose services which are
marketed in their own right. Examples include airline, train and bustravel;
hotel accommodation; doctors, dentists, hairdressers and so on, where the
result ofthe "service" is what you are buying. The most important difference
between products andservices is that services cannot be stored; if a hotel
bedroom is not occupied tonight, a profitopportunity is lost for ver.
Is a service any different to a physical product? Well, of course it is, in some
ways. Servicesdiffer from physical products, in terms of their:
Intangibility – they cannot be seen, touched or tried before purchase.
Inseparability – they are used or "consumed" at the time of purchase
and, as such,cannot be separated from the provider.
Perishability – they cannot be stored for use at a later time.

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Variability – they are dependent on the person who is providing the
service and, assuch, will vary from time to time in accordance with when
they are being provided andthe circumstances surrounding the provision.
The characteristics of a service can add difficulties for marketers but, at the
end of the day, itis still "the item that is being exchanged" – it is the
product. The product of an accountant isthe expertise which is being sold,
and the product of a hairdresser is the skill in cutting andstyling that he/she
provides.Thus, "products" and "services" are not really any different. A
product is a service and aservice is a product. For the rest of this study unit,
when we refer to "product" pleaseremember that we are also referring to
"service".
Classifications of Products
If you recall we have basically two types of markets: consumer and
industrial. It follows,then, that we have basically the same two types of
product and service.
(a) Consumer Products
Consumer products are classified in three ways:

Convenience
The minimum of effort is needed because the customer knows about the
productbefore they shop.Brand substitutions are easily accepted as these
products have low "value".They are the products which are bought
automatically and repetitively, e.g. butterin a supermarket.The marketing
implications of this are that:
(i) The product must be easily accessible to the buyer
(ii) Advertising is needed to strengthen branding and gain loyalty
(iii) Differentiation is achieved by using other mix elements.
Shopping
Those products where customers do not have full knowledge and where they
canbe influenced to accept an alternative product (during their "search"
phase) bythe benefits being offered. They are higher in "value" than the
convenience typeof product and therefore involve more risk in purchase.
The marketing implications of this are that:
(i) Benefits offered are critical – sometimes more than price
(ii) Persuasion may be involved, (e.g. by the retailer or salesperson)
(iii) Distribution will not be as widespread as for convenience goods.
Specialty
This type of purchase is where customers have hard and fast ideas of
whichproduct, outlet, brand, provider, etc. they wish to use. The customer
will go togreat lengths to ensure that they obtain the actual product they
require and willnot be easily converted to a substitute. These purchases are
high in "value" andtherefore carry the greatest element of risk to the
buyer.The marketing implications of this are that:
(i) Promotion needs to be targeted very carefully

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(ii) Image and reputation are critical
(iii) Price is secondary to other features
(v) Distribution will be very limited/exclusive.

(b) Industrial Products

Industrial products can also be classified into three categories:
Raw Materials and Components
The actual fabric, etc. from which an end product is made. Manufacturers
buythese items from suppliers and buying tends to be on a regular,
repetitive basisonce a production line is established.The marketing
implications of this are that:
(i) Supply and price will be major factors
(ii) Promotion tends to be in business publications and catalogues
(iii) The level of quality required will depend on the quality of the end
product
(iv) Relationships can influence the buying processes.
Equipment/Plant
Computer systems, production plant and other types of equipment needed in
theoperation of a business fall into this category. The nature of the
purchases ofteninvolves high prices and, as such, a great deal of research
and deliberation willgo into the purchasing decisions.
The marketing implications of this are that:
(i) Product features and performance are critical
(ii) Price may not be highly important
(iii) Support services take on extra importance
(iv) Promotion, highly targeted, may be direct or in business publications
(v) Personal selling may be required
(vi) Decision processes will be complex and take time
(vii) Distribution is likely to be limited to direct or distributors.

Supplies
The "consumable" items that are needed for day-to-day operations. These
products are similar in nature to convenience goods in the consumer sector.
Purchasing can be habitual and may carry little psychological "value" to the
buyer.The marketing implications of this are that:

(i) Delivery is not normally direct from the manufacturer

(ii) Price lists and any catalogues need to be comprehensive
(iii) Promotion will be more general than for other industrial purchasing.

It makes little difference how we describe the product, or even how it is

classified. Theproduct is what is being sold and what is being bought. In
other words, it is the item that isbeing used in the exchange process that is
taking place between buyer and seller.However, the more qualities there are

95
to the product, the more valuable it becomes to theperson who is acquiring
it and the more likely the chances of success for the marketer.Hence the
emphasis on the augmented aspects of image, after sales, delivery, etc. and
itcannot be denied that the best products for a buyer are those which give
an "added value" ofsome kind: they give something more than the basic
function. For example, designerclothes cover the body but they also give
esteem and status; personal computers now givethe benefits of built-in
modems which can be used to communicate with people around theworld.
PRODUCT MANAGEMENT
The level of responsibility and autonomy given to managers of products will
vary inaccordance with the size of the organisation as well as with the style
of management whichis currently being used. Some product managers will
have wide-reaching responsibilities andfreedom for decision making; others
will be limited in their scope.
Main concerns of Product Management
Product management is concerned with both existing and potential products.

(a) Maintenance of existing products

Products need support in terms of other marketing activities – promotion,
pricingexercises, distribution management, etc. Product managers must
constantly monitorproduct performance.Information on how a product is
faring in the market will help a manager to decide if it istime to make any
changes to the range, or part of it. In cases of poor revenuegeneration, it
may be that a product needs to be dropped or extra promotional activityis
called for. Decisions such as these are made on a regular basis in the
process ofproduct management.

(b) Development and introduction of new products

We know that not every product is blessed with a never-ending life and, if
only becauseof changing customer requirements, new products will be
needed. We will cover newproduct development in more detail later, but at
this point we must remember that it is avital part of product management.
Part of both these concerns is how the product is placed in the market in
terms of customerperceptions, e.g. high quality, value for money, etc. This
is product positioning.
(c) Product positioning
Product management is concerned with getting the positioning right, keeping
it right, orchanging it until it is right.Perceptual maps are used to show
positioning. These maps can be used by amanager to compare positioning
with the competition or to show the overall picture of acompany's product
range, as in the following Figures.

(d) Improving Customer Loyalty

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There is an expression quoted in marketing and selling which says:"We want
customers that come back, buying products that don't".Translated, that
means we want good quality products and satisfied customers.Customers
and consumers alike are now very knowledgeable on their rights. Theyhave
high expectations of products and do not hesitate to complain if a product
offeringdoes not match up to its promise. All of this, coupled with increased
competition, hasresulted, overall, in a general raising of the quality of
products which are available inthe marketplace.The higher quality
expectations for products have, in turn, resulted in more emphasisbeing
placed on the added value aspects of products in order to gain customer
loyalty.Customer loyalty is of prime importance to any marketer, even if
buying the productinvolved is a one-off, or very rarely completed,
purchase.The majority of purchases, however, are repeated on more than
one occasion and, assuch, the marketer wants to build up a relationship
which will mean that the customerwill come back another time.Apart from
the aspect of satisfying the customer, there are very good
managerialreasons for establishing customer loyalty, such as:
The cost of gaining new customers is much higher than keeping existing
customers happy
It is easier to promote to existing customers than to unidentified buyers
It is easier to encourage satisfied customers through the buying process
than tostart from scratch with new prospects
It is easier to manage the product range when buyer needs are known.
You can see from these points how important it is to develop a long-lasting
relationshipwith a customer. Long-lasting relationships MEAN customer
loyalty. The stronger theties are between a seller and a buyer, the less likely
the breakdown of the relationship.Marketers try very hard to create and
maintain this type of relationship.
Product Portfolio, Range and Mix
(a) Portfolio
If a company has just one product then all its efforts and resources will be
devoted to it.Since all the risks in the marketing environment will fall on one
product, mostcompanies would try to avoid such dependence. Yet as soon as
another product ismarketed, there is the need to reallocate some of the
company's resources and thescene is set for conflict, even in the best run
companies.The benefit of having more than one product would be obvious if
we could foretell thefuture accurately; we could just allocate resources to
those products which are going tomake most money, and change when the
future changes. As you know, life is not sosimple and every decision carries
some risk of being wrong.The idea of a portfolio of products is sensible; if
you can arrange your business so thatas one market dwindles away another
is just growing, you can have profit continuouslyand inherent risks will be
reduced. When the theory works in practice it is not by

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chance. Information has to be acquired and decisions made so a progression
of newproducts can be phased in. At the same time, management will want
to make as muchprofit as possible from their investment in the old products
before they are retired.
(b) Range
Many simple products are supplied in different sizes, to suit the needs of
differentcustomers; you will have seen big and small packs of foodstuffs in
grocery stores andthere are plenty of examples of size ranges, as in shoes
and clothes. The samesituation applies in factories – gears and chain drives,
belt drives and machine tools allcome in different sizes to suit specific
purposes.A product range (or line) has some similarities; if the products are
not related in someway, they are in different ranges. For instance, a
supermarket may have in stock 5000product ranges and some may include
four or five different sizes. Packs of sugar maybe in two sizes and three
varieties, but they will all be in the "sugar" line, as distinctfrom the frozen
chicken line. Similarly, for a product which does not have sizevariations, the
number of models in the range may be considered. Take pens, forinstance;
they are roughly the same size and the differences are in the quality of
thenib, the filling mechanism and the casing. Packaging has some
importance, too.This leads us to consider the product mix, which can be a
serious matter for amanufacturer.
(c) Mix
Lancaster & Massingham, in Essentials of Marketing, show a neat description
of theconcepts "mix", "depth" and "consistency" in connection with products
adapted in thisfigure:
Product line 1 = 9

Product line 2 = 13

Product line 3 = 8

The "depth" of the product range is shown by the longest horizontal line and
the "width"of the range is shown by the number of different lines.
When studying companies the "consistency" of their product range depends
on thecloseness of the products in terms of end use, production facilities
utilised anddistribution systems. Stronger consistency will give a company a
greater strength inthe market, whilst a greater depth will extend the
consumer types. Extending the widthof the product mix will give the
company more scope for providing profit from differentsources, for
protection against a decline in one range.In the above example, Lancaster &
Massingham go on to show that the company has30 items in the portfolio, in
3 lines, and the average depth of the product mix is 10.These "ratings" can
be used by managements to assess company strengths. We cantake a closer
look at the idea of a product mix.

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(d) Implications of product mix
A company which is dependent on one line of products is clearly vulnerable
to changesin the market, so it is usual for companies to develop a number of
product lines orranges. Quite often they start off sharing the same
production and marketing facilities,then develop separate departments or
even divisions as the products grow.One of the most useful theoretical
concepts which can help the marketing managementto find the best product
mix is the idea of a product life cycle. We shall examine this indetail later in
the unit, but for now we can briefly state that it describes the way in which
sales of a product develop and then decline over time. It is usual to plot this
a graph,producing a curve which grows, slowly at first, through the stages of
development andintroduction and then more vigorously in the growth stage,
before reaching a relativelyconsistent level of sales in the maturity stage and
then seeing sales fall as the productenters decline.It is clear that a wise
management will try to have new products coming into profit asthe old ones
fade away; and there might well be a time when it is best to withdraw anold
product so as to concentrate on a new one.Planning such product
progression is essential where the marketing management cansee there is a
pattern to their product life cycles. However, it is important to note thatthe
life cycle may be drawn for the product range, rather than for an individual
product;and a new product (or a variation of an existing one) can prolong
the profitable phaseof the whole range.
Product Management Decisions
Decision-making is usually helped if the situation can be simplified through
the application ofclear models and here we shall revisit some of those
considered earlier in respect ofplanning marketing strategies.

(a) Ansoff matrix

The Ansoff matrix can be used to show the possible ways in which a
company mightlook at product strategy:

Product

Existing new

Product
development
Market penetration strategy
strategy Risk factor 4
Risk factor 1

Diversification
strategy

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 Market
Markets development Risk factor 16
existing strategy
Risk factor 2

new

Market penetration strategy involves getting more from present

markets,possibly by improving or adding to distribution (flowers in petrol
stations) orextending the service or product to parts of the country not yet
reached.Product development strategy is a matter of finding new
products using thesame production and distribution facilities to earn more
profit for the company.Many ideas may come from the customers, some of
which can be used to add tothe product range.
Market development strategy is a matter of finding new markets for the
products, such as when Amstrad introduced computer-based word
processors tothe home market. At that time "serious" computers were only
used in offices.Some people say that extending the geographical spread of
the product belongsin this strategy, rather than in the market penetration
strategy. I would agree ifthe geographical spread involved international
marketing, or extending themarketing from one state to another in the USA
or Australia, but not for extendingwithin a small country like Britain.
Diversification strategy involves launching a new product in a new
market,usually achieved only by strong companies which can afford to take
the high risksinvolved.The four basic strategies shown in the matrix have
different risks attached and havebeen estimated in principle as in the
following table:
Risk Factor
Current product, penetrating deeper into the
current market1
Current product, entering a new market 2
New product, entering current market 4
New product, entering a new market 16
Although the Ansoff matrix must not be seen as a decision-making tool, it is
useful as away of clarifying the next stage in the process of ensuring profit
growth, which is theinvestigation of the possibilities. The choice between the
strategies shown in thematrix will involve a great deal of information
collecting and analysis, so it is useful toshow the risk involved in each
strategy right at the start of the process. Somemanagements will rule out
the riskier strategies and concentrate on less riskyprocedures, so narrowing
the amount of information to be collected and analysed.You may see many
variations on the simple matrix shown here; some go as far as16 squares to

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refine the risk assessment. You may see matrices with "HIGH" and"LOW"
instead of "Current" and "New", or different factors instead of "Products"
and"Markets"; however, all have the same purpose – to clarify the decision-
makingprocess.Obviously, when a manager uses the Ansoff matrix, each
square will show factorsrelevant to the specific situation, and "Market
Penetration Strategy" would becomesomething like "improve the
distribution", or "offer some extra product features", or"increase the
advertising", or "sponsor the London Marathon".
(b) Boston Consultancy Group Growth/Share Matrix
The Boston Consultancy Group (BCG) is an international group of
managementconsultants which has built up a substantial reputation as
companies, from which BCG candevelop their knowledge of "cause and
effect" in marketing. The BCG Growth/ShareMatrix uses "Market Growth" on
the vertical axis and "Relative Market Share" on thehorizontal axis. The axes
are both divided into "high" and "low", as you can see in
Figure 10.4 Boston Consulting group matrix

Market Question mark or

high problem child
Growth star

Rate Dog
low Cash cow

high low
Relative market share

Market Growth refers to the growth of a product, a product range or a

StrategicBusiness Unit (SBU). Any division or department may be a SBU, if
their costs andprofits can be identified separately from those of other parts
of the company. Mostpeople regard an annual growth rate of 10% or more
to be high and less than 10% tobe low. You can see already how arbitrary
are the decisions on what to include in thematrix.
Modest + or– cash flow
Modest + or– cash flow
Large +cashflow
Large –cash flow

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Relative Market Share is a different matter, which depends on a
comparison of thecompany's market share with that of the largest
competitor. The comparison isexpressed as a ratio, so that if the company
has a market share of 10% and the largestcompetitor has a share of 20%,
the BCG Relative Market Share is 0.5. If the positionswere reversed, the
company's Relative Market Share (RMS) would be 2.0. Somepeople use the
"x" after the figure, others do not, but it is generally agreed that anyRMS
higher than 1.0 is "high". An RMS equal to 1.0 shows that the company is a
jointmarket leader.Another innovation on the BCG Growth/Relative Market
Share Matrix is the use ofcircles of different sizes to show the relative size of
the sales involved. These circlesonly give an approximate idea, because it is
often difficult to visualise the relative areasof circles.It should be clear that
using the BCG Growth/Relative Market Share Matrix needs a lotof time, as
well as a lot of consistent information. There are many critics of theprinciples
behind the matrix, and there is an obvious simplification of the total
marketsituation. In many cases some of the "information" used will be the
manager's ownestimates and I always reckon that if you multiply one
estimate by another estimate,the result is no better than a guess.Finally, on
this topic, always write out the title of the BCG matrix in full so that you
willnot forget the importance of "relative market share". It is very easy to
slip into thinkingof this as "market share" and that is a different matter.

(c) General Electric Portfolio Analysis

This is a development of the BCG Matrix and uses much more information,
as well asjudgement of the managers concerned. The General Electric (GE)
matrix relatescompetitive strength and industry attractiveness. To bring this
down to basics, youmight be pleased to have a very high market share, but
that may not be of much valueif the industry is declining rapidly.
Industry attractiveness

Strong Medium Weak

Business
high
strength

medium

low

Business Strengths
Invest for growth – these are the best positions to be in attractive markets

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Harvest or withdraw – the business is weak in unattractive marketsInvest
selectively and with caution, but the markets are medially attractive. When
placing products or SBUs on the portfolio matrix it is normal to use acircle to
indicate the overall size of the market. Bigger circles equal bigger
markets,and the shading of an area indicates the firm's current share of that
market. Thus, inthe following illustration, A indicates a market about twice
the size of B, with theoperation having 50% of A and a 25% share of
B.Some people use the title "Competitive Position" instead of "Industry
Attractiveness"and the matrix is based on Return on Investment, not just
cash flow. You can see fromthe shading on the matrix just what indications
there are for managements trying toplan future strategies. However, you
can also see that there is a need for even moreinformation and a lot of
judgement.One of the problems in using matrix analysis is that the
simplification of the informationtends to ignore factors that cannot be
expressed in commercial terms. The matrix maysuggest the closure of a
SBU, or the withdrawal of a product, yet there may be goodreasons within
the company for keeping them going. One product supports
another,perhaps, by using the same machinery or raw materials. A
company, in which I workedfor a time, bought raw rubber at a very good
price, then used the raw material to makemouldings, drive belts, conveyor
belting and waterproof sheeting. If one of the SBUshad been closed, due to
failing in the matrix analysis, all the other SBUs would havesuffered from the
higher buying price of the smaller quantity of raw material.Can you find
enough information to draw up the GE matrix for your company? Maybeyou
could discuss the matter in general terms with colleagues or your manager.
You
will remember the principles much better if you have tried to compile the
matrix, even ifyou are not successful. Don't think that matrix analysis is
useless if you cannot make itwork in your situation – remember that this is a
technique for the big companies withample resources.

8.6 PRODUCT BRANDING

Kotler tells us that the American Marketing Association gives the definition of
branding asbeing:"...a name, term, sign, symbol or design, or a combination
of them, intended toidentify the goods or services of one seller, or a group of
sellers, and todifferentiate them from those of competitors".Essentially, a
brand is the flag which signifies, to the buyer, what they can expect
frompurchase in terms of quality, service, functionality, etc. A brand is a
recognition factor which,particularly at the point of sale, can help a buyer to
reach a purchase decision.Consider the following brands and what they could
mean to an individual:
• Cadbury – good quality milk chocolate/fattening products
• British Airways – good flight schedules/high prices
• Sony- excellent quality/poor quality

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 • McDonalds – pleasant outlets/poor nutritional value
• IBM – solid quality/outdated technology.
• Toyota
• Coca Cola
You can see from the above (remember, they are only examples – I am not
stating them asfact) that a brand can mean good and bad things to
people.Buyers are attracted by certain brands and not by others. There may
be good reasonsbehind the rejection of a brand by a buyer, e.g. poor
experience in customer service, or inproduct quality, or perhaps because of
influences coming from a family member, etc. but"brand rejection" does
occur.Because of the danger of this phenomenon, marketers try hard to
protect a brand image withvast amounts of money being spent on
advertising and publicity. At the end of the day,marketers see the brand as
being a major asset which works in their favour. The moreloyalty that can be
created, the better it is. The better the branding, the more likely it is
tocreate loyalty.
Brand Strategy
To develop a brand takes time and involves long-term planning and
investment. This meansthat decisions on the type of branding to be used will
not be taken at the operating level.These decisions are strategic in nature
and involve higher-level decision-makers. Brandstrategies that can be
followed are:
Corporate Umbrella Branding
This is where the name of the company is used as the main "identifier" to
the customer,e.g. Sony, Kellogg, Heinz. (Some major companies are now
using the term"monolithic" when referring to their corporate brand. This
appears to be happeningwhen there are multiple brands under one parent
group.)Brands of this type can be very powerful. The name "Hoover", for
instance, becamesynonymous with the vacuum cleaner. "Biro" became a
common name for ball pens.Of course, such branding can also be very
dangerous. If for some reason a brandname becomes damaged by adverse
conditions or publicity it can reflect on the entireproduct range and,
consequently, affect earned revenue.
Family/Range Branding
This is where a company has products being sold under a recognised name
which isdifferent to the company name. Family branding can apply to all
products which aresold by the company, (e.g. Marks and Spencer use "St.
Michael") or for some of theproducts only (Woolworth uses "Kingfisher").
Family branding can also apply toindividual ranges. This type of individual
family range branding is very common withhigh street fashion retailers, e.g.
C & A use "Canada" and "After Six", Littlewoods haverecently introduced
"Berkertex" (a play on another well-known fashion brand), Evansuse
"Essence" – each of these names signifies the particular qualities of the
range tothe buyer.

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Individual Product Branding
This is where the name of the product does not have any relationship to the
companyname at all but the product is recognised for its own merits, e.g.
Lucozade, Seven Up, Benyliny. A company may decide to adopt one, or all,
of these strategies depending on what it is theywant to achieve. We can
quote many examples:
Corporate Family Individual
Van den Burgh Foods Ragu Chicken TonightNissan Frontera Frontera Sports
Volkswagen Golf Gti
Warner Lambert Health Care Benylin .Often the brand strategy decisions will
be based on the type of products which are beingmanufactured. If they are
broadly similar the company may choose to be known for itscorporate name
rather than for individual products. Where the product range is diverse and
aimed at different target sectors they may choose to adopt a policy of
"family" or "individual"branding. It is impossible to give a good, general
guideline. The ethos of the company andits long-term intentions will dictate
how branding is carried out.When brands need to be developed, either from
scratch or changed in some way, decisionmakerscannot simply come up with
a catchy name or new logo and hope that the buyers willlike it. The brand
must be very carefully planned in terms of its particular
characteristics.Consideration needs to be given to several aspects including:
Impact on Existing Brands
To introduce a new brand, or change an existing brand, that would have an
effect onother brands being offered by the same company would be rather
foolish, to say theleast.
Suitability for Global Operations
Products are available in most parts of the world so the "translation" of a
brand needsto be universal. A name which is offensive, or difficult to say, or
a colour which signifiesdisaster would be inappropriate. There can also be
savings on promotional material ifbrands are adapted to cope with multiple
cultures.
Potential of the New for Brand-stretching
A brand name that can be used to cover other products which may be
introduced latercan be highly attractive. When a company has acquired a
good reputation for a brandit makes sense to use that brand for other
products. For example, Marks and Spenceroriginally were known for clothing
under the brand "St. Michael". They have nowstretched that brand to cover
food, gifts and toiletries, home furnishings and furniture.Each new line has
benefited from the security of the established brand name.
Threats to Branding
The presence of strong branding can, in itself, be a threat to an organisation.
Managers canbecome complacent and, at times, arrogant and dismissive of
customer needs. Acting froma power-base can be a powerful drug and
warning signs may sometimes be ignored.Resentment of the power of a

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supplier can cause problems which will build up and thensuddenly develop
into a major issue.One of the main outcomes of this, throughout the world,
has been seen in the actions ofmajor retailers in the consumer sector. Many
have developed their own brands which nowcompete with each other and
more established brands, on the basis of price or value formoney.Buyers
who try the own-brand goods will often find that there is little difference in
quality andtaste but there can be a big difference in the price they pay. If
the price they are paying doesnot equate to the "value" they receive, they
change brands. They shift loyalty from one brandto another! Brand
managers don't want this to happen so they do everything they can to
keep their customers happy.

8.7 PRODUCT PACKAGING

You may think that packaging is only for protecting the goods on their way
from factory touser; but just stand in a supermarket, look down the rows of
shelves and imagine what thescene would be like if all the packages were in
plain brown. And think what a struggle itwould be to find the product and
pack size you want to buy. The same applies to most othertypes of store; so
it is clear that packaging does more than protect the product.We can look at
packaging from three aspects: practical, decorative and informative, to
geta better view of the importance of packaging to the marketing manager.
Practical Aspects
Some aspects are obvious, such as containing the right quantity of product
and keeping itsafe during transit from factory to warehouse, then to the
store shelves and finally to thecustomer's home. It is equally important for
the packaging to protect distribution staff,
customers and associated people from the product, if it is hazardous.
Some products sold in grocery stores could be very dangerous if spilled onto
people orproperty. Oven cleaner is an example; I bought an aerosol in a
hardware store which couldbe a real killer if the packaging failed to protect
the user.There is scope for ingenuity in the design of packaging, to make the
pack more useful orattractive to the user; examples include "easy-pour"
spouts on cans of engine oil and "tuckin"flaps on cardboard cartons for
various products. I always look for hand-holes to help meto get a grip on
heavy packages.If the pack can be re-used (for a different purpose rather
than re-filling) there may be abenefit for some customers which will be
another reason for buying the product. This appliesin industry, too; some
large packing crates are used as offices, sheds, workshops and evenas
homes in some places overseas.You may like to ponder on the supply of
foodstuffs before packaging by processors becamethe normal activity. I can
remember the grocer weighing out sugar, flour, dried peas andbeans,
pouring them into paper bags and then folding over the tops neatly. I never
knew whohad produced the groceries and hygiene was of minimal
importance. Can you imaginereturning to life before plastic bags?

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Decorative Aspects
The obvious "prettiness" of packages is not the important matter here. A
package can carrythe logo or symbol of the brand, which adds to the
message appearing in advertisements.Repetition of a logo helps identify the
product to customers with some satisfactoryexperience of the same brand. It
also "reinforces" the message in the advertisements andhelps persuade
customers to buy the product.Some products have quite distinctive packs;
the colours and designs used becomesynonymous with the product, such as
Kodak film, Mars bars and After Eight Mints. Here,the design of the pack and
the colours used are identified with the product just as strongly asthe
coloured shirts of a football team.The packaging may not be on the shelf –
the logos of petrol suppliers are on their tankersand on the forecourts of
petrol stations, not on the product.
Informative Aspects
This really is important in view of the potentially dangerous products sold
over the counterthese days. The information can be simply how to open the
package – not easy with some ofthe "protection" devices which appear for
our benefit!. In other cases the information shows us how easy it is to use
the product, as with thelawnmower operated by a gorgeous young lady in a
clinically-tidy garden. In fairness, thesame packaging tells you how to use
the machine safely and even tells you how to carry iteasily. Some packaging
includes information on the safety aspects of the product. Many
products can only be sold if labelled with specific information.

10.8THE PRODUCT LIFE CYCLE

We have already mentioned the product life cycle model which is perhaps
the most easilyrecognised and well-known model in marketing theory.You
will know that the concept is best illustrated by a diagram of the "life" of a
productcovering the time from when it is introduced onto a market until it is
deleted or phased out ofa product range. The variables used in the model
are Time and Sales Revenue (or Profit).Over the course of its life, the
product moves through a number of stages, each of which hasits own
implications for the management of a product

The five stages in the life cycle are as follows.

Development
This can be a protracted stage and will involve activities such as design,
planning,costing, test marketing, etc. Costs are high, with no earned
revenue (and thus it doesnot register as a stage on the diagram at Figure ).
Promotion for awareness maycommence in advance of introduction of the
product to the marketplace.
Introduction
This is another heavily expensive stage with promotion being intensive even
though itmay be selective initially. If the product is truly innovative there

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may be little or nocompetition at this stage, but market education will be
required so promotion costs maybe even higher. The distribution network
will have to be established with dealerincentives being offered to secure
business.
Growth
If the product is taken up by the market, this stage will produce the greatest
increase insales and profit. The competition will be catching up and
promotion will be aimed atcreating favourable attitudes to the product as
well as establishing buyer loyalty. Thegrowth stage gives opportunities to
solve problems which may have been found in themarketing effort
(distribution, packaging, etc.) but pressure from the competition makesthis
a tense stage and there are still relatively high costs to be incurred.
Maturity/Saturation

The market has matured and competition will be at the maximum. Profit
levels maybegin to show falling trends as market share is lost to the
competition or the marketbecomes saturated. At this stage promotion will be
aimed at reminding the targetaudience about the product and at overcoming
the competition. There may still begood revenue to be earned from the
product and managers may extend the life cycleby marketing effort – new
packaging, increased promotion, new market sectors,regions, etc.
Decline
The market is falling and results in low profits. There is a possibility of high
supportcosts and considerable management time spent in considering the
merits and demeritsof the product. The product may need to be withdrawn if
new markets/uses cannot befound or if adaptations to the mix are not
effective in increasing sales.At this stage organisations may be introducing
new products to take the place of thosewhich are about to be deleted. The
decisions on product deletions and introduction arestrategic decisions and
will be dealt with at higher levels of management – somecompanies make a
practice of deleting products regularly and others stick to makingadaptations
to extend the PLC; yet others will have an "open" policy of consideringeach
product on its own merit.

Problems with the Product Life Cycle

We know that most marketing models are not perfect and can be criticised
for variousreasons. The product life cycle model is no exception to this and
there are a variety ofproblems in using the above basic concepts.
(a) Shape
The typical life cycle model shown in Figure 10.1 illustrates the four
"stages" that aproduct can go through: Introduction, Growth, Maturity and
Decline. Occasionally, youmay see another category, Saturation, which
comes immediately after Maturity. The model in Figure 10.1 can immediately
be criticised because it makes no allowancefor any activity, costs incurred or

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time taken before the product is introduced to themarket. It is, in effect, a
"sales" life cycle as it shows the revenue gained and fallingover time,
although this could be related to the life cycle of the product from
launchonly. Figure 10.2 gives a better illustration of the concept:
The model in Figure 8.2 is more realistic in that it shows activity and
resourceutilisation at the development stage, before market launch. We
could therefore arguethat the true shape of the product life cycle diagram is
"S" shaped.But then we come across the problem that not all products are
alike. They arelaunched under different circumstances, for different target
sectors and for differentuses. They will also involve different levels of
resources during the development stage.This implies that the shape of the
individual life cycle model will change.

Usefulness of the Product Life Cycle

Because I have covered the problems associated with the product life cycle
first, you couldbe forgiven for thinking that I see no great use for this
concept or model. On the contrary, Ithink it can be extremely useful if it is
used with caution. As a general aid to planning it isexcellent and can offer
several benefits.
(a) Planning and control
Once levels of revenue to be achieved have been established, a manager can
calculate how many units of a product need to be sold in the time period
covered.Using a desired product life cycle will show what possible sales
could be achievedbased on salesforce capabilities (number of customer visits
: likely conversion rate,etc.). It also means that the manager can liaise with
the production department onschedules and product availability.
If the possible sales, coupled with the product availability, are in line with
the revenueobjective, the objective is given greater credibility. It also means
that resourceutilisation can be planned much more effectively.Using the
model as a control mechanism is perhaps an even greater advantage.
Whena forecasted, or desired, chart is drawn it can be used as a
measurement of actualresults for any product. Comparisons can be made
between the take-up rates of arange of products in order to see which
marketing activities produced the best results.This type of post-campaign
monitoring will help when formulating strategies for futureproduct launches.

(b) Strategy formulation

The stages of the product life cycle give good general guidelines on the
characteristicswhich can be expected for aspects of the marketing activity
and consequently aiddecisions on the type of marketing strategy that might
be appropriate. These are setout in the Table following (Figure 7.15). I
stress the word "general" because there willbe exceptions. Environmental
influences should always be taken into considerationwhen formulating
strategies.If managers were to follow the guidelines given too rigidly they

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maycome up against a number of problems. Take the example of
Distribution at the growthstage. To simply say that because a product is in
its growth stage you should intensifyyour distribution activities may not
always be true. Product and customer requirementsmay make that a
nonsensical proposal.For example, think in terms of producing a highly
specialised and innovative designtool. To have intensive distribution would
be almost impossible, and customers wouldneed personal attention. On the
other hand, intensifying distribution for a productaimed at the consumer
market might well be appropriate when the product is in itsgrowth stage.
Therefore, it follows that the product life cycle is not, and can never be,a
formula for marketing management.

(c) Targeting and Positioning

The diffusion of innovation is a concept which was introduced by Rogers
and it refersto the characteristics of buyers. We looked at it briefly earlier in
Study Unit .Based on the normal distribution curve, the model shows the
rate of diffusion at whicha product will normally spread into a market.As you
can see from Figure the theory splits buyers into four categories:
Innovators
These are buyers who are always at the forefront of the market. They buy
newproducts as they like to experiment and be seen to be first. These people
are the"opinion leaders" of society. If this category can be convinced of the
value of aproduct, and they buy, there will almost certainly be a growth rate
for the product.It is also likely that if this category do not take up a product,
then success will belimited and the product will die at birth or very soon
afterwards.
Early Adopters
These buyers are never the first to try new products, but they always follow
opinion leaders fairly closely. They are not confident or adventurous enough
tobe leaders, but like to be "fashionable". They need to see that a product
hassome value before they buy.
Early Majority
Once a product is established, the early majority will take it up and buy. By
thetime the early majority are buying, the product has been on the market
for sometime and has been proven to be successful or useful in some way.
Late Majority
The late majority buyers are those who wait until the product is almost at
maturitystage. They require much persuasion and it is often only when a
product iswidely available that they will buy.They are conservative buyers
who need reassurance of performance.
Laggards
These buyers are behind the time. They buy products when they are going
out offashion or may even have been outdated by new technology. They are
the mostresistant buyers to convince as they are the most risk-aversive.

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Products in thedecline stage which have been reduced in price may be
attractive to thesebuyers, but a marketer would not necessarily devote very
much attention to them.By superimposing the theory of the diffusion of
innovation onto the product life cycle, itis possible to understand the typical
characteristics of buyers. This means thatpositioning can be done in such a
way that it will be more effective and changes inpositioning can be made as
the product moves from introduction through to decline.

8.10 EXTENDING AND EXPANDING THE PRODUCT LIFE

CYCLE
When a new product is introduced to the market there is usually a lot of
expensiveinvestment involved, on which management must try to get the
best possible return.Remember, the owners are shareholders who judge
management partly on the dividend paidon their shareholdings. There are
other factors, but in general it is fairly safe to bring theoperation down to
money terms.Managers cannot control markets, which consist of customers
who have their own ideas, butskilful managers can influence customers in
such a way as to lengthen the life of a productby extending or expanding the
market.
Extension involves maintaining production levels by seeking a wider
market asdemand begins to fall in the existing market. No new investment
in manufacturingoperations is required.
Expansion involves trying to increase demand for an existing product and
thusincrease production levels. Hence it is a strategy which does require
additionalinvestment, either in support of local manufacture or foreign
market facilities.As for examples, the original domestic market for Perrier
spring water was extended byrepositioning and a change in advertising and
pricing. The market for Japanese cars andmotorcycles was expanded by
setting up satellite manufacturing facilities in overseascountries.Be warned
that there are no generally accepted definitions of these two terms (a
commonproblem with marketing terminology). If you have to use any
problematic terms in answer toan examination question, it is entirely
acceptable to begin with your own reasonabledefinitions and then apply
them consistently in your answer.
Extending the Market
I am taking "extending" to mean going deeper into an existing market, as
would occur ifDisney World were to add more attractions to their theme park
in Florida. I reckon that whenDisney opened a theme park in France, they
were "expanding" the market.So if we have a market which we wish to
extend, what are we really saying? We want to getmore of the market in
which we now operate. We already have some market share and if
weincreased it we would probably achieve more profit. That would enable us
to get a betterreturn on the original investment.Take an example such as
Walls Ice Cream – they have always been strong in shops, but alot of ice

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cream is delivered by vans which tour housing estates or park outside
sportingevents and similar places. Walls were missing out on part of the
market and when theydecided to supply van salesmen with ice cream, they
extended their market.There are many benefits to be gained from this type
of activity – the company already knowshow to make the products and in
many cases they will have a reputation which is an assetworth developing.
Quite often there will already be some of the support services in place and
able to cope with more work.There are also potential problems too, since
every development carries some risk, so wemust look at the activities
involved in extending the present market.
First, marketing management requires information on present
performance, includingmarket share if known. (Textbooks take it for granted
that everyone can estimate theirmarket share, but there are some markets
for which statistics are not available insufficient detail.) It would be nice to
know the strengths of the company compared withthose of each main
competitor; and if you can work out strengths, you can work
outweaknesses, too.
The marketing management will also want to know the nature and size of
theopportunities available for extension of the market; where they are and
what they arelike. How do they differ from present markets? Is the present
distribution systemadequate or even appropriate? Is there any way in which
we can spread our messageto potential new customers? Can we use the
same type of advertisements? What willit cost?
Can the marketing management expect to be able to move into a new
extension oftheir market without competitors fighting to keep their market
share? Surely the best ofthem will try to stop anyone from taking their
market share? Their reactions might be athreat to our extension plans.
It is commonplace in marketing texts to refer to a SWOT analysis; the
initials stand forStrengths, Weaknesses, Opportunities and Threats, which
are all words used in thepreceding paragraphs. It is easy to suggest a
company does a SWOT analysis, but it is notalways realised that there can
be a great deal of work involved. A good MarketingInformation System
(MkIS) will have some of the information already on file, of course, butother
material will have to be gathered and analysed.A company may be lucky
enough to be able to choose from a number of possible extensionsto their
marketing activities; hence it will be necessary to decide which of them will
bring thebest increase in profit. In addition, there are few fixed points in this
sort of analysis; mostpossibilities will have some element of doubt about
them.Fortunately, computer analysis programs are available to help
marketing managementpredict what might happen if they take specific
actions. They are fine in their way but dependon having a lot of information
to feed into the program. This type of analysis is often called"what if?"
analysis. A more formal name for the activity is "modelling".

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8.11 NEW PRODUCT DEVELOPMENT
The market stance adopted by the company will, to a large extent, dictate
whether acompany will be an innovative leader and involved in extensive
new product development(NPD), be a follower and copy the leaders, or
whether the products will only be refined overand over again to make them
appear "new" to the buyers.Companies who do not have the benefit of one
perfect product which will always be indemand by loyal customers and will
never be attacked by competition, need to be involved inNPD to one extent
or another.NPD can be amendment of existing products in order to produce
products which are "new" tothe market or it can be totally innovative, in
which case products entirely new to both marketand company will be
developed.
The advantages of NPD are that it can:
Give advantages over the competition
Mean increased customer loyalty
Lead to increased sales/stability of profits
Spread investment risks
Increase the prestige of the company
Utilise production equipment.

The disadvantages of NPD are those of money, time and risks – the
opposites of theadvantages.
Process of NPD
The process needs to be thorough and systematic but flexible. All costs
should beconsidered but short-termism should be avoided, as often there
may be high costs/low profitsinitially but ultimate profits will be excellent
and costs can reduce through experience.The main emphasis on NPD is that
there should be a process – planning is crucial if NPD isto be successful.
Everyone involved should know the policies of the company where
newproducts are concerned and should understand the stages of the
development process itself.Poor communication and liaison will inhibit the
development and successful launch of a newproduct.The main priority in
NPD must be to monitor constantly so that activities can be controlled.The
new product development process for many years has been viewed as a
linear,sequential process involving several stages of analysis and review. The
model mostfrequently quoted for this is the Booz Allen Hamilton model,
identifying logical sequences inthe process as follows:
Idea generation
Screening
Concept testing
Outlining marketing strategy
Business analysis
Product development
Test marketing

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Commercialisation.
Whilst the model does give a good basis for risk reduction in new product
development, wecan see, by looking at each stage in turn, that it can be a
time-consuming process andtherefore may not be perfect in today's highly
competitive marketplace.
(a) Idea Generation
Ideas are collected from perhaps the salesforce, distributors and
customers/consumers. The company will be actively looking for
opportunities, and newproducts can be produced in response to a perceived,
or recognised, demand. Theprocess of gathering the ideas may take weeks
or even months. The ideas have to becollated, considered for feasibility and
eventually passed to the people who areresponsible for screening.
(b) Screening
The company will have set certain criteria, e.g. we must be able to produce
this productwithout further investment in production plant or personnel; the
product must "fit" withthe rest of our range; there must be a recognised
level of demand; it must give a statedlevel of profit; it must be different to
what the competition is offering, etc. The peoplewho are responsible for
screening the new ideas must try to "match" the ideas againstthe stated
criteria wherever possible. Assuming some of the ideas meet the
criteria,they are then passed on to the people responsible for the next stage
in the process.The screening stage is crucial, as it is here that non-viable
ideas are shelved.
(c) Concept Testing
This is not a "product test" but an "idea test". The concept is taken to
potential buyersas well as to the internal processing people to check on
manufacture, packaging,distribution, etc.At this stage people are being
asked such questions as: "Do you think it is a goodidea?"; "Would you buy it
at x price?"; "Can we make it?"; "Will it be easy to store anddistribute?".
Once again, a time-consuming process, before the next stage is begun.

(d) Outlining Possible Marketing Strategies

The results of the concept testing can help a company to decide just how it
will marketthe product. Will it be distributed direct, or through specialist
channels, or will it bemade widely available to cater for a mass market?
What positioning will it be given –high quality, good value for money, or
cheap and cheerful? Will the communications beheavily biased towards
direct marketing, or in the major media? What strategy wouldcause least
reaction from the competition? How can results be most
effectivelymeasured?Decisions made at this time depend a great deal not
only on the results of the concepttesting but also on knowledge of the
marketplace and the planning skills of themarketers involved. Knowledge of
the marketplace is something which requiresresearch. Research needs to be
on-going and takes time!

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(e) Business Analysis
This stage is crucial to the NPD process. It is here that the potential profits
arecompared to the production and marketing costs to see if it is worth
proceeding.Competitive activity, market trends, environmental aspects, etc.
will all be analysed inorder to give as accurate a picture as possible. It is at
this stage that products areoften rejected because they do not demonstrate
enough potential earnings in a givenperiod of time, whereas given the
appropriate support they may actually be productswhich could give huge
profits over a longer period of time. Assuming that after thebusiness analysis
the product idea is still a viable proposition the next stage thencomes into
effect.
(f) Product Development
To begin manufacturing a new product is a risky venture and there can still
be somedoubt as to the viability of the product. Because of this, some
manufacturers willchoose to produce a prototype, or small batches, in order
to test effectiveness beforethey give full commitment to production. The
effort in producing small quantities addsto the expense and time involved,
not to mention the possibility of the competitionbecoming aware of what the
company is doing. It is during this stage that finalplanning for the other
elements of the marketing mix (brand names/pack sizes, etc.) willbe
completed and this is often the time when something completely unexpected
willcrop up – meaning higher costs for the company.
(g) Test Marketing
This is where the product is introduced to a representative sample of the
potentialmarket and aspects of the marketing effort are tested. This is an
opportunity to adaptany of the mix elements which prove to need
adjustment. It is important that the testarea chosen is representative of the
entire target audience.For industrial products, selected customers may be
approached to "test" the productand they will be surveyed for their
responses in view of effectiveness, price and otherattributes. For consumer
products, testing regions will be chosen. In the UK, andindeed throughout
the world, certain areas are known to be good testing sites. Usuallythis is
because the region has a representative cross-section of the community,
withgood communications and distribution facilities available.Although it
increases costs, it is better to use more than one testing area so
thatcomparisons can be made. Different prices, advertisements, methods of
distributionand perhaps even packaging may be used in the different areas
so that the companycan see which methods are most effective.The results of
the test will then dictate whether or not the product moves on to the final
stage of the NPD process. However, before we move on to the final stage, it
is worthconsidering the possible problems in test marketing. The problems
can come from:

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(i) Buyers – people will often buy a new product just to try it. They may like
it andtell a researcher so, but they will then revert back to their normal
purchasesbecause of brand loyalty or for some other reason.
(ii) Distributors and suppliers – they may be willing to give a new product
exposure because of an introductory incentive, but once the incentive
iswithdrawn they may not be so willing to cooperate or devote space to the
product.
(iii) Competition – if they have relatively similar products, competitors may
takedefensive action and introduce promotional activity that will undermine
thetesting. This could be in the form of increased advertising, reduced prices
orsome other form of incentive to keep the attention of the target audience
awayfrom the product being test-marketed. Competitors have even been
known tobuy up new products in large quantities which results in distorted
sales figuresthat can lead to over-optimistic forecasting of demand on the
part of the companyintroducing the new product.On the other hand, if you
are introducing a truly innovative product which has nocompetition, you are
likely to become subject to "following action", wherecompetitors will
investigate your product and your marketing activities, find someway of
improving on what you have done and then capitalise on yourweaknesses by
launching an "improved" version.Other factors which research has shown
can cause problems in test marketing are:
Failure to understand the needs of the target market adequately
The wrong sector is chosen for the test and it is not truly representative of
thewhole market
The size of the market sector being tested is not big enough
The timing is wrong, e.g. testing products in July, when they are likely to
bepurchased for Christmas gifts or entertainments
The length of the test is too short, or too long, which can give distorted
results
Not enough resources are put into the advertising and promotional aspects
The results of the test are ignored because of an over belief in the product
by oneinfluential executive in the company.Irrespective of the problems
which may be encountered, there is no doubt that thisstage in the NPD
process takes time and effort (both time and effort to any companymean
one thing – money!) before the new product finally reaches the last stage in
theprocess.
(h) Commercialisation
This is the full-scale manufacture and launch of the product onto the
marketplace. If allof the stages have been carried out correctly, the product
should have a good chanceof success, and yet research indicates that
anything up to 80% of new products fail toprogress from the introductory
stages of their life cycle.If we accept that the sequential NPD process as
outlined in the Booz Allen Hamilton model isvaluable in that the process can

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weed out obvious failures and, at the very least, reduce therisk factors, we
must also realise that in the aspect of "time to market" it can be severely
restrictive.A sequential approach implies that one stage must be completed
satisfactorily before theproduct is "pushed over the wall" and another stage
begins. Add to this the fact that oftendifferent teams of people are
responsible for the various stages and it is not difficult to seewhy producers
have had to come up with new ideas on how to cope with NPD.
Consider that, instead of each stage being done in sequence by the
relevant people,the company changes its approach completely and parallel
processes are introducedwhere various stages are carried out
simultaneously. You may well think that this is ahigh risk process and that
some aspects may be overlooked, which could still result infailure for the
product. But it is a fact that manufacturers are moving increasingly to
thisinnovative style of NPD.
Venture teams, or new product teams, are drawn together for the sole
purpose ofintroducing new products to the market. These teams may be ad
hoc in that they arebrought together for one project only, or they may be
more or less permanentlyestablished in that they are constantly looking at
new product ideas.

UNIT 9.0 PRICING POLICIES AND PRICE SETTING STRATEGIES

9.1 WHAT DOES A PRICE REPRESENT?
The answer to this question may, at first, seem fairly obvious – it is the
amount of moneybeing charged by the seller of a product, and the amount
of money being paid by a buyer forthat product. But this response does not
really say what a price represents. Price meansdifferent things to different
people – it depends on who we are talking about.Price is one of the
celebrated 4 Ps of marketing – price, product, promotion and place. Allthe
other elements cost money, but price is the exception – price is the one
element thatbrings in revenue. Some of the variables in marketing cannot be
controlled by the marketingmanager, e.g. the environment, government
actions, political events and so on, but price isone of the variables that the
marketing manager can control.
Price and Customers
To a customer, the price represents the level of value they ascribe to the
item being bought.Value changes from one person to another so what is a
"good" price to one buyer may be a"bad" price to another.The following
definition comes from a 1990 issue of the CIM Newsletter Marketing
Success:
"Price represents the amount of income that has to be given up in exchange
forthe package of benefits to be derived from the product".Note the word
"benefits" – the Newsletter goes on to add that value is far more
importantthan price, and that leads to the idea that the total collection of
benefits is more importantthan just the price alone. For instance, suppose I

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have to send some goods to another partof the country, and I have the
choice of a "24-hour" service, or a "48-hour" service, or just aservice which
does not guarantee the delivery day. All these services have different
prices,yet they all end up delivering the goods to the destination that I
specify. The time of arrivalmay sometimes be such an important benefit that
I will pay extra for the faster service.Most products have a number of
benefits associated with them, and when we talk of priceper unit in customer
terms we are usually speaking of the total benefit, not just the
product.Clearly, the customer must consider the other aspects of the
purchase, and price is just oneof many factors that are involved in a buying
decision.I am interested in computers because I earn part of my living by
writing and computers canbe very useful to a writer. However, many of the
advertisements show prices that are higherthan I am prepared to pay, so
those prices turn off my interest. One of the reasons for this isthat the
products are developing so fast that if I wait a year, the model that I
"cannot afford"just now will be offered at a lower price, that I might be
prepared to pay. If I really needed
the features in the products, I would allocate money that way now instead of
some other way.There are many factors which influence a customer's view of
price. If you are thirsty, you willpay a high price for a drink, even though
you think the price is too high, especially if you havelittle choice or are in a
closed situation such as a concert hall.
Management Views of Price
Various managers have different views on price, and the word "price" is too
simple for use inthe deliberations of company managements. There is always
a need to specify which "price"you really mean.
Production Manager's View of Price
To the production manager, it is often a matter of price being related to
costs, with apercentage added on for profit.This is an old-fashioned method
of setting prices which is still used quite extensively,and the effect on the
production manager is that they will often be asked to reduce thecosts,
because "the customers will not pay the price".As you can imagine, that
causes problems for the production manager, who wouldcertainly be able to
reduce the costs if they could get authority for making biggerbatches of the
product, because unit costs fall as production levels rise. But would thelower
costs, and lower prices, ensure that there would be higher sales levels?
Maybebut maybe not.It is easy to see how production managers can feel
that they are being asked to do theimpossible to cover up for the
inefficiencies of salespeople.
Finance Manager's View of Price
The finance manager is managing a very emotive raw material – money.
They areconcerned that the revenue should be bigger than the costs of
making, marketing andselling the goods. If it is not, then why are we in
business?The finance manager is also concerned with the time of payment –

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revenue in the banktoday is better than a promise of revenue tomorrow, and
timing is more important thanit may appear from the outside. The finance
manager must ensure that the companydoes not run short of the "raw
material" that they manage, because the company couldbe closed down,
however busy they are in production and sales. (All companies inBritain
must be able to pay their debts at all times, or they can be closed down,
andthey may often have to borrow money to keep themselves running.)If
revenue does not come in quickly enough to cover costs, the finance
manager mustborrow from the reserves or the banks, and that is a matter
for concern. The worstthing about financing the marketing activity is the
uncertainty – everything that is doneby marketing staff costs money and the
whole activity is based on the expectation thatmoney will flow back
eventually. But when? And how much? The finance managerwants to see a
high price, but only if there are going to be a lot of units sold.

Sales Manager's View of Price

In theory, any salesperson of average ability can sell a good product – it is
just easier ifthere is some flexibility in the price so that a "tempter" can be
offered.Sales managers tend to be judged on the success of their team in
shifting quantities ofthe product, and the quantities are often written into
targets with little consideration ofthe difficulty, or the competitors.Within
reasonable limits it should be possible to sell more at lower prices.
Therecomes a time when people have enough of a product, and shopkeepers
soon get toknow when their customers will not buy any more at any price,
but generally speakingprice does have an effect on sales levels.For the sales
manager, lower prices often mean higher sales volumes, and that can bea
sign of success.

Distributor's View of Price

The price paid by the distributor is not the list price paid by the customers,
because thedistributor has to be paid for the service that they provide in
stocking the product anddelivering the small quantities that shopkeepers
need. So the price to the distributor isthe trade price, and that may be as
much as 50% lower than the retail price.The "price" referred to by the
finance manager, the production manager and the salesmanager is the trade
price, not the list price.Whatever the terminology, the outcome is that the
trade price is what the company canexpect to receive, and all their financial
considerations must be made on that pricelevel.The distributor may see the
price in two ways:
(i) The price that is charged by the shopkeepers, which will have some effect
on thedemand from customers; and
(ii) The price that they have to pay for the goods.
Their profit lies somewhere in between those two levels.

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Time is also important to the distributor – if the supplier will allow a few
weeks' credit,the distributor may get some of the money in from the
shopkeepers to whom they havesupplied the goods, and a longer credit
period may offset a higher price, so thedistributor, just like the customer, is
looking at the total package, not just the prices.

9.2 THE PRICING DECISION

The influencing factors on pricing can make the setting of prices very difficult
for marketingmanagers. Too high a price and the manager does not get the
sales; too low and there is notenough revenue. So the question must be:
"How do we set a price?"The answer is that there are basically two ways:
From the point of view of the customer and the marketplace the
manager must takenote of the current level of prices being paid for similar
products on sale in the market.He/she should then work BACK through the
chain of distribution to manufacture,analysing the costs incurred at each
stage and building up a total cost for that particularitem. When all costs
have been considered the actual revenue received for thatproduct can be
checked to see if it is viable or otherwise. If profit levels are notadequate
then managers need to consider other issues, such as whether the product
could be regarded a "loss leader" which would, in time, lead to sales of other
relatedproducts; or perhaps it is necessary that the company has a place in
that particularmarketplace for competitive reasons.
Working from cost of manufacture, by building up all costs incurred from
production,marketing and distribution until the product actually reaches the
customer. If the finalprice is too high, and unrealistic as far as the customer
and current market levels areconcerned, the manager then needs to
investigate how, if possible, he/she can reducecosts incurred in order to
lower prices. The converse also applies. In the case of highvalue items it
could well be that the price reached would be too low and would not
reflect the correct "image". Image is important and customer perceptions
are affectedby price so that price needs to be right.
Pricing Plan
In the last study unit I said that the product plan was a mini-version of the
marketing plan. Insome respects, the same could be said of the pricing plan.
It has objectives and strategiesand will obviously need schedules and
controlling to see if it is being effective. But thepricing plan has a different
role to that of the product plan. The pricing plan has to make surethat the
customer is happy, but it must ensure that revenue is kept flowing and that
costs aremet. It is not an easy plan to produce.Managers involved in pricing
are called upon to make decisions which will maintain thedelicate balance
between the organisational aspects of earning money and the
marketingaspects of satisfying the customer. They need to know which is the
best strategy to use atany given time and in any given circumstances.

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There are so many influencing factors that pricing can become a minefield if
it is allowed to.It is only by following laid down pricing policies and
strategies, and adding value judgment,which is a result of knowing the
market and the customer, that a manager can be sure of anydegree of
success. In other words, pricing needs to be structured, creative and based
uponknowledge.Despite the different structure of the pricing plan, it must
still fit with the other plans. It is nogood deciding to adopt a policy of high
pricing if the product quality does not match; it is nogood deciding on low
prices when the product is unique; it is no good deciding to maintainprices
when a market has reduced in size – the price will need to be reduced or
raisedaccording to the competitive players who are left operating. Last but
not least, it is no goodregarding pricing as a minor issue – it is important.
Pricing Policies
As with most activities, in any organisation there will be stated policies
underpinning the day-to -day activities which are taking place. Policies are
set and agreed at the higher levels ofmanagement and then passed down to
the relevant personnel for adoption and action.Pricing policies may be
complex or straightforward depending on various factors such
asmanagement style, cost structure, etc. The policies are there to give
guidance on themanner in which prices should be set.Because marketing
managers may have to make decisions on prices both for the homemarket
and countries overseas, it follows that pricing policies need to be all-
encompassing.They should be clearly stated and easy to understand.
Pricing policies can be established in three ways. They can be:
Cost-orientated
Demand-orientated
Competitor-orientated.
(a) Cost-orientated Policies
Here the company knows the costs involved in manufacturing the product
and thenadds on a percentage of the cost as a mark-up in order to set the
price.There are two ways of carrying out this policy:
(i) A standard "across the board" mark-up on all products produced. The
mark-up isdesigned to cover potential profit.
Example:
A company has a standard mark-up of 25%
Product X costs £5.00 to manufacture
Production batches are 500 units
The selling price would be £5 plus 25% = £6.25
To simply cover costs the company would have to sell 400 units. If they
wereguaranteed to sell that number, and were able to sell the other 100
units, theycould have an extra £625 revenue or profit. But, unless the
product is made toorder, there is always a risk that some will remain unsold.
(ii) A standard mark-up plus expected level of profit.
Example:

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The company has a standard mark-up of 25% before profit
Product X costs £5 to produce
Production batches are 500 units
The company wants to make £1,000 profit
Total production costs are £2,500. If we add 25% mark-up and the £1,000
required profit we get £4,125. We can then calculate the price at different
levelsof sales, by dividing the quantity into that amount.
Sales Quantity Selling Price (£)
200 20.63
300 13.75
400 10.31
500 8.25
There is a big difference between the lowest price using the method in (ii)
and thatfound by using the straightforward mark-up in example (i). The
difference is that anallowance has been included to cover required profit.
This is a refinement on the basiccost-plus pricing policy. In a situation such
as this the marketer has then to decidewhich price to use, balancing
influencing factors against each other to see whichscenario is likely to be the
most productive.These modest examples serve to demonstrate just how
difficult it can be to set a goodprice which will be acceptable to the market
and yet still bring in the required revenue.Forecasting of sales needs to be
as accurate as possible, but the marketer needs to beable to "sense" what
the market will bear.You may consider that cost-plus pricing is a rather
dangerous method but manycompanies use it quite successfully. In my
experience those that do use it do notoperate simply on a standard mark-
up; instead they have varying levels of mark-up tosuit the particular
products or markets. There may be a stated policy such as:
"minimum of 25%, maximum of 400% before (or including) profit"
and then the marketing managers are given freedom to set the prices within
thoseparameters. Calculation lists, such as the one used in Example (ii) –
but much morecomprehensive, of course – are drawn up so that planners
can see at a glance howmuch profit they are likely to make at any given
selling price. This type of list is veryuseful in the process of new product
development and can save a lot of time inrepeating calculations.You usually
find the policy of cost-plus pricing in those markets where there is morethan
one seller of a product and they are broadly similar in nature; products are
differentiated by means of added benefits.
(b) Demand-orientated Policies
High demand means high prices – low demand means low prices. This is a
commonperception of demand orientation. However, there is the aspect of
keeping prices highto meet a "special" demand, such as in the case of luxury
goods (Rolls Royce, etc.).In other words, demand can be created by using a
pricing structure that meets theneeds of a specific market demand. In the
case of Rolls Royce it would meet theexclusive or elitist aspects of the

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buying market.There is also the reverse aspect of keeping prices low to
create a high demand.Keeping prices low relies on very high turnover, e.g.
FMCG products. To price low tocreate demand requires that a company is
strong in the marketplace.
(c) Competitor-orientated Policies
This type of pricing is usually found where a group of organisations is selling
the sameproduct (petrol, finance, etc.).The overall market knows the costs
of certain items and is only happy to pay what isaccepted as the "market
price". If one of the companies or organisations were toreduce their price
drastically it would simply mean a huge loss of revenue – conversely,if they
were to increase their prices it would mean that buyers would buy from the
competition.In these circumstances the safest way is to keep pricing at a
level that is the same, ornear to, that being charged by the competition.This
policy applies equally to large and small operators. Consider the case of
threemarket traders selling fruit and vegetables within close proximity. If
one of themcharged higher prices they would simply lose out to the other
two. Although they maycharge a little more on one or two items, the prices
of all three will be broadly similar.The policies of cost-plus and demand can
also be applied to this scenario. If onetrader simply wants to cover costs it is
easy to do so and of course he can include apercentage for profit before he
works out his price. If he manages to get some exoticfruit which the other
two have missed, he can price that in accordance with demand.
Influences on Pricing Decisions
• company objectives
• company market stance
• legal & political
• management culture
• costs
• price
• existing competitors
• new competitors
• suppliers distributors
• customers
The model in Figure 8.2 illustrates this situation (source, Wilson, Gilligan and
Pearson).
PRICE
High medium low

Penetration Super
Premium strategy bargain
strategy strategy
Average
Over pricing quality Bargain
strategy strategy strategy

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Quality high Shoddy goods
Hit and run strategy Cheap
Medium strategy goods
strategy

low

Product Life Cycle (PLC)

Theoretically the PLC can be used to set prices if it is used in conjunction
withmarketing strategies, e.g.Introduction = market penetration =
aggressive pricing for share (low)
Introduction = market skimming = aggressive pricing for share (high)
Growth = penetration and defeat competition = low/differential
Maturity = protection of share and defeat competition = low
Decline = recovery of costs = high or low pricing.
However, this is a very generalised approach and, in view of the fact that it
isdifficult to know exactly where a product is in its life, it is unlikely that a
marketingmanager will set his pricing strategies entirely on the PLC.
Product Line
The price of one product may affect another because of inter-related
demand orcosts, (e.g. the same resources are used in production). In cases
such as thesepricing decisions will be based on management values and
judgment after fullconsideration of all influencing factors.
Segmentation/Positioning
It is an accepted fact that when a company holds a good position in the
market itcan set higher prices as it will be operating from a position of
strength, providingits segmentation and positioning are set correctly. If
segmentation andpositioning are not correctly carried out, the competition
will soon attack on theweaker fronts.Brand position and strength also feature
here. When a brand is strong peoplewillingly pay higher prices to obtain the
product. Although this will not attractevery single potential buyer, those that
do become loyal are reducing theelements of "perceived risk". Once they
have fully accepted the brand, productor company, buyers will feel secure in
their purchasing and tend to "stick". Theywill carry on paying the higher
prices until such time as they can be enticed awayby yet another brand,
product or company. Pricing based on brand may beextremely high
depending on the strength of the particular brand.
(b) Customer Factors
Demand
As demand changes prices may fluctuate. This can cause gluts in the market
and prices will reduce because of over-supply, (e.g. oil, housing) or peak
buyingtimes, e.g. holidays. Marketing managers who are prone to suffer

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peaks andtroughs in demand will be pricing in such a way that any revenue
gained will offsetthe lean times.
Customer Benefit
Customers will accept a "basic" price for any commodity but many will
beprepared to pay more for added benefits. Companies therefore try to
provide thebenefits at minimal cost in order to keep profits high. They can
also use the"reduced benefits" approach to attract buyers, e.g. the growth of
own-labelbrands that promote on the basis of no fancy promotional costs in
their prices.
Perceived Value
A customer will pay more for what they consider "good" value but only if the
pricereflects the value ascribed. Ascribed value can be on any aspect that
isconsidered important to the buyer – quality, delivery, image, etc.
Sometimesmanufacturers do not initially recognise an obvious asset, and do
not raise theirprices accordingly. This is a failure to recognise competitive
advantage whichcan result in needless loss of market share.
(c) Market Factors
Competition
Managers know that the prices charged will be noted by competition, as well
asby buyers, and this will affect how the prices are set. Companies may
adopt apricing policy which signals "we are not aggressive" to reduce
competitive activity– or the opposite, "we are strong, keep off, you cannot
touch us" to frighten offattackers and inhibit new entrants into the arena.
The internet has meant that competitor pricing information is widely
available andeasily monitored by organisations and consumers. There are
now websitesdedicated to comparing competitor prices on behalf of
consumers. The result isthat organisations' prices are far more transparent
than ever before. This has notnecessarily led to a reduction in prices but has
led to the necessity fororganisations to compete on factors other than
price.The internet has also been used to gain competitive advantage using
price.Examples of this can be seen in the music industry, where consumers
candownload individual music tracks on to their computers at a reduced
priced, i.e. asingle track cd will retail at approximately £3/4.00 whereas an
individual musictrack can be downloaded for around 75 pence.
Environment
Government intervention for any reason can have an impact on how a
companysets its prices, e.g. fair trading, monopolies. Intervention can be for
a number ofreasons: to protect the consumer, to protect manufacturers, to
encourage ordeter importers, or simply to gain political points.
Geographic
Distance can add extra costs for delivery which can make pricing difficult.
Formany products customers expect to pay the same price no matter where
theyare. This calls for a system of uniform pricing, (e.g. newspapers are
sold at thesame price throughout the UK irrespective of the distance from

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the printing base)or zone pricing, where transport and delivery are part of
the price but the pricevaries in accordance with the distance travelled, (e.g.
some retail furniture outletsadd an amount to the price, based on the
number of miles that delivery has to bemade – within ten miles free, 20
miles plus £10, 30 miles plus £25, etc.). Theadded cost may not be the
entire cost of the delivery but the customer isexpected to contribute.The
nature of the product, its value to the customer and the level of service
whichthe company wishes to give will all be determinants of the price where
distance isconcerned.
Pricing Strategies
The underlying intention of any pricing policy is to set standards, which can
be used to pricein such a way as to maximise profits in the long and short
term. There are several strategiesand actions that can be used in
conjunction with the above policies.
Penetration Pricing (Low Price)
This strategy will be used to stimulate market growth, to capture market
share or todefeat competition by stealing share or by inhibiting new
entrants.Some companies believe that they can earn long-term profit by
pricing in this way.Kotler quotes Texas Instruments as a company that
builds excess capacity and isprepared to accept low profits for a few years.
Then when the market share builds up,the excess capacity is useful.To do
this the company must be strong and the management determined to
continuealong this line. The market must be one that can respond to low
prices by growing,and the production processes must be of the type that will
cost less as experience isbuilt up.The danger in this strategy for marketers is
that they may suffer from the reducedrevenue because of low prices. They
may also find that they are unable to increasethe price from its low level.You
will often see this strategy called "market share pricing", "market
penetration" or"swamping the market".
Skimming Pricing (High Prices)
Skimming is aimed at capturing the top end of the market, i.e. to sell on
"perceivedvalue" aspects. Sometimes the entire activities of the company
will be based onmarket skimming strategy (Rolls Royce, Rolex, Yves St.
Laurent) but quite often thisstrategy is used by innovative market leaders
when they are launching new products.They aim to get as much profit as
possible before the competition catches up.In the case of new products, this
strategy will only work if the product has enoughmarket appeal to warrant a
high initial price. Market appeal can be based on anyaspect of "value" to the
buyer – taste, image, service levels, access, etc. Eventuallythe price may
have to be lowered to match the price of followers.
Early Cash Return
If a company has cash-flow problems they will take short-term corrective
action. Theymay opt for low(er) prices which will give them a rapid return on
the resourceinvestments they have made and try to recover their initial

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outlay quickly. This,however, can lead to problems. How can they then
increase the prices to a morerealistic level? What if the competition moves
faster and captures a large share of themarket at the correct pricing? These
are the problems that managers face with thisstrategy, but for companies
working with minimal resources it is often the only way tooperate.
Satisfactory Rate of Return
Sometimes a company is happy to make a certain level of profit and not
interested ingoing beyond that figure. Prices will be set and aimed at
achieving that profit and nomore. It is often the smaller company that
operate on this basis, e.g. small familybusinesses, or semi-retired
consultants who only want to earn nominal amounts. Thisstrategy tends to
be found in those companies who use a cost-plus policy.
Differential Pricing
Companies may operate a differential pricing structure – charging different
prices indifferent market sectors. This strategy is usually adopted by
companies following ademand-orientated policy. In order for differential
pricing to work efficiently, the differenttarget markets/sectors must be
clearly distinguishable.They must show different demand patterns and be
separate enough to avoidoverlapping knowledge of the different price
structures being used. Therefore, itfollows that this type of pricing is more
likely to be found in international markets than inhome markets.Differential
pricing can be difficult for the following reasons:
(i) Increased activity on part of the competition
(ii) Intervention by governments (home and overseas)
(iii) Improved communications means that people are more aware of what is
goingon in other parts of the world
(iv) Increased trading agreements between countries has led to standard
pricing inentire regions of the world.

Competitive Pricing
Pricing can be used to build a competitive advantage. There are a number of
tacticsthat can be deployed and a selection of these is given below. These
tactics are meantto be short term and can be implemented without
damaging the overall pricing strategy.
(i) Volume discounts
These are designed to encourage repeat purchasing and contribute to brand
andcustomer loyalty. They are frequently used in business-to-business
markets toreward customers who purchase larger quantities or who buy
fixed volumes overa given period of time.
(ii) Menu pricing
This allows the cost to be broken down into different elements. Customers
arethen able to choose their requirements from the menu. This system
offerscustomers a degree of choice when they are faced with bills for large

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purchases.For example, car servicing costs can be broken down into
different parts so thecustomer can select from the menu.
(iii) Promotional pricing
This is a popular form of pricing used throughout the marketing process.
Thereare five main categories:
– Money off current purchase
– Money off next purchase
– Cash-back offers
– More product for the same price
– Discounts on multiple purchases.
Other approaches include premium pricing and all-inclusive prices as offered
by hotels,garage service companies and finance/lease schemes.
(a) Price reductions
Speaking in general terms, marketers do not like to reduce prices because
they fearthe danger of a price war with the competition. Consequently, when
a price is reducedthere will always be a very good reason for it, if not more
than one. It may be asituation which forces the change in price, or a
deliberate action on the part ofmanagement in an attempt to revitalise
activity in the market.Prices can reduce because of one, or more, of the
following reasons:
Competitive activity
Leadership strategy
Excess production
Falling brand share
Low quality tarnishes image
Recession.
In fact, not all price reductions are destructive and create price wars;
sometimes theysimply increase volumes of purchasing so that profits are
increased. However, whenprice wars do occur they are usually between
companies which have similar pricingstructures and policies, and a
downward spiral will often mean that one company hasto withdraw from the
fight leaving the winner the overall market. The winner is thenable to put up
the prices again.This shows that although the customer will gain from price
reductions in the short term,they can lose in the long term because of lost
opportunities for choice and stableprices.The only way to avoid price wars is
to operate in such a way that competitive activitydoes not become over-
destructive. This may require a level of cooperation with acompetitor in
order to keep the market stable or to secure the company's futureposition.
Remember that price fixing by agreement between competing companies is
illegal in Zambia. It may not be in other countries and you need to find out
before goinginto international marketing.

(b) Discounts

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When a discount is given, it means that an allowance has been given from
the price forone reason or another. Different companies may have different
names for the types ofdiscounts they give, but they are all similar in nature.
Marketing managers use them asand when appropriate in their pricing
strategies. Some of the more common types are:
Trade – "special" within the distribution chain
Quantity – incentive to buy more
Cash – incentive to help cash flow
Promotional – to create "instant" sales
Individual – the strength of the negotiator will determine
Psychological – high prices initially in order to give good "discounts".
Sometimes a price cut, or a discount from a standard price list, may be
offered so as toencourage sales and move some stock out so that the factory
can keep up production.(When you keep on making products, you need
somewhere to put them.)
(c) Price increases
Price rises are far more popular with marketers than price reductions but,
even then,marketers recognise the danger in raising prices. It is a fact of life
that customersexpect prices to rise over time – but not too rapidly. If a
company puts up prices for noapparent reason they will soon fall out of
favour in the marketplace, so price increasesare only brought into operation
if there is good reason. Reasons may include:
Inflation
Increased cost of raw materials
Increased taxes
Currency exchange rate changes
Excess demand
Increased quality/buyer benefits.
For managers to raise prices successfully there are some basic rules that
should befollowed:
Do it at same time as everyone else
Increase a little at a time and not too often
Try to lower one price as you raise another
Look after your main customers
Give good reasons for putting up the price.
Always remember that no price is absolute. Your strict terms and reasonable
price maynot be as good as your competitor's high price and reasonable
terms. Sympatheticpayment terms can help close the sale.

BREAKEVEN ANALYSIS AND PRICE

Marketing planning is all about the future, and it is not surprising that some
people want toget a good idea of what the future might look like, especially
in money terms. You will oftenmeet the idea that marketing is about
spending now to earn more in the future. Breakevenanalysis brings together

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the various types of cost that are involved in making products, thenrelates
them to the quantity that must be sold – and paid for – to cover all the costs
that areinvolved and leave the company with no debts for that product.The
problems start with costs – just what does it cost to make a product? If you
have neverbeen involved in costings in any sort of business, you may be
surprised to learn that it is veryrare to know the real cost of making
anything. If you get a jeweller to make you a tiara, youwill be charged a
price and that will include some costs such as:
Raw materials
Labour
Overheads and profit.
It is with this last item that the difficulty arises, because the amount of raw
material canprobably be reckoned up quite closely, and there should be
some record of the time thateach craftsman spent on the item. (Do not
worry if you are out of touch with tiaras – thesame principles apply to paper
clips, but the numbers are different.)Overheads consist of all the costs of
keeping the factory open and fit for the productionprocess. That includes a
lot of items that cannot be allocated to specific products, and mostof the
overheads will still be incurred if the factory is not actually producing
anything for atime. Even if it is closed altogether there will still be rent to
pay and whatever local taxes areinvolved, as well as the wages of the
security guards, and some heating and lighting bills.It is common to ask at
what level of sales will the company "break even", or get out of debt?That
brings in the matter of revenue and with it the question of what price to
charge for theproduct. Economists take the simple view that if price goes up,
demand will go down, and ifprice goes down, demand will go up. If we stick
with this oversimplification for a time, we canlook at the effect of different
prices on the breakeven point. The best way to do this is todraw a
hypothetical model of a one-product company's situation, using the terms
"fixedcosts" for overheads and "variable costs" for the wages and raw
materials that are involved inmaking one product.Fixed costs are considered
to be constant for the year, for convenience of reckoning, so they
can be shown as a straight horizontal line at the appropriate level on the
"money" scale (seeFigure ).Revenue starts at the zero point, because we will
plot the numbers of products sold in eachmonth, against the revenue (not
profit) from the sales. For every product sold there is avariable cost and that
can be plotted as a line rising to the right from the left-hand end of thefixed
costs line, so that if we take a vertical line at any volume of sales, we can
see the totalof the variable and the fixed costs. We can also see the revenue
to be earned from thisvolume of sales, so we can see whether or not the
company is in profit at that volume ofsales.There are figures shown on this
breakeven chart so that you can see the breakeven volume.However, I
simplified this example to show the principle, and in real life it would be
quitecommon to see the revenue line curving downwards after a certain

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level of sales – peoplewill only buy what they need or want of anything,
whatever the shape of your breakevenchart.
At the same time, the variable cost line could have kinks in it when you
reach specificquantities, because of quantity discounts for material and
production line economies.For an existing product, already being sold, the
breakeven chart will be built up as sales andcost information is built up
during the year, and the chart will be a factual record of thesituation.
However, price setting can be helped if the marketing manager can see at
whatlevel of sales the breakeven point is reached for various prices, so it is
common to try to usethe breakeven chart to see what price to charge.If the
marketing manager knows from experience or from a test marketing activity
the effecton sales of various price levels, it is useful to plot several
revenue/sales lines to see what theeffect may be of setting high and low
prices.

9.2 PRICE ELASTICITY

Elasticities are relationships and it is possible to consider several different
types of elasticity.As we are dealing with price setting, we will stick to the
price elasticity (p.e.) of demand.In order to understand price elasticity we
have to consider volume sales, so let us considercassette tapes, sold in their
thousands to many different types of people. At the simplestlevel, if the
demand for a specific cassette goes down when the price goes up, then the
cassette is said to have an elastic demand relative to price. This often
happens when thegoods are not essentials.The opposite would happen if the
price went down – the demand would rise, but only for atime. When all the
people who wanted a specific cassette at that price had got one, thedemand
would fall off again. If the cassette was then offered at a lower price there
would besome more demand generated, by people who had a lower idea of
the value of that cassette.On the other hand, if the price of bread went up,
people would still buy bread, for quite a longtime. It would take most people
a long time to find a suitable substitute for bread, so peoplewould pay the
higher price and the demand would not fall dramatically. Demand for
breadwould be considered to be inelastic relative to price.Some goods are
just so essential that some people will buy them at any price – life-
savingmedicines, for instance, although in that case the buyer may not be
the consumer as theState takes some responsibility for our health.

The Price Elasticity of Demand Formula

The formula for price elasticity of demand is worth knowing:

P.e. of demand =Percentage change in price

Percentage change in quantity demanded

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You will see that the numerator and denominator of the equation are both in
the same units –percentages – so the price elasticity of demand is a
number, although it is common to write itin the equation as "e".

If e < 1: then the demand is relatively price-inelastic and it would need a
big change inprice to make any change in demand
If e = 1: a specific change in price results in a change in demand of the
sameproportion and this is unit price elasticity.
If e > 1: then the product is price-elastic relative to demand, and demand
will move inthe opposite way to price.Just occasionally there is a product
which will be bought at whatever price is charged – thep.e. is infinite, but
this is not the normal state of affairs, so you do not need to do
anythingabout that.Practical examples will make this clearer: suppose that
you are one of the thousands ofpeople who will buy a toothbrush next
Saturday. Some of the thousands of buyers will havesome idea of price,
from experience or looking around. If there were 10,000 buyers and theprice
went up from £1.00 to £1.20 (an increase of 20%), it is likely that there
would still be alot of buyers, let's say 9,500, a reduction of 5%.

Then the p.e. of demand for that brand of toothbrush would be:
20
5 = 4% < 1and the demand would be relatively price-inelastic.Suppose we
take the example of a music cassette – not really an essential item. If
thedemand for a specific cassette was 10,000 at the expected price of
£5.00, and then it wasfound that demand dropped to 5,000 (a 50% fall)
when the price went up to £5.20 (a 4%rise), the p.e. of the cassette would
be:
4
50 = > 1and the demand would be very price-elastic.You may see this
better with a diagram; Figure 8.4 is a graphical indication of the effect of
price on demand.
Factors Influencing the Elasticity of Demand

The availability of substitute products

Take, for example, coffee. If the price were to fall dramatically, many tea
drinkers couldswitch to drinking coffee instead. Thus a fall in the coffee price
leads to a decrease inthe price of tea. This is an example of positive cross-
elasticity.
When complementary goods exist
Where groups of goods are consumed together, a price change on one
affects thequantity sold of the other. For example, if the weather turns hot
and strawberry salestake off, the demand for the accompanying cream also
rises. Similarly, when computerhardware came down in price, and demand

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shot up, there was a correspondingincrease in the sales of software
programmes. This is an example of negative cross-elasticity.

Purchasing power and income

Income elasticity is the extent to which the amount demanded of a product
variesaccording to changes in the income of consumers. As purchasing
power increases,people can afford to buy new cars, extend their homes,
invest in new video/hi-fi equipment, and so on.

Importance of purchase within budget

The purchase of new furniture can represent a large proportion of the
buyer's budgetand so if prices increase, it can cause a dramatic drop in the
quantity demanded andvice versa. Demand for these items is therefore
elastic. But in the case of everydayitems such as newspapers, groceries and
other foods, if the price goes up, it does notsignificantly affect the quantities
sold. The cost is relatively small and the increase isnot really noticed that
much. Here, the demand for the goods is inelastic.

11.3 MARGINAL COSTING

We met fixed costs and variable costs earlier in the study unit and now we
need to look justat the variable costs of making products. Again, we shall
just consider simplified examplesbecause you only need to understand the
general principles here – we shall leave theintricacies of costing
methodology to your Accounting studies.

The Principle of Marginal Cost

If we have several products being made in a factory, it is difficult to
apportion properly thecost of the total lighting and heating, cleaning and
maintenance activities. It is common toapply a multiplier to the material
costs and another to the manpower costs for each product,because these
are figures which are known or can be found out. The multipliers used
arebased on experience of the business in previous years and the expected
level of business.So if you buy a tiara, it could be costed as:
Material = £1,000,
labour = £2,000.
The overheads could be calculated as "5% of material costs" plus "7.3% of
labour costs", andthese amounts would be added to the variable costs to
calculate the total costs. (The actualpercentages would be decided from
experience and would be used for all products in thatproduction line.) Then
the sales manager would add a percentage for profit to calculate thefinal
price.However, if the manager had been trained in marketing, they would
have a good longdiscussion with you about style, the purpose of the
purchase and various other matters, toestimate what you thought the value
of the tiara would be to you. Would it improve yourchances of catching a rich

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partner, and just how desperate are you?The sales manager's assessment of
the value of the item to you might well be a lot higherthan the total cost,
plus profit, that had been calculated and then there would be a decisionfor
them to make on just how much money to take from you.Suppose now that
you decided that you ought to have another product, just like the one
thatwe have just costed out. You would expect to pay for the material and
labour just as before,but would the manager be justified in adding the same
percentages to the material and
labour costs? After all, the additional effort to make the second item would
be covered in thelabour costs and the material would be just twice as much.
All the cleaning, heating, lightingand other overheads are already covered by
the percentages added to the previous costs ofmaking the first item.So,
maybe you could persuade the company to make the second product for just
the variablecosts (plus profit) only and that would save you a lot of money.

UNIT 10. DISTRIBUTION POLICY AND MANAGEMENT

10.1 the importance of the place element

The "place" element of the marketing mix does not only relate to the actual
location where abuyer can obtain a product; it is also concerned with the
entire process of distributionmanagement.This means that it is all processes
which are involved in getting the product or service to thebuyer and,
ultimately, to the users in the most economical manner, i.e. order receiving
andprocessing, stocking, transportation, delivery and display.
Responsibilities will also includereceiving back and checking items returned
from buyers because they have been found tobe faulty or damaged, or for
any other reason.From the marketing point of view, there is a sequence
which is important and it goes like thisin most companies:

• Spend money making products

• Get enquiries
• Receive orders
• Make products
• Deliver
• Invoice
• Receive payment.
Nothing is invoiced until the goods are made and despatched, usually. For
some big jobsthere are payments when specific stages have been reached,
but for the majority of productsthe sequence shown above applies, and you
will see that there are many points where therecould be delays, any of which
could slow down the payments.Proper management of the distribution
system is, therefore, an important part of thecompany's total marketing
system, and can make a significant contribution to the cash flow

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needs of the company.In some companies distribution will be under the
direct control of the marketing department –in others it may be under
production or even purchasing. If marketing is not in direct control,there
must be a great deal of liaison or the whole process of satisfying the
customers' needsmay be endangered.Decisions on distribution channels are
very important because they have great effect onother decisions made in the
marketing process. In addition, once decisions have been madeon
distribution aspects, they tend to be difficult to change.The distribution
industry has seen many changes in recent years, with systems
becomingpredominantly technology based, which has improved efficiency
and reduced costs quitedramatically in some cases.

10.2 The Distribution Plan

Here we are at yet another "mini-plan" which goes towards the overall
marketing plan. Youcan see that the plan for distribution is in many ways a
"facilitating" plan which is aimed atidentifying the most appropriate
distribution method to suit the product on offer. Themanagement of the
distribution activity then comes down to dealing with people andcontrolling
costs.The plan itself will take a similar format to other plans. Although they
may not all beexpressed in quite the same terminology, there must be
sections relating to:

A Situational Audit
The research that is necessary to find, select and establish channels.

Objectives
These will be aimed at coverage, costs, timing and control.

Strategies
The choices that are available to get the product(s) to the user.

Tactics
The implementation, monitoring and control, etc. of the distribution channel.

McDonald lists a straightforward approach to the planning of distribution:

Determine marketing objectives
Evaluate changing conditions at all levels
Determine distribution task within overall marketing strategy
Determine distribution policy in terms of type, number and level of outlets
to be used
Set performance standards for the distribution organisation
Obtain performance information
Compare actual with anticipated performance
Adjust where necessary.

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The distribution function deals with minutiae – in volume and on a continual
basis. Its role issupportive but crucial. Marketing is concerned with the
exchange of satisfactions on acontinuing basis and the product must be
delivered, in good condition, at the right time and tothe right place. Errors in
invoicing can probably be corrected with minimum problems. Asimilar error
in distribution can cause a serious loss of revenue both to the customer and
thesupplier.The distribution plan is developed from objectives, strategies and
the main marketing plan. Itis therefore tailored to suit the company
products, the market segments targeted, and theperformance criteria and
standards set.Providing the planning is done in relation to the marketing and
corporate plans, a distributionplan will be effective.

10.3 Distribution Management

Cost-effective distribution is a specialised management skill – one which an
increasingnumber of organisations are contracting out to specialists. In some
cases the subcontractorsare SBUs within the organisation but run as
independent trading operations,often carrying associated lines from other
manufacturers to maximise efficiency. Every majorhigh street grocery
retailer has its own distribution network and negotiates
specialdelivery/collection arrangements with suppliers.No physical
distribution system (PDM) can simultaneously maximise customer service
andminimise distribution cost. Maximum service implies large inventories, in
close proximity tocustomers, with very flexible transportation availability.
Minimum cost implies slow/cheaptransport, low stocks and few depots.
Kotler suggests eight areas for which strategies mustbe set.

Speed of filling and delivering normal orders

Willingness to meet emergency merchandise needs of a customer
Care with which merchandise is delivered, so that it arrives in good
condition
Supplier's readiness to take back damaged goods and resupply quickly.
Number of options on shipment loads and carriers
Supplier's willingness to carry inventory for a customer
Price of services – are they free or separately priced?

The relative importance and determinance of these various customer

services must beresearched for the target customers. Competitive policy,
promise and achievement mustbe monitored; only then can the necessary
distributive strategies be set.Cost-effectiveness is crucial. Twenty years ago
costs of distribution could easily run as highas 20% of sales revenue. This
has been halved in many industry sectors, and reduced toaround 4% in
some retail sectors.The achievement of profit leverage through cost
reduction is of significant importance. A 5%reduction in distributive costs

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can boost profits by 50%. This gearing effect is well knownbut maximising
its benefits requires constant monitoring of the PDM operation by specialised
management.
Distribution Decisions
Initial considerations on this aspect of the marketing effort will be mainly
based on fourfactors:
Requirements of the Product
What kind of storage is needed? Is it perishable or does it have a long shelf-
life? Arethere any hazardous or other aspects which require extra security in
handling andstorage, etc.?The product may be for mass markets and have a
high rate of turnover, or it may be forindustrial markets which will be high
value but of limited frequency. It may be aseasonal product which only
requires distribution at certain times of the year.The characteristics of the
product will dictate the type of distribution channel that canbe used.
Requirements of the Buyer
How does the buyer wish to obtain the product and where? Do they want to
buy it froma catalogue, a multiple store, a warehouse, a specialist retail
outlet or a trade outlet?Sometimes it is necessary to have the product
available in several types of outlet inorder to reach the full potential market;
alternatively it may be better to restrict theavailability of the product in
order to maintain an "exclusive" appeal.
Kind of Transport Required/Available
Can the product be moved easily? Does it have to be moved quickly? Can it
be flownif it is going overseas? Are there points of entry in overseas
markets? What kind oftransport is available? Who will bear the transport
costs – buyer or seller? Does theimage of the product require a special type
of transport?
Requirements of the Seller
How much control does the supplier want to have? How much of the overall
potentialprofit are they prepared to pass on to an intermediary?Do they
want to have information on the end-user? How much protection do they
needfrom competition?You can see that these areas are all interdependent
and none can be taken in isolation.We can summarise this by saying that
decisions on distribution should be based on acombination of factors relating
to the four Ps of distribution:
Product
Producer
Purchaser
Physical movement and storage.

10.4 CHANNELS OF DISTRIBUTION

When we refer to a channel of distribution we are speaking about the
chain which links themanufacturer and the user.The shorter the chain, the
fewer the links and the closer the ties between the manufacturerand user.

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As channels lengthen, problems associated with loss of control and profit
becomemore pronounced and the responsibilities of the manufacturer will
increase.
Direct and Indirect Channels
The basic decision in the choice of a distribution channel can only ever be
between a directand indirect channel.
Direct channels
Direct distribution means that the manufacturer delivers the product straight
to thebuyer – the product goes directly from the producer to the consumer
without the use ofa specific intermediary. We are seeing a growing trend for
farmers to bypasswholesale markets and sell their produce direct at farmers'
markets. These are provingvery successful, particularly as the call for
organic produce develops. Many companieswho want to reach a wider
audience use the pages of the national newspapers andmagazines to sell off
the page. This method of selling is now being transferred to theInternet
where ordering and payment are made easy. Initially, it was mainly travel
andbook companies that used the Internet to sell their goods and services.
Today, we arewitnessing an explosion in many other fields, including
property, jobs and cars.Organisations are using more E-commerce, which
has had a significant affect onmarket structures, with one or more
intermediary/members of the distribution chainbeing bypassed –
disintermediation. Disintermediation has allowed organisations tocut costs
and gain more control over their products and services, as well as being able
to build closer relationships with their customers, because they have direct
access tocustomer purchasing information via the website. One of the major
examples ofdisintermediation has been in the insurance industry, where
insurance companies nolonger rely on financial or insurance brokers but sell
direct to consumers.However, in recent years the internet itself has seen the
growth of its ownintermediaries, such as search engines like Google, virtual
retailers like Amazon andLastminute.com and even virtual shopping
centres.Guarantees have to be given to buyers in case the merchandise is
not what they wantand so a full refund has to be offered.Direct channels
mean total control over quality, price and profit and more involvementwith
the customer. This closer involvement adds many responsibilities –
orderprocessing, transport arrangements, marketing, promotion and after-
sales service.This can be too much for some organisations, so they prefer to
use indirect methods ofdistribution.
Indirect Channels
Indirect distribution means that delivery is made through an intermediary of
some kind.The intermediary is a "link in the chain". There may be multiple
links in the chain withmany intermediaries before the buyer, or user, comes
into contact with the product.Using indirect channels means that
manufacturers will lose some element of controland profit. They may never
get to know, in great detail, anything about the actual usersof their product,

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which could result in a reduced capability of knowing what the usersare
looking for. We must also recognise that using an intermediary can never be
asquick as going direct to a customer.Both the number and types of
intermediaries, selected in designing a channel, depend uponthe range and
nature of the tasks required in moving goods and services from
themanufacturer to the final buyer. They also depend on the extent to which
one channel issuperior to another. That said, the following table highlights a
variety of factors influencingchoice between direct and more indirect
channels of distribution.
Direct Indirect
(Shorter) (Longer)
Industrial products Consumer products
Services Tangible products
Few, more concentrated customer Larger numbers of customers,
More control required, e.g. quality, Groupings geographically
installation, after-sales service dispersed
Customer purchases in large amounts at Control less important
frequent intervals Customer purchases frequently but
in small amounts
Products which are bulky, expensive to
handle, custom-built, high unit value or
perishable Less bulky, cheaper, standardised,
nonperishable products

Factors Affecting Channel Choice

For many products it may be possible to use several methods (channels) of
distribution,which implies that the seller must decide which channel(s) will
be the most beneficial to hisrequirements. This can be a difficult choice to
make and a number of factors come into play.
Market Characteristics
These include location, purchasing preferences and patterns, overall
number,segments, communication media used.
Where the number of customers is large, long channels are normally
necessary.(The role of the bulk-buying multiple has changed this.)
Wide geographical dispersion of customers may require long channels.
High frequency in the purchasing pattern of low unit-value items may
indicate theneed for long channels because of high cost of direct sale.
Consumer preference for dealing with a specific type of outlet affects
choice.
Product Characteristics
The most important characteristics are as follows:
Price: the higher the price and the lower sales costs as a percentage of
price, themore direct sales become attractive.

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Seasonality: seasonal products require a reseller system that can handle
thestress caused by seasonality in sales.
Product complexity: highly technical products, requiring assembly or
installationor service, need specialist middlemen. If these are not available,
direct sale isindicated.
Perishable items: these often require a direct channel. Note that
because ofimprovements in science and technology, many traditional
perishable productsare being developed into longlife products, such as UHT
milk.
Characteristics of intermediaries
The availability of suitable intermediaries, their ability and willingness to
perform thevarious marketing functions and their willingness to take on the
particular product affectchoice. Other factors include capabilities, premises,
salesforce, customer base andcredit rating.

Characteristics Competitors
The extent to which competitors dominate existing channels and to which
manufacturers wish to compete directly against competitors or avoid them
affectschannel choice.
Company Characteristics
The size and reputation of the company, its product mix, its past channel
experienceand its present marketing policies will affect its channel strategy.
Legal Aspects
Any government-imposed restrictions or incentives, difficulties in setting up
orcancelled contracts.You can see that the information which is required is
as for the full marketing audit – youshould be recognising by now just how
comprehensive a full marketing audit can be and howimportant research is
to the marketing effort.Either before, or after, the basic decision of direct or
indirect channel has been taken,research into the above factors will help in
determining which type of distribution channelcomes closest to meeting all
requirements.However, it may well happen that the "ideal" channel is non-
existent in the intended marketor, for various reasons, is unavailable to the
seller. If this is the case the seller may decide todiversify by vertical
integration and take over some existing distributor, build up his
owndistribution outlets/chain, or even develop a completely different method
of selling.The final choice between channels will depend on a balance
between:
Cost – Investment
– Maintenance
Coverage – Large/small area
– Many/few outlets
– All/few products
Control – Maximum/minimum
– Strict/lenient

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Continuity – Channel growth
– Channel stagnation
– Channel decline.
Characteristics of Different Channels
The various channels are displayed in Figure 9.2 in terms of the directness of
contactbetween the producer and the consumer, and the length of the
distribution chain.
Figure 10.1 Channels of distribution

Direct three –step one-step

Manufacturer Manufacturer manufacturer

agent Retailer or
distributor

Consumer
wholesaler consumer

Retailer
manufacturer

consumer
wholesaler

Two step

retailer

consumer

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In order to decide which distribution channel or combination of channels is
preferable, themarketing manager should quantify the costs associated with
the alternatives. Let us nowexamine the advantages and disadvantages of
different channels – the chain ofintermediaries involved such as the
wholesaler and the retailer, and finally the process ofselling direct to the
consumer. We shall consider the characteristics of the variousintermediaries
in more detail in the next section.
Advantages of Using a Wholesaler
In general, manufacturers of consumer goods tend to use wholesalers in
the followingcircumstances:
Where the manufacturer is new to the market and prefers to rely on the
wholesaler's contracts.
Where demand is irregular or seasonal.
Where the manufacturer cannot carry out certain functions himself
e.g. warehousing.
Where the manufacturer would not find it cost-effective to send a
salesman to anumber of small retailers. One large order from the wholesaler
is preferable tomany small, retail orders.
Administration costs, e.g. postage, typing, are reduced by using
wholesalersbecause the number of accounts is reduced. Also, less of the
manufacturer'ssalesmen are required.
Decreasingdirectness
Producer Consumer

Producer Retailer Consumer

Producer Wholesaler Retailer Consumer

Producer Agent WholesalerRetailer consumer

Decreasinglength

For industrial goods a similar pattern emerges. For example, steel

stockholdershandle steel for steel companies. The wholesaler here can
employ his own salesforce,make immediate delivery from stocks, and
provide credit and technical back-up to hiscustomers.The above points
illustrate where it is advantageous for the manufacturer to use awholesaler,
but there are disadvantages.
Disadvantages of Using a Wholesaler
The manufacturer loses control over where his products are finally sold.
Hecannot dictate a distribution policy to the wholesaler
Call frequency is dependent on the wholesaler

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The wholesaler sells other competing lines and therefore the manufacturer
hasno control over what products the wholesaler generally pushes
Promotion in-store/warehouse is not possible unless merchandisers are
used
In certain cases, the manufacturer has no control over price.
Some manufacturers operate dual distribution, e.g. Mars (the confectionery
company)sell direct to big customers, but also sell to wholesalers who
service the small retailers– outlets which the Mars salesforce leave alone.
Advantages of Direct Sales to Retailers
Manufacturers have greater control over where their product is sold
The salesforce can concentrate on particular products or new products, as
required by company policy
It is useful where technical service or a large flow of information is
required. Touse a wholesaler would increase the number of communication
channels and thiscould lead to a distortion of facts
Greater control is maintained over prices, call frequency and in-
storemerchandising; in-store promotions are most easily organised.
Disadvantages of Direct Sales to Retailers
There is an increase in costs of sales, administration and distribution
Some customers continually place small orders which are hardly
economic;roughly 20% of customers provide 80% of the turnover
More working capital is tied up
There are more bad debts.
You should bear in mind that some retailers will not, on principle, deal with
wholesalersbecause they feel that wholesalers are "inferior" to the
manufacturer. This is often anattitude of mind rather than a fact. Also, some
retailers are so large, e.g. Boots, J.Sainsbury and others, that they have
enough buying power to contract direct with themanufacturers – their orders
alone would eclipse those of many wholesalers!
Selling Direct to the User
This channel is used for some industrial sales, e.g. machinery, chemicals,
processingplants. Some are unusual, e.g. a company which builds ammonia
plants for industrialuse both in the UK and overseas. Contracts here may be
with governments orcompanies.Direct sales to the ultimate consumer of
consumer goods may be achieved in one ofthe following four ways:
Mail-order selling: this may be done through catalogues or advertising
through"bargain squares" in the national press.
Door-to-door selling: this is carried out in various ways, e.g. some
companiessuch as Avon Cosmetics do a direct canvass, others use leads.
This is inresponse to press advertisements and is a method exploited by
many smallbusinesses.
Internet selling: this is fast becoming a key area in direct sales.
Forward integration: this occurs where manufacturers own their own
retailoutlets, e.g. Boots, through which they sell their own products.

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Generally, using these methods, the costs of distribution to the final
consumers arerelatively high, but this has to be balanced with the supplier's
complete control of themarketing.
Distribution Strategies
We have examined some of the factors which will influence which outlets you
wish todistribute to and here are three options that can be engaged as part
of a distribution strategy.
Intensive
Intensive distribution aims to achieve the widest coverage of outlets and is
sought bysuppliers of high-volume, low-value products that are in mass
demand. This strategy isusually adopted for fast-moving consumer goods.
They are in high demand all yearround and the aim should be to gain
distribution in every available outlet possible.
Exclusive
Exclusive distribution is where distributors/stockists are granted exclusive
rights inspecified areas. This makes a lot of sense where high capital
investment is required,and especially where detailed after-sales service is
needed.It is applied where the product is expensive and infrequently
purchased and, hence, themotor car distributive networks exemplify this
type of distribution. For example, top-ofthe-range cars like a BMW or
Mercedes, distribution should be matched to areas ofpopulation that can
afford luxury goods. In truth, they will visit you (maybe initially viayour web
site) before visiting the showroom.
Selective
Selective distribution can be adopted when the product is fairly expensive
and boughtoccasionally but not top of the range. This strategy is used by
consumer-durablemanufacturers. The product is not placed in all potential
outlets, thus selected dealerscan specialise and afford after-sales back-up
and support.
Industrial and Business Markets
So far we have discussed distributing products or services to the consumer –
those whoactually use up what they buy. In business-to-business channels,
many of the sameprinciples apply as with consumer markets. However,
there are some differences:
Business-to-business tend to have professional buyers who control the
main salescontact. For example, Halfords, the high street retailer of motor
accessories, has abuyer for automotive paints only. As Halfords account for
around 25% of all car paintsales you can see the important role that the
buyer will play.
The Decision-Making Unit (DMU) can be much more complex. As
marketers you haveto establish who makes up the process and often tailor
different messages to them.Take, for example, Leyland Trucks. The
managing director, financial director, fleetmanager and the truck drivers will
all have an influence on choice.

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Deliveries are likely to be larger, e.g. kitchen furniture to a B&Q
warehouse, and will beneeded more frequently.
Business customers often require on-going supplies, often on a routine
basis. It isimportant to ensure that your customer services department can
respond to customers'needs at all times.

Figure 10.3 illustrates the various channels available for industrial

marketing.

Manufacturer or branch

Depot

Brokers

wholesalers

Merchants/factors

Franchises

distributors

Consumers/Buyers

Largely because of the nature of industrial markets and the type of product,
much of thebusiness is conducted with the customer on a direct basis. Often
this might be done througha branch or depot which may carry stocks and
service parts.However, you should note that many of the channels listed
under consumer markets will alsoapply to industrial markets. For example,
an industrial concern in the UK may buy its birosfrom W. H. Smith and
catering supplies from Asda.With the growth in self-employment and

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working from home (currently there are 2.5 millionbusinesses whose owner
is also the manager) companies have had to develop newdistribution
strategies for reaching this lucrative market.A good example of this is Viking
World, an American organisation that was set up in the UKto supply direct to
businesses, both small and large. Using large catalogues which aremailed
out to customers and prospects, they offer a huge range at keen prices and
theydeliver to your premises the same day free of charge for orders over
£30 in value. Theircustomer retention methods are first class. The Chairman
regularly writes offering customersspecial offers or to remind them when you
last did business with them. All these messagesare personalised.The
computer industry – both manufacturers and software wholesalers – have
also beenparticularly adept at penetrating this market.
Export Markets
If a company is engaged in international marketing, i.e. having separate
marketing operationsin overseas countries, the distribution channel options
will be similar to those we havealready illustrated.If the company is engaged
in export marketing, i.e. manufacturing at home and selling
overseas, the following channels may be used:
Buying agencies in foreign countries: several large retailing concerns
locatedoverseas, and certain foreign governments particularly in Eastern
Europe, have buyingagencies located in the United Kingdom.
Export merchants: these people take title to the goods, which they ship
to their ownoverseas agents or customers. They may publish their own
catalogues featuringassortments of goods.
Manufacturers' export agents: manufacturers may employ export
agents located inoverseas countries who operate on a similar basis to
manufacturers' agents in thedomestic market.
Overseas branches: the company may have overseas sales offices or
depots sellingto and supplying the overseas market.
Overseas import houses: these companies receive and take title to
goods, relievingthe manufacturer of overseas manufacturing operations.
Joint venture operations: the company may enter into an association
with anoverseas company which agrees to market the firm's products.

10.5 DEALING WITH INTERMEDIARIES

An intermediary is an external agency that is acting, in some form or
another, as a link in thedistribution chain between manufacturer and
user.Using intermediaries is something which manufacturers do as and when
necessary, but thedecision on the type of intermediary to use will be based
upon many influencing factors.Such decisions can never be taken lightly as
so much depends on the satisfactorydistribution of a product.Thus when
choosing intermediaries manufacturers will be concerned with various
aspects,such as:
Does the intermediary have access to the target market?

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Will the intermediary help exploit the advantages of the product?
Will the intermediary help in promotion costs, etc.?
Will there be enough profit for the manufacturer?
Will the intermediary be dealing in competing products?
What contractual obligations are involved?
Earlier in the course we discussed relationships with research agencies and,
basically,finding, selecting, briefing and controlling any external agency is
similar in home or overseasmarkets, but we have to accept that the added
dimensions of dealing with another languageand culture can create
additional problems.What you must remember is that an intermediary is a
customer. They are entitled to betreated with respect and given as much
consideration as the individual user of a product.Indeed, treatment of
intermediaries may be crucial to the long-term success of amanufacturer.The
internet has allowed organisations to develop a closer relationship with
theirintermediaries, to improve processes and improve communication via
intranets (internalinternets). Organisations can use intranets to link
customer ordering between supplychannel members, so that stock is
automatically replaced and/or orders automaticallyshipped. Communication
with distribution channels can be improved via the use of intranetswith for
example notice boards, on-line training, technical and support manuals to
assist withafter sales service, promotional material to download etc.Some of
the advantages to an organisation of creating these links with suppliers are:
The ability to gather more information about customers and the market
Reduced costs, for example by not having to send technical manuals
Improved service to the end customer, for example by improving delivery
time andimproving after sales service.
We shall now look at different types of intermediaries.
Wholesalers
The wholesale trader is one who purchases in bulk from the manufacturer
and sells insmaller quantities to the retailer. The true wholesaler operates
neither as a manufacturer noras a retailer but as a link between the two.The
wholesaler, therefore, is a merchant whose functions are:
To buy from manufacturers and sell to retailers
To forecast, stimulate and interpret the desires of his customers
To be the arbiter of what shall be produced by the manufacturers by
forecastingchanges in fashion and suggesting the type of goods and
materials likely to be required
To help manufacturers concentrate on production without having to be
concerned withthe problems of marketing small quantities of goods through
numerous retail outlets
To assist retailers by supplying goods in the quantities and of the qualities
required,obviating the retailers' need to carry heavy stocks which would tie
up their capital forlong periods

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To keep prices steady by buying when trade is slack and prices low, and
selling whenprices rise due to increased demand, thereby relieving the
manufacturers and retailersof much of the risks of market fluctuations and
price movementsWholesaling can be classified into three major groups:
Merchants
Merchant wholesalers are the largest single group of wholesalers, accounting
forroughly half of all wholesaling. The merchants are independently owned
and take titleto the merchandise they handle.
Brokers or Agents
The difference between merchant wholesalers and brokers and agents is that
the latterperform only limited functions and do not take title to the goods.
Brokers bring buyersand sellers together to trade, and assist in negotiations.
There are several types ofagent, the most common of which are
manufacturers' agents, who often use their widecontacts to sell their clients'
products such as clothes, furniture and electrical goods.Buying agents make
purchases for their clients and often receive goods, warehouse
them and ship them on to their clients. These are particularly common in the
apparelmarkets. This system also operates quite extensively in international
marketing.
11.0 Marketing Communications
11.1 A STRATEGIC APPROACH TO PROMOTION
In this study unit we address the last of the four Ps of the marketing mix –
promotion.Promotion is often viewed as being more operational in nature,
but this is not entirely true.Strategic decisions need to be taken and here we
shall consider the processes and decisionareas involved in strategic
promotional planning as well as examining individual aspects ofpromotional
activities.As you know, the marketing plan covers the activities related to
every element of themarketing mix and is a combination of several sub-
plans. The promotional plan itself is asub-plan of the overall marketing plan
and, in turn, covers a variety of activities.
The Promotion Mix
The entire range of activities is known as the promotion mix and covers
the activitiesinvolved in advertising, sales promotion, PR, Direct Marketing
and personal selling.
11.2Advertising
The paid for time and space in media not owned by the advertising
organisation.Tasks such as design and good buying of media may well be
left to the operationalmanager but other decisions, such as the nature of an
advertising campaign, thetiming and frequency, etc. will be taken at
strategic level.Advertising is seen by the public and it must be done in such
a way that the company,and its products, are not harmed by any adverse
reactions on the part of the public.This may seem to be within the realm of
public relations but it is really control ofadvertising and a prime concern for
senior levels.Many people think that advertising is a short-term activity

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which cannot be planned inadvance. While this may be true in some
circumstances, it is certainly not true in allcases. If a company needs to
make major changes, their advertising planning willcertainly be over a long
period. They may decide to change the type of media they useor they may
wish to change their image. For instance, when Guinness was sufferingfrom
a reducing target market (they were literally dying) the company knew they
had tochange their image. Instead of using the tried and trusted "toucan" for
their adverts,they used a well-known personality and advertisements that
were modern andintriguing. The approach worked – Guinness attracted a
younger audience and salesgrew again.Guinness did not just act on a sudden
impulse. The strategic planners made sure thateverything was done
correctly. The change took place over a long time period –arrangements had
to be made to make sure that the campaign would be effective. Agreat deal
of money was spent and it was a risky time for Guinness – too risky to leave
to operational managers.The internet has provided organisations with a
different advertising medium. Websitesthemselves support a 'pull'
communication strategy as the customer is actively seekingout the product
or information about the product. Customers will still need to bedirected to
the organisation's websites either by traditional media or by
internetadvertising – as banner adverts on other websites such as portals
(e.g. AOL), whichaim to 'drive' traffic/users through to the organisation's
website. Organisations canalso try to encourage traffic on to their websites
by using search engines, such asGoogle. This works by organisations trying
to include keywords in their advertisingmessage, hoping that customers will
search for those keywords when looking forinformation.The internet, as a
medium, can also offer the capabilities of interaction with thecustomer and
one-to-one communication via personalisation of website pages.

Public Relations
The activities taken to foster good relations with stakeholders and other
relevantpublics, of an organisation.Because public relations is so important
and reflects the overall ethos of the companyit is seen, in many companies,
as a major strategic responsibility. Operationalmarketers may well be
responsible for the implementation and control of any plans, butthey will be
following the "company line". The "company line" will be based on how the
company is to be presented to the public at large and will, ultimately, be
aimed atachieving corporate objectives.A sub-activity of PR is publicity –
free exposure, whether good or bad, to the publicsof the organisation.
Companies will go to great lengths to gain good publicity and toeven greater
lengths to avoid, or overcome, bad publicity in order to protect their
imageand reputation. At the higher planning levels decisions will be taken as
to whether thecompany will actively seek publicity and which methods to
adopt.It is usual that the people who deal with publicity are the same as

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those who deal withPR. Certainly the strategic thinking will be the same and
similar considerations willinfluence any decisions made.

Sales Promotion
All other efforts taken to support the advertising and publicity activities of
theorganisation."Sales promotion" can include a multitude of activities:
database marketing; free gifts;television selling; on-line loyalty schemes,
such as offering discounts for purchasingon-line, customer loyalty cards,
which give points for purchases that can then beredeemed against future
purchases or used to purchase other goods or services, andso on. The term
is a "catch all" for everything that does not fit into the othercategories.The
main difficulty with sales promotion is in getting the balance right.
Customers canget very tired of the same old things and the company can
easily gain a reputation forbeing "offer-based" if they are not careful.It is the
balance and the approach to sales promotion that are decided at
strategiclevel, rather than the day-to-day activities involved. Will the
company give free gifts?If so, to what value? Will exhibitions be used? If so,
where and when? How oftenshould incentive promotions be held? These are
the types of questions that strategicplanners will be asking and finding the
answers to so that strategies can be passed onto the relevant people.

Personal Selling
Activities taken to ensure that the sales transactions are completed.The
salesforce comes in various shapes and sizes – from a large number of
retailassistants, to one highly-skilled technical executive. They may be
taking orders,delivering products, collecting payments, giving after-sales
service and so on, but theyall have one thing in common – they deal with
the customer direct. It is this fact thatmakes the salesforce an excellent
promotional tool.

Direct Marketing
Direct marketing is the definition for the marketing activities an organisation
undertakes directly with the customer, e.g. e-commerce, direct mail, e-mail
marketing,telemarketing.The role of direct marketing is to communicate
directly with customers with a view tobuilding one-to-one relationships and
increasing customer loyalty. Direct marketingcan also be used to support
traditional advertising by using direct response telephonenumbers of return
coupons or as a sales channel itself.Technological developments of the
internet, sms messaging and e-mail havesupported the growth of direct
marketing and increased the range of media available.Direct marketing
media include:
Internet
E-mail

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Direct Mail
Interactive Television.
The advantages of these new media over more traditional media such as
television isthe speed of delivering the message, the speed of response
which in somecircumstances can be instant, the ability to personalise the
message and themeasurability of marketing activity.The internet and e-mail
allow organisations to accurately measure response rates ofcampaigns, for
example, websites can measure 'click throughs' from other sites suchas
search engines and so able to accurately calculate the cost per new
customer (orpotential customer), the cost per number of visits to sites, cost
per purchases etc.Through the use of direct marketing organisations are able
to gather more detaileddata about their customers. Organisations can gather
data on what customers buy,when they buy, how they buy, their
demographic information etc.Technological advances in software have
supported the collection, storage andanalysis of data by storage in
databases which allows organisations to analyse andmanipulate the data,
providing them with detailed information to gain a deeperunderstanding of
their customers, resulting in a closer customer relationship andincreased
customer loyalty.Wilson, Gilligan and Pearson, in "Strategic Marketing
Management", offer a diagramexpanding the promotional mix, which
demonstrates very well how the totality of promotionconsists of yet further
sub-sections. If we accept that each of the identified activities inFigure 10.1
will need its own "sub-plan" we can see that the promotional plan will be a
combination of mini-plans in much the same way as the marketing plan.
• ADVERTISINGSUBMIX
• DIRECT MARKETINGSUBMIX
• SALES PROMOTIONSUBMIX
•

Advertising sub mix

• The role of advertising
• Target audiences
• Creative approach
• Deciding on the message
• Deciding on the media
• Selection of an agency
• Deciding the advertising
• spend
• Evaluating effectiveness

Direct marketing sub-mix

• The role of direct marketing
• One to One
• New media

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 • Role of Database
• Measurability
• Gathering Information
Sales promotion sub-mix
• The role of sales promotion
• Sales promotion techniques
• Sales literature
• Salesforce, distributor andcustomer incentives
• Merchandising and POS
• Exhibitions
• Sponsorship

THE PROMOTIONALMIX
• Advertising
• Sales promotion
• Public relations
• Personal selling
• Direct Marketing
PERSONAL SELLING SUBMIX PUBLIC RELATIONS SUBMIX
• The role of the salesforce
• Determine buyer behaviour
• Selling methods/strategies
• Salesforce support
• Salesforce size and structure
• Recruitment and selection
• Training
• Direction and motivation
• Remuneration
• Evaluation and control
Public relation sub mix
• The role of PR
• Corporate identity and image
• Publics
• Internal marketing
• Media relations
• Agencies
• Sponsorship
• Exhibitions/PR events
11.3 Integrated Communications Planning
Integrated communications planning relies on each element of the
promotional mix beingused to strengthen and complement the others.The
strategy concentrates on the message and not the medium – it is the mix of
media thatis important. Media should be chosen as appropriate to deliver a

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cohesive picture to thetarget audience.Cohesion is the key word. We are all
subjected to so many different messages every daythat we actually do not
see a large proportion of them. Promotional managers know this, sothey
need to take an approach which will ensure that we do see them.They work
on the assumption that a buyer does not "see", or receive, a message from
onesource only, but that the messages are coming from different sources
and at different times.The buyer actually builds a picture, or an image, of
the product or the company. Thepromotional manager therefore needs to
make sure that he is using a variety of media topresent a constant message
to his potential audience.Advertising will be supplemented by sales
promotional techniques such as exhibitions, freegifts, competitions,
sponsorship and so on. I know of one company which does this to verygood
effect.
The company advertises on local television and in the local press. They
distribute deskcalendars and memo pads showing the company name. Every
visitor to the companypremises is given a small gift which shows the
company name. They have asponsorship programme for young people in
sports. They regularly support parent andteacher associations in schools.
They distribute information packs for people movinghome – with the
company name being shown, naturally. They hold seminars for localgroups
and exhibitions in public places. Their vehicles are clean and bright. Their
staffwear smart uniforms. Their information leaflets are attractive and easy
to read. Theirname is known to everyone in their area!Their core product is
double glazing!You could be forgiven for thinking that none of this is new –
they are the oldpromotional tools being used effectively. Well, I happen to
know the managing directorof this firm quite well and I know that the
strategy of using a combination of differentmedia was quite
deliberate.Initially they used to advertise by sending out "flyers" and placing
advertisements in thelocal papers. The adverts did have some success but
they discovered that their entryin the Yellow Pages was actually producing
more enquiries, although still not enough.Advice was sought and a new
approach was taken. They decided to cut down on theadvertising in the
press and flyers, and begin to use other media. It did not happenovernight.
New methods were introduced as resources allowed, but the decision
hadbeen taken and strategic plans were made for the longer term.The
company has now become the market leader in its own region and has
grown tosuch an extent that more than 50 people are now employed. The
gross turnover for1996 was in excess of £8m. Not bad for a company that
started off, in 1985, as tworedundant men with £15,000 capital between
them. They are now firmly convinced ofthe benefit of integrated
communications.Let us take another example.
The Ford motor company ran a campaign for their "Probe" car. Their target
sector, forthis car, was the adventurous person who likes to be at the
leading edge, and lovesspeed and technology.The theme of the campaign

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was "fly me to the moon" and the screen broadcastcommercial was a
combination of beautiful imagery and unspoken messages.There was no
commentary about the car.The commercial relied simply on the visual
aspects and on the linking of imagery thatwould take place in the minds of
the target sector. The use of space footage andtechnology-related aspects
appealed to just the right kind of audience.And yet there was no information
about the car!Ford used other media to get the details across. They used
database marketing tosend mail shots to identified targets. They used
printed media to reinforce the images.They used publicity to gain exposure.
They used exhibitions to show the car. Theyused everything.Obviously we
are talking about a lot of money here, but the point is that Forddeliberately
took an integrated approach to attract the buyers. You could argue
thatthey are still just using the promotional tools – but it is the thinking
that is different – itis integrated.Integrated communications will work for
any company but it is a challenge. It is not aseasy as just dealing with each
promotional element separately. Close planning iscalled for, as well as good
budget allocation.The internet is an alternative media for communicating
with customers. It is interactive andcan be personalised, it can be used to
inform customers about products and assist them inthe decision making
processes and create brand image. Therefore, it is important that theinternet
is seen as complimentary and supportive of the other elements of the
marketingcommunications mix, such as advertising, direct marketing and
sales promotion.As well as an advertising medium itself, the internet can be
used to support advertisingcampaigns, by supplying customers with a
website address to visit for further informationabout the product features
and benefits, thereby, reducing the costs of advertising by havingthe more
detailed technical information available on-line. The internet can also
allowcustomers to personalise the information they require, for example,
instead of downloading awhole brochure from a tour operator, the internet
can allow consumers to pick thepages/content that they are interested in.It
can support a sales promotional campaign by encouraging customers to
order on-line,offering discounts or perhaps by supplying customers with a
promotional code to receive afree gift if they respond.The use of the internet
in integrating marketing communications is huge. Customer detailssuch as
age, address, e-mail address, can be captured in databases which can then
be usedto build customer profiles and effectively target customers. The
internet allows organisationsto analyse customer purchase behaviour and to
intervene with promotional activities at
appropriate points, to encourage the completion of a purchase. For example,
organisationsare able to track a customer's route through and exit points
from their websites and if acustomer has visited to website to gather
information, the organisation can intervene andoffer a sales promotion such
as an incentive.

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11.5 Marketing Communications Strategies
Communications strategies are predominantly based on two things: the type
of campaign,and media selection and use.
Type of Campaign
Apart from some obvious aspects, such as whether a campaign will be
intensive,sporadic, aggressive, low key, etc., there is one major decision
that needs to be taken– is the campaign to be "push" or "pull"?
Push campaigns are aimed at the distribution channel – often referred to
as"pushing the product down the channel". The whole concept of a push
campaignis to get suppliers to stock the product in order to make it available
to thecustomer and to encourage the channel members to sell it. Incentives
may beoffered on quantity, turnover or some other basis.
Pull campaigns are directed at the eventual buyers and users, to make
themseek out the product – "pulling the products off the shelf".Push and pull
campaigns cannot work in isolation – each needs the other. No
pushcampaign will be totally successful if there has been inadequate pull
advertising. Theopposite also applies. If a massive advertising campaign is
undertaken to the usersbut no promotion is done to channel members,
suppliers will not have adequate stocksand the users will be unable to obtain
the product.This is partly what happened when Cadbury introduced the
"Wispa" chocolate bar inthe UK. The consumer pull advertising was very
successful – much more so than thechannel push campaign which meant
that there were inadequate stocks available inthe retail outlets. When
retailers began asking for the product the company hadinsufficient stocks of
the chocolate prepared. The product had to be temporarilywithdrawn leaving
dissatisfied customers, unhappy retailers and, no doubt, some red
faces in the planning department of Cadbury.This problem does not only
occur in the FMCG sector. For example, one company Iknow, which we shall
simply call company X, was dealing in mobile communicationsequipment.
They did a very good pull campaign but their push to the distributionchannel
was not so good.Unfortunately for them, a major competitor had decided to
adopt a pre-launch pushstrategy, on a very similar model, before taking any
activity on the pull side. They hadmotivated suppliers to take up stocks and
their products were widely available. Thesuppliers were told that a massive
advertising campaign was to take place in the nearfuture; suppliers like this
kind of support and they were ready to take advantage of
theexposure.However, the campaign never took place as, when requests
began to be made for theproduct which had been advertised by company X,
the suppliers simply "converted" thebuyers and sold the competitor's
products which they had in stock.A lot of money, and ground, was lost by
company X with the competitor reaping thebenefits of a "free" campaign
which had fostered the overall demand. To rub salt intothe wound – the
money the competitor saved was later put to good use to press homethe
message of "being first" to the market. Company X failed to keep abreast of

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whatwas happening and they suffered badly.The examples I have referred to
show how dangerous it can be if communications arenot planned with every
aspect being taken into consideration. Too much of one kind isjust as bad as
too little. A balanced approach is necessary and this is where thestrategist
comes in. It is the strategic planner who should be dictating the
overallapproach – not the operational planner.

Media Selection
Media selection is based on the characteristics of the target audience. If
amanufacturer is selling high priced industrial equipment he does not
advertise it in amagazine which is read by teenagers. Conversely, if a
company deals in massproducts they do not advertise in the "Philatelist"
quarterly review.These are obviously extreme examples and would be
unlikely to occur, but it issurprising how many companies fail to streamline
their communications and wasteresources by not using the correct medium.
We shall examine the selection of media in greater detail when considering
each of theelements of the promotional mix later in the unit.
Budget Allocation
You should know that budgets are appropriated by using some "measure"
which can be:
A percentage of sales (past or future)
Last year's spend plus (or minus) a percentage
Equal to (or more) than what the competition are spending
Enough for the job.
None of these methods is perfect in its own right. Many writers have
disputed the validity ofbasing promotional budgets on results achieved, etc.
as, very often, no direct correlation canbe found between advertising and
sales. This can be caused by the delay in a buyer actuallytaking up a sales
proposition.Equally, the other methods can be disputed, e.g. last year's
spend may have beeninadequate; the competition may have better
resources; "enough to do the job" is open toabuse – people will waste
money.So perhaps the best way of appropriating promotional budgets is to
assess from a resultsperspective. If, instead of beginning to plan with the
question: "How much money can wehave?", promotional planners began by
asking: "How much can we achieve with anyactivity?" budgets may be much
more appropriate. They will certainly be better justified asthere will be
projections to support any bids.In most cases promotional and other budgets
tend to be set as a result of a combination offactors and may well be based
on one or more of the methods outlined above.The reality of life is such that
many promotional budgets are very tight and managers will begiven a
limited amount to spend. It is here that the skill of the strategic planner
comes intoits own. If, once a budget has been set, the planner can use that
money creatively theoverall success will be that much greater.Using all
promotional tools and techniques works to this end. Basing the allocation of

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apromotional budget on the effectiveness of the medium will result in better
customerawareness which should end in more revenue for the
company.Allocation by "weighting" is very common in promotional planning.
If one medium is likely tobe more effective than another it is given a higher
weighting and gets more of the spendallocated to it and so on. Careful
research and assessment needs to take place so thatmanagers can identify
which medium will be most effective for any particular target sector.Without
research, and objective decision making, budget allocation may well be done
onsome basis which is illogical, e.g. the manager "likes" TV advertising even
though, in thepast, it has not been as effective as personal selling.

11.0 ADVERTISING
11.1 Why Advertise?
The purposes or reasons for advertising can be many and varied e.g.
To announce a new product
To announce a modification (price change, special offer, etc.)
To challenge the competition
To maintain sales
To remind people to purchase the product again
To educate users and buyers
To retrieve lost sales
To keep retailers/distributors satisfied and/or motivated
To catch new customers entering the market for the first time.
New products obviously need promoting and launching onto the market, but
a great deal ofadvertising is for products which have been in existence for
some time, e.g. Coca Cola,Cadbury's chocolate. The reasons for advertising
existing products vary from onemanufacturer to another, but there are
general reasons for all manufacturers to advertiseregularly and repetitively:

The changing needs of the target audience

As people move through their lives, they have different requirements and
purchasingmotivations. Advertisers should be aware of these changes and
aim their messagesaccordingly.

Products being updated and improved

Advances in technology and customer expectations often mean that a
change isnecessary in the basic presentation of a product, e.g. the
introduction of conveniencefoods which can be used in a microwave oven or
the awareness of health and safetyfactors relating to consumer products.

The increased sophistication of advertising

Advertising helps to build and maintain a product's brand image and adds to
its value(as perceived by the customer). If an advertiser does not keep pace

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with theadvertising of the competition the relative value of the product may
be lowered in theopinion of the buyers.

The competitive nature of the marketplace

People forget about products if they are not constantly reminded of the
benefits to beobtained from using them. With so many advertisers trying to
attract the same buyersit can be very dangerous if advertisers relax their
efforts.
Classification of Advertisements
Most advertisements could be considered as belonging to a "class", or
category, and willhave aims which are relevant to the prevailing
circumstances. Some examples of thevarious categories are given below
(this is not a comprehensive list). Note that someadverts will fit into more
than one category and some will not fit into any!
Persuasive
This is the most obvious kind of advertising. Selling hard, trying to attract
attention andconvert it into desire and, finally, purchase. Vast amounts of
money are spent on thistype of advertising because it is important that the
consumer is properly informed ofthe product and that the suppliers or
distributors are backed up by the advertisingwhich will create a demand for
a product to which they are giving up space.
Informative
This style is often adopted for advertising more expensive products, such as
cars,video cameras, etc. Will contain technical information and be presented
in a readablemanner. This type of advert may not always result in a
purchase being made, but maywell result in the consumer being interested
enough to take up the offer of a test driveor demonstration, etc.
Generic
Not all advertising is for individual branded products. Sometimes controlling
bodies orgroups of producers will combine to advertise the benefits of using
one type ofcommodity, e.g. eggs, milk, apples, wine, etc. The term "generic
advertising" is alsooften used by large organisations when they are referring
to the advertising of theirentire product range or the product range of one of
their subsidiary companies. Thebest way to think of "generic" is to consider
it to be referring to a "type" rather than anindividual product.
Retail
Retailers will spend money on advertising their own outlets, (e.g. Tesco,
Dixons) andwill give the consumers a picture of the overall benefits that can
be gained, such asopening times, range of products/services, etc. Much of
this type of advertising isdone on a local basis and will often result in full
page adverts in the local press.
Direct Response
This is one area of advertising where response can be checked and
effectivenessassessed. An advertisement, which includes a response

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mechanism designed toeither attract orders or encourage customers to write
in and ask for information, givesthe advertiser an immediate indication of
the degree of success. Research into directresponse advertising usually
focuses on the media and the advertisement used.Coupons are coded so
that advertisers can identify which adverts and media are mosteffective.
Information gained from this assessment can help in preparing plans
foranother campaign. The information gathered through direct response can
be used byorganisations to build customer profits, gain a deeper
understanding of customers andtherefore, allow them develop more targeted
marketing activities. The interactivenature of direct response, therefore,
assists organisations in building a dialogue withcustomers leading to a closer
relationship.
Corporate
This form of advertising is not designed to sell products but to give the
"image" of thecompany. The organisation will be trying to communicate with
various audiences –customers; workforce; suppliers; shareholders; local
authorities; governments;pressure groups, etc. They will be trying to show
what the company is up to behind thescenes and how the organisation is
working for "the good of all". Quite often this typeof advertising will be part
of the public relations activity rather than marketing.
Trade and Technical
This is the advertising of materials or components to manufacturers or of
selling in bulkto retailers. Almost every business has itsown trade journal in
which this type ofadvertising appears, but advertisers are finding that TV
and general interestmagazines, etc. can be just as effective for this type of
"business to business"advertising.
Classified
These are so called because the adverts appear in sections (Births, Sales,
etc.). Whilemany adverts are placed by individuals, a considerable number
are placed bycompanies such as estate agents, garages, etc.
Government
This may be for recruitment (forces, police, nursing, etc.), information
(explaininglegislative changes) or persuasive (encouraging loft insulation,
etc.). Governmentadvertising tends to use shock and fear more than most
other types of advertising(drink, drugs, burglary, etc.).

Using Advertising Agencies

Any agency, irrespective of the service it offers, is an intermediary in that it
will be a linkbetween two parties. We have already explored many aspects of
dealing with externalagencies and intermediaries but advertising agencies
deserve attention in their own rightbecause of the very specific work that
they do and their importance to marketing activities.Advertising agencies
were originally set up to sell media space on a commission basis butnow
tend to act more for clients than for media owners. They offer a wide range

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of servicescovering every aspect of communications and do not simply deal
with advertising space.There are two types of agencies:

Full service agencies may provide:

Marketing/communication planning
Market(ing) research/media research and selection
Creative design/illustrations/photography
Purchase of time and space.

(b) Part service agencies may provide one or more of the particular aspects
given by fullservice agencies. This type of agency has become much more
common in today'smarket-place with specialists setting up in business on
their own, or in small groups.Advertisers may decide to use an "A La Carte"
basis where they use several part serviceagencies to cover a campaign –
basing the choice of agency on the particular skillsavailable.They may also
elect to give the control of a campaign to one agency who may not have the
resources to carry out all of the activities necessary. These agencies will
sub-contract toother agencies and act as "managers" on behalf of the client.

How agencies operate?

Agency objectives are profit-based. They will be seeking customers in the
same wayas any other organisation – irrespective of the particular
product/service. They havestandard structures (function/regional/task, etc.)
according to whatever suits theirindividual circumstances.Clients of agencies
are known as accounts. Each account will have certain agencypersonnel
who are responsible for achieving end results and reporting back to
theclients. The agency personnel responsible for dealing with clients can
range from anentire team to one account executive – it will depend on the
prevailing conditions suchas size of account, tasks involved, etc.

The need for an agency

The need for an agency will depend on the size of the organisation,
resourcesavailable, size of the problem in hand, time allowed, etc. Some
companies will prefernot to engage agents as they want to retain as much
control as possible – or they maybe unable to because of financial problems.
Payment of advertising agencies
The terms above the line and below the line are used to distinguish
between types ofactivities which are charged for differently.
(i) Above the Line refers to those activities which involve a commission from
themedia owners (time, space)
(ii) Below the Line to those that need to be charged for by some other
means(design, research).Unfortunately, although there is no "line", we still
have to cope with these expressions,which often cause confusion for
students. The "line" comes from the early days ofadvertising agencies when

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they existed by earning commission from media owners forselling space,
etc.Originally, the media owners only gave commission to approved
agencies. However, inthe early 1970s this system was deregulated and
media owners were forced to givediscount to advertisers as well as to
agencies. This led to agencies accepting lowerprofits and offering reduced
rates to clients in order to attract business. It has resultedin the client
having more power than previously, and the agencies having to workharder
to maintain their profits, etc. In some respects this deregulation was
alsoresponsible for the growth of specialist agencies who could charge for
their particularexpertise – thus helping to create the "A La Carte" system.We
now have a mixture of ways in which an agency can be paid, or charge, for
services:
(i) Agencies earn their commission from the media owners.
(ii) Agencies "mark up" costs and pass charges on to clients.
(iii) Inclusive fees can be agreed at the outset of any contract.
(iv) A combination of commission/fee system can be used.
Advertising Media
"Media" covers a multitude of methods and means of advertising – "anything
that can beused to convey an advertising message" – but it is generally
accepted that the term majormedia covers five areas:
Press
Television
Radio
Cinema
Outdoor advertising
Internet.
Note that all major media come into the "above the line" category as it is
subject to"commission".Perhaps the most difficult decision for any advertiser
is the choice of medium as, no matterhow effective an advertising campaign,
it will fail if it is not in the correct medium for theparticular target audience.
An advertisement is subject to "wastage" – the amount ofresources, or
opportunities lost by missing a sector of the intended audience.Media
selection will, broadly speaking, be based on three factors:

Cost Involved
The size, objectives and resources of the organisation wishing to advertise
willinfluence the type of media, size and frequency of the campaign.

Characteristics
The nature of the medium chosen will depend very much on the objectives
of thecampaign. Is a serious presentation required? Will a popular daily do?
Will it bebetter to use a trade journal or a national daily? Will the media
chosen reach therequired audience? Is it a believable channel for the
message that is being sent? etc.

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 Audience
Coverage is crucial. Advertisers will be asking: Does the medium chosen
cover thetarget audience? Will the audience respond in the required way?
How does themedium know what the audience will do? In other words, how
well does the mediumknow its own audience?Whether it be an advertiser or
an agency that is involved in the decision on which medium touse, there are
several considerations to be taken into account:
What is the competition doing?
Is there a particular requirement as far as distributors, etc. are required?
What are the lead times involved?
Will the medium be available for the time(s) required?
Has the creative work been done with a particular medium in mind?
Does legislation impose any restrictions on the medium?
We can now move on to compare the characteristics of different media for
the purposes ofadvertising.

Press advertising
The "press" covers all printed papers, i.e. newspapers, magazines and
directories.They may be national, regional, specialist, trade or general
publications. Basically theyare owned and operated by someone other than
the paying advertiser.The advantages and disadvantages are shown in the
following table.
Advantages
• High circulation with good Opportunity toSee (OTS)
• Audience can be easily identified
• Information can be saved and retrieved
• Adverts can include response coupons,
• etc.
• Relatively low costs involved (bothpreparation and advert space)
Disadvantages
• No sound/movement
• If too many adverts some will be missed
• Magazines require long lead times
• Printing only as good as the staffinvolved

Television advertising
Television is seen as one of, if not the, most persuasive means of
advertising. It iscertainly effective and is, in its own right, a hugely
successful industry. From earlybeginnings of limited land lines, we now have
cable and satellite transmissions givingchoices of multiple channels to
viewers round the world. Global advertising is nowcommon practice but
would have been unheard of not too long ago.
Advantages
• Can provide movement/colour/sound/emotion

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 • It is an intrusive medium
• Viewers can identify with situations in
• adverts
• Mass, regional or specific coverageavailable
Disadvantages
• Short time of adverts restrictsinformation-passing
• Can be repetitive which will result inboredom for viewer
• Costly/time-consuming to produce liveadverts
• Adverts shown when many supply pointsare closed
• Adverts not retained for review (considerhome videos)
• Can be difficult for viewer to respond(consider tele-marketing)
Radio advertising
In common with television advertising, radio transmission has actually
increased andradio advertising (particularly for local services and business
products) has gained inpopularity. This may, to some extent, be a direct
result of the increase in the numberof cars in the world which now have
radios fitted. Drivers are a captive audience wholisten to relieve the
monotony of driving or being stuck in traffic jams.
Advantages
• Airtime is not very expensive
• Offers sound effects/emotion
• Versatile in location (radios can becarried around)
Disadvantages
• Is intrusiveNon-visual
• Can only transmit non-complexinformation
• Need repetitive adverts to ensurecoverage
• High risk of listener intolerance due to
• repetition
SALES PROMOTION
This type of activity has been described as:
"Those activities which do not normally make provision for a commission to
bepayable to an advertising agency" (Hart and Stapleton (Glossary of
MarketingTerms))."A short-term tactical marketing tool which gives
additional reasons or incentivesto encourage purchase.""Any activity which
supplements the promotional campaign of an organisation.""The various
techniques used to put the product in danger of being sold.""Profitable
promotion of sales through means other than display advertisingwhereby
additional reasons or incentives are given to encourage purchase.""The main
purpose of sales promotion is to give the hovering customer a push in
the right direction (i.e. towards the product) (Alison Corke, "Marketing and
PublicRelations").The above examples of definitions show how difficult it is to
define sales promotion but alsohow easy it is to show that sales promotion
can be anything and everything. Salespromotion is the sum of all effort
other than advertising which a company uses to helppromote its products in

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the marketplace.The accepted idea of "sales promotion" covers two types of
promotional effort.
(a) Immediate promotions, which can include:
Point of Sale displays
Direct mailing
Exhibitions
Incentive offers (multi-buy or buy one get one free)
Free samples/magazines
In-store demonstrations
Re-usable packaging (where containers can be used for other purposes
whenthe product is used up, e.g. storage jars)
Personality promotion (salesforce dressed up to give away prizes), etc.
(b) Delayed promotions, which can include such activities as:
Lotteries
Competitions
Cross-couponing (promoting one product by giving coupons on another)
Free prize draws
Self-liquidating offers
Mail-in premiums (free gift for mailing in proof of purchase)
Money-off coupons
Charity promotions (money for proof of purchase donated to particular
charity).
Without doubt, sales promotion is widely used by many companies across
the wholespectrum of markets, catering to a wide variety of target audiences
in both consumer andindustrial sectors.
Advantages and Disadvantages of Sales Promotion
Sales promotion can:
Help sales
Increase customer awareness
Help create peak selling periods
Attract impulse or marginal buyers
Attract customers to premises, which may have "knock-on" benefits for
other productsin the range
Improve relations with retailers due to increased traffic in stores.
Disadvantages of sales promotion
On the other hand, there is a downside to sales promotion.
Tends to produce only fleeting interest in products and does not show any
lasting effect(which is why companies keep changing their sales promotional
activities)
If kept on too long the customer will become bored with the campaign
Might result in a special offer price having to be re-set as a new standard
Can lead to disloyalty on the part of customers if too many promotions are
on offer(they will shop around for the best offer, rather than the product)

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They are very expensive to run and this increase costs and, consequently,
prices to thecustomer, which means that the organisation suffers in the end
by reduced sales.Thus we can see that although sales promotion techniques
can be valuable, they must behandled with care if the customers are not to
become worn out by offers, rather than seeingoffers as being
incentives.Most of the types of sales promotion offers outlined above will be
familiar to you from yourexperiences as a customer and consumer, but we
shall take a closer look at some of themethods which are more frequently
used.The close targeting required for effective direct mail has given rise to
the term

Exhibitions
Exhibitions are public events which are held by one (or several or many)
organisation(s)which are aimed at demonstrating products and/or services
to an audience interestedenough to attend.In certain cases, particularly with
industrial products and high status products such as cars, itis almost
obligatory for a company to be seen at exhibitions or the target sectors (and
competitors) will think that the company is in financial trouble. Customers do
not like to buyfrom companies that appear to be in difficulty as they want
the security of knowing that thecompany will continue in business.The main
reasons for and problems with using exhibitions are set out in the following
table.
Reasons
• It is a means of gaining newcustomers
• It helps maintain relationships withexisting customers
• It is a good way of making contact
• with people in the same field
• It is a good way of supporting agentsand distributors
• It is one way of gaining publicity
• It is a good way to introduce newproducts
• It is a good way of seeing what thecompetition is up to
Problems
• The expense
• Poor presentation will affect image
• There may be poor representation byorganisational personnel
• It can be difficult to measureeffectiveness
• It can be difficult to know if the rightaudience was reached
Exhibition exposure can be at a recognised trade fair, at a locally arranged
exhibition, or atan international exhibition.There are now many annual
exhibitions which are well known in their respective fields andregarded as
being "essential" if organisations wish to keep their names in the minds of
theconsumers, e.g. Ideal Home Exhibition, Boat Show, etc.There are also
permanent exhibition sites which rotate the products or trades that are
ondisplay, e.g. National Exhibition Centre (Birmingham, UK), World Trade

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Centre (New York,USA). In addition there are "mobile" exhibitions arranged
to suit requirements at a particulartime; these mobile exhibitions may be
staged by individual companies, or local or nationalgovernments. They offer
the possibility of taking the "show" to the customer rather thanusing the
established venues and hoping that the customer will come to the
show.Exhibitions can be large or small but they all have the same basic
similarities in that theyattract interested parties. Companies spend a great
deal of money on exhibitions, givingaway free literature, samples and so on.
The fact that this type of activity shows little sign ofdecline indicates how
effective a means of promotion it is. Note, however, that manycompanies
regard exhibitions as being part of their public relations activity. They would
liketo obtain orders, etc. but they are far more interested in the exposure an
exhibition brings.
Conferences/Seminars
Conferences and seminars are "smaller" events than exhibitions but they are
very valuable interms of their communications capability. They tend to be
arranged by individualorganisations and are aimed at specifically selected
audiences, either directly involved withthe company, such as customers,
dealers, distributors, etc. or targeted at a wider but stillrelatively small
target, e.g. design engineers, industry or knowledge specialists, etc.The
main reasons for and problems with using conferences and seminars are set
out in thefollowing table.
Reasons
• You can attract the people you wantto influence (press, customers,
• agents)
• They are good public relationsactivities for organisations as theycan be
"hospitality" based
• You do not have the interference ofcompetitors, so you can get
yourmessage across in the way that isbest for you
Problems
• The expense
• They can be seen as a way of"bribing" interested parties
• They may take place in an artificialatmosphere which ignores
theproblemsof the operatingenvironment
• They are often carried out by moresenior personnel in the organization
who may be too remote from what is
happening in the marketplace

Sales Literature
Leaflets and brochures can be an essential part of the product offering.
Customers may beunable or unwilling to reach a purchase decision without
the support of literature whichdetails technical specifications, product uses,
testimonials from satisfied customers,indications of the stability of the
manufacturer, etc. Manufacturers/sellers can reap extensivebenefits from

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well-produced sales literature and it is for this reason that so much care
istaken and so much money spent in this area.Once a sale has been
completed, a customer may need support/guidance on operating,maintaining
or servicing a product and manufacturers will provide literature which caters
tothese needs.Obviously the more expensive or technical, the product the
more will be the requirement forsales and/or support literature. It is for the
organisation to assess customer/productrequirements and to decide what, if
any, percentage of their budgets and efforts should bededicated to this type
of activity.The internet has provided organisations with the opportunity to
offer sales support literatureon-line. The benefits of this are that the
information can be easily updated by theorganisation, made easily available
to customers and of course it is cheaper to deliver. Thisall leads to improved
customer service and increased customer loyalty. Finally,organisations are
able to track their customers' use of sales literature, which means they
canuse other elements of the marketing communications mix to intervene,
e.g. direct mail tooffer a sales promotion or use the information to inform
future marketing activities and/orproduct development.
Merchandising
Because much selling is now done on a self-service basis, where purchase
decisions aremade at the point of sale, failure to put the right product in the
right place at the right timecan often mean no sale. Merchandising
techniques are used to provide the final impetus,and reassurances, to the
customer.Merchandising which is sometimes known as the "Silent Salesman"
or "Selling ThroughTechniques" covers many in-store aspects of trading, e.g.
Which products should be stocked/displayed
How much stock to hold
The most appropriate store layout/decor
Traffic flows through the store
In-store promotions.
Retailers must ensure that products sell, as selling space is at a premium
and the need toimprove sales per unit area is critical. Therefore, retailers
expect manufacturers to ensurethat their product can/will:
Sell readily at the point of purchase
Provide advertising
Utilise sales promotion techniques.
In return, manufacturers expect retail outlets to:
Understand store layout techniques
Provide first class sales assistants
Have personnel skilled in product display.
Other aspects of merchandising include:
Point of Sale Material
Stores generally receive more display material than they can use, so show
space is ata premium. Sales material and its location within a store are
normally decided as partof the overall communication strategy but sufficient

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discretion must be permitted forlocal variations. The objective of point of
sale advertising material is to provide a large"hook" which will attract
passing customers.
House Style
Retail chains have become aware of the benefits to be gained from
standardising onhouse styles and this fact alone has led to many retailers
producing their own salesmaterial. House styles show the appropriate image
for the store and can be carriedover into advertising, thus achieving a
collective impact over individual advertisements.House styles can develop in
parallel with "own label" packaging; a retailer puts hisreputation on the line
with his own name.
Packaging
Packaging was originally used for the protection of the goods during storage
andtransit or for the protection of handlers when there was danger from the
goodsthemselves. Security is no longer the sole requirement.As well as
protecting the product with regards to temperature or strength, packaging is
used to convey information; establish an identity; and educate buyers and
users.Packaging is therefore a powerful promotional medium and an
importantcommunication channel. It gives the manufacturer an opportunity
to convey amessage to the customer, which can be aimed at persuasion,
information, reminding,etc. Even when packaging is empty it will be
promoting (i.e. the item needs replacing).Packaging material should be
selected carefully and be capable of easy and quickdisposal when it is
finished with. Better still, it should be capable of being recycled forfurther
use.The use of colour in packaging is very important. It can be used to
conveypsychological ideas about products, e.g. cleanliness is usually
portrayed by white.

UNIT 12.0 PERSONAL SELLING

Selling is a two-way communication which provides information in a flexible
way that can beadapted to meet the needs of a specific customer. Selling is
part of the communicationsmix, but it is much more focused than mass
communications like advertising.Communication here is customised by one
individual salesperson or sales team in personalcontact with customers. Its
objective is to get the buyer to act, to buy.The importance of selling lies in
the fact that most buyers buy from salespeople. Selling as acommunication
tool does not, however, come cheap. As such the role, tasks andorganisation
of selling need to be clearly defined so that the sales effort is not diluted
ormisdirected in any way.Personal selling means informing and persuading
customers through personalcommunications directly associated with a
particular transaction. In this respect, personalselling and non-personal
selling such as advertising are complementary activities and theirrelative
importance will vary dependent upon the nature of the product and the
buyingbehaviour associated with it. A school of thought as depicted in Figure

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is thatadvertising will be dominant where purchases are small, frequently
purchased and of lowunit value, whilst personal selling is appropriate to high
priced, technically complex productswhich are bought infrequently.
Salesforce Objectives and Tasks
The objectives of the salesforce are selling, servicing, prospecting,
communicating,information gathering and allocating goods in the
marketplace. Arising out of theseobjectives a number of tasks can be
identified as depicted in Figure below:

Prospecting
Information collection, anddissemination
Communications
Negotiating and selling

Servicing

Time and resourceallocation

Figure : Key SELLINGTASKS

The opening
Need and problem
identification

Closing the sale Presentation and

Personal
demonstration
selling

negotiations
Dealing with
objections

Key Tasks in Selling

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It is difficult to establish priorities among the list of tasks unless the selling
style andorganisation structure are understood. Salespeople generally focus
on the tasks ofprospecting, negotiating and selling, but the back-end tasks
of information collection anddissemination, communications and time and
resource allocation are no less important andare often essential to the
success of selling. Sometimes companies will, however, providesales support
staff in the form of telesales, customer service personnel, etc. to carry
outsome of these tasks.
The Seven Steps of Selling
Selling, as we have already said, involves many tasks. However, the selling
process itself isbased on seven steps, as illustrated in Figure .
• Product Knowledge
• Prospecting
• Approach
• Establishing Needs Product knowledge
• The Presentation
• Closing
• Follow-up prospecting

approach

Establishing Needs

The presentation

Closing up

Follow-up

Figure: The Seven Steps to Selling

(a) Product Knowledge

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Selling is about promoting a product or service. To do this effectively, the
salespersonmust have a good understanding of what is being sold and
bought. The first step inthe selling process is therefore product knowledge.
Many companies spend a lot of effort training their salesforces to develop +
knowledge in terms of product features such as assortments, sizes,
specifications,back-up support services, finance, etc. However, the real
purpose of the product is tosatisfy a need – products are, in effect, problem-
solvers. To this end, the salespersonmust not only be very familiar with what
a product is, but also what the productfeatures can do for the customer in
terms of product benefits.The following table highlights the distinction
between product features and benefits.

Product or Service Feature Benefits

Car Runs on unleaded petrol

Saves company money.
Allows customers to be seen asenvironmentally conscious.

Personal Computer Light weight Allows machine to be movedeasily between

offices.
Customer need not buy a specialdesk or work surface.
PhotocopierMaintenance
Immediate call-out of
Maintenance Engineerguaranteed
Saves customer lostphotocopying time.
Provides peace of mind.
(b) Prospecting
This involves identifying qualified potential customers. In most industries the
salesperson must continue to find and sell to new prospects in order both to
increasesales and to offset the loss of customer business to the competition.
Some of the bestmeans of prospecting are by:
Searching for names and addresses in newspapers and directories
Subscribing to specialist sales leads organisations
Building referral sources such as suppliers, dealers, lost customers and
noncompetingsalespeople
Asking for introductions to see subsidiary companies of existing customers
Using the telephone to find out who the DMU is, their name and position in
theorganisation.
(c) Approach
In all selling, first impressions count. This does not simply refer to how the
salesperson looks, but also how well prepared they are and how they meet
and greetthe buyer so as to get the relationship off to a good start.
(d) Establishing Needs

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In order to satisfy a customer, a salesperson must have a clear
understanding of theirneeds so that they know which features and benefits
of the product to promote. Toooften, the salesperson makes the mistake at
the start of the sales presentation oftalking about their products – instead of
first finding out what it is the customer wants.Asking questions to re-
establish customer needs provides the clues as to whichproduct benefits to
promote.
(e) Presentation
Here the salesperson explains how the features and benefits of the
product(s) willsatisfy the customer's needs. This step in the selling process
calls for good listeningand problem-solving skills. What's being proposed will
undoubtedly be questioned andobjections thrown up. Objections should, of
course, be anticipated when formulatingproduct knowledge and building
information up on prospects. In handling objections asalesperson should use
a positive approach, by asking the buyer to clarify theobjection, by taking
the objection as an opportunity to provide new information andthereby
turning the objection into a reason for buying.

(f) Closing
The hardest part of the selling process, for many, is closing the sale, simply
becausepeople generally do not like rejection and so avoid asking for an
order. Because ofthis, salespeople often miss opportunities or buying
signals, which indicate when theyshould close, e.g. picking up a sample,
asking a colleague for his opinion, sittingforward and nodding approval, or
asking about prices, credit terms and delivery.

(g) Follow-up
The last step is very important if the salesperson wants to ensure customer
satisfactionand repeat business. On closing a sale, a salesperson should
follow through bycompleting all details of the transaction, and schedule a
follow-up call for when theorder is received to ensure there is proper
installation, instruction and servicing.Follow-up is about continuing customer
satisfaction in identifying any problem andreducing the buyer-concern about
the sale.The steps outlined above are naturally more akin to the higher
value sales which can befound when a personal visit to a customer is
necessary. However, this is not to say that the"spirit" of the steps in selling
do not apply equally to lower value sales – they do.Many companies today
recognise that they earn a higher return from money spent gettingrepeat
orders from existing customers than they do from resources invested in
attractingnew customers. There are also benefits to be gained from cross-
selling opportunities withexisting customers. As such, a professional
approach to selling is essential irrespective ofthe value of the order from the
customer. It is customer satisfaction that should beparamount. If customers
are satisfied with all aspects of a company's sales techniques andapproach

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they are more likely to investigate other products being sold which can
result incross selling (other items in a product range) or selling-up
(higher value purchases thanthe original intention) for the selling
organisation.Consider your own purchasing. Have you ever bought a pair of
shoes and because a salesassistant was helpful you also bought shoe cleaner
(cross-selling)? Or in the case of moreexpensive products – have you ever
gone to buy something only to be persuaded by asalesperson that a more
advanced (and expensive) model would meet your requirementsbetter
(selling-up)? These techniques work in every kind of selling but are only
possible if asalesperson is good at their job and can arouse the interest of a
buyer.
UNIT 13.0PUBLIC RELATIONS
13.1 What is Public Relations?
There can be no doubt that public relations activities span the entire
organisation, taking inthe very highest level of management as well the
operational levels. Despite this the term"public relations" is often misused
and misunderstood, with many managers failing toappreciate the importance
of the activities involved.It does not help that various authorities give
different definitions of public relations, as thiscan lead to even more
uncertainty. Who should we turn to for a sensible definition?Consider the
following:"... all activities and attitudes intended to judge, adjust to,
influence and direct theopinion of any group or groups of persons in the
interest of any individual, groupor institution ..." (American Public Relations
Association).Although I am convinced that this is not the case, the above
definition could be taken toimply a degree of coercion in the interests of the
person or group undertaking the publicrelations activities. To some extent, I
prefer the comments of a previous President of theAmerican Association who
described public relations as:"...everything involved in achieving a
favourable opinion ..."However, even this comment could imply a lack of
responsibility and a sense of "anythinggoes" as long as it achieves the end
result."... Public relations practice is the art and social science of analysing
trends,predicting their consequences, counselling organisation leaders
andimplementing programmes of action which will serve both the
organisation's andthe public interest." (World Assembly of Public Relations
Associations, 1978).You can see that this definition was actually formed as
an aid to guide the actions of publicrelations specialists specifically. It does
not address the meaning of "public relations" itself,but seeks to define what
the specialist does."... the planned and sustained effort to establish and
maintain goodwill and mutualunderstanding between an organisation and its
publics ..." (Institute of Public Relations, UK).To me, this definition gives a
much clearer view of public relations in that it contains the keywords:
"Planned and sustained"
"Establish and maintain"
"Mutual understanding"

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and most important of all:
"Between".
Whichever definition of public relations you prefer (and there are plenty
more around) youshould find that they all have a common underlying
principle. Public relations is aboutunderstanding the needs of an organisation
and its publics, and working towards satisfyingthose needs.Thus we can see
that public relations is something which needs to be worked at and doesnot
just happen because someone wants it to. No organisation can work for its
ownobjectives and disregard the needs of its publics. Likewise, the attitude
that all we have todo is "be nice" to people carries no leverage in today's
sophisticated business world. Publicrelations is a discipline which demands a
careful approach if it is to be successful.

What Public Relations is not!

Public Relations is not Publicity
Publicity can be defined as planned or unplanned "exposure" in the public
domain,such as a newsworthy item or some tragic event which involves a
company in someway. Publicity may be planned or unplanned, and it can be
good or bad. Publicrelations is "planned" and should always be to the benefit
of the organisation involved.
Public Relations is not Advertising
We have already seen that advertising is communication through a form of
paid mediaand tends to be of an impersonal nature. Media coverage for
public relations issought, but not bought. Advertising tends to be aimed at
the decision-making units inthe purchasing process, whereas public relations
will tend to be aimed at a much widertarget audience. It is true that public
relations can lay the groundwork for advertising inthat it can imprint an
"image" for the company in the marketplace, but public relations
in itself is not designed to attract buyers – merely to increase knowledge
andunderstanding of the company and its aims.Public relations is often
confused with corporate advertising and this is quiteunderstandable as the
two will, in many cases, have similar objectives, i.e. to increaseawareness of
the company. However, corporate advertising is carried out by usingpaid
media; this differentiates it from public relations, which does not pay for
exposurein the media.

Public Relations is not Press Relations

Both public relations and press relations can be referred to as PR, but they
are not thesame thing. Press relations incorporates the efforts made to
establish and maintaingood relations with the "press". It is true that press
relations will be a major task forthe public relations function but press
relations will not have an impact on the policiesgoverning the public relations
activities.Note that the word "press" is not really accurate as other media

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are equally important,which is why we now hear this referred to as "media
relations".
13.2 Purpose of Public Relations
Public relations could be said to be very similar to advertising: they both
strive to pass oninformation and awareness, and both have an impact on the
attitude of the target audience.Neither of these activities "sells" directly, but
both are major influences on the behaviour ofindividuals and groups.
However, you could argue that the purpose of advertising is to "helpthe
sale", whereas the purpose of public relations is to "create understanding".
This may beeasier said than done.It has been said that in the corporate
world (perhaps the personal world, too) there are threemain categories of
people to deal with:
Those who know you and like you
Those who know you and do not like you
Those who neither know you nor care (often the majority).
The first category is easy to deal with as long as you do nothing to upset
them and thusmaintain good relationships. It is the second two categories
that give cause for concern.If we are to "create understanding" we must try
to change the attitude of others towards us.We know that different people
can have different attitudes to the same thing – whether it bean idea, an
organisation or even an individual – and that these attitudes do not change
easily. In fact, changing the attitude of someone can be very difficult indeed.
For theorganisation, this is where public relations becomes so important.
When we try to influence attitudes towards, or within, an organisation we
are really seekingto achieve a more favourable position. A model produced
by Frank Jefkins, a renownedBritish writer on public relations, encapsulates
this "transfer process" that we are trying toachieve.

Current attitude Desired attitude

Negative Positive
Hostility Sympathy
Prejudice Acceptance
Apathy Interest
Ignorance Knowledge

Figure : Jefkins' Public Relations Transfer Process

Every organisation should use some form of public relations in order to

establish itself in themarketplace. This may simply be to gain advantage
over competitors or for some otherreason such as reassuring shareholders
and customers that the company is financiallysound.It is not only profit-
making organisations that are concerned with public relations. Charities,local
and national governments, political parties and pressure groups all have
valid reasonsfor presenting themselves favourably to their respective target

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audiences or "publics" as theyare known in public relations. Consider the
organisations concerned with public safety andwell-being (transport,
pharmaceuticals, etc.); it is essential that they acquire a degree ofpublic
confidence and credibility if they are to carry out their role effectively. Public
relationsis how these organisations acquire their public standing.At best,
public relations does not only tell an organisation's story to its publics, and
fostergood relationships, but it also helps to shape the organisation and the
way it performs.Taking this further we must accept the fact that there are
varying levels of public relationsactivity within any organisation. The
strategic or higher management level of the companywill be concerned with
corporate public relations, which encompasses issues such ascompany
positioning in the market place, the corporate image and how business is
carriedout.The operational levels will be influenced by whatever the higher
levels decree, but they willbe responsible for the day-to-day activities that
need to be carried out. It is quite commonfor these aspects of public
relations to be dealt with by the Marketing Department in aseparate section
known as the Public Relations Function (or department, division,
etc.).Although corporate public relations tends to be the most "visible" to the
external publics, it isthe operational level that does the necessary
background work which leads to success. Byresearch, a public relations
practitioner can establish the needs and concerns of anyidentified public, as
well as assess opinions on various matters. After analysis of theresearch,
information can be fed back to the relevant managers for consideration
which,hopefully, will be taken into account when actions are taken. This does
not just involve thedrawing up of plans for the future, but also means that
current activities can be amended ifthey are causing any problems. It
follows, therefore, that if public relations is to besuccessful it must be
organised in such a way that activities can be undertaken in a logicaland
sensible fashion.

13.3 Public Relations and the Marketing Mix

Despite the fact than most marketing writers claim public relations is part of
the marketingeffort, Frank Jefkins in Public Relations for Marketing
Management claims that publicrelations and marketing are not the same
thing. He agrees that they are very close in thatthey are both dealing with
human relations but he is of the opinion that public relations isreally the
"sociological" side of marketing which, in its own way, enhances the
marketing mixelements. He claims that if the communications, good
behaviour, understanding andgoodwill aspects of marketing are "nurtured"
(by public relations) much will be done to effectthe desired shifts in attitude
that marketers seek to achieve.I am afraid that I cannot subscribe to his
opinion that public relations and marketing are"different". In my opinion
they are indivisible aspects of the efforts undertaken by anorganisation to
create and develop relationships with its target audiences. However, I

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doagree with his proposition that public relations can, and does, help with
the elements of themarketing mix.
Product
Information gathered in the public relations function may have a direct
impact onproduct policy within an organisation provided the information is
fed back to therelevant section of the production process. This may be at
any stage – design,production, packaging, etc. Complaints received from
customers can often act as acatalyst which will result in a new version of a
product being produced. Criticisms intrade press reviews or even snippets of
information overheard at an exhibition can allbring new ideas into a
company. The trick is to see that the public relations function iscapable of
both gathering this type of information and getting it to the right people. We
could argue that intelligence gathering, such as this, is a task of the product
manager,but it is equally a responsibility of the public relations function.
Anything which helps tocreate better relationships cannot be overlooked.
Price
You could argue that the added cost of having a public relations function can
onlyserve to increase the prices charged to customers, but this is a short-
sighted point ofview. Good public relations will "enhance" the image of the
company in the eyes of thebuying customers and thus confer a degree of
security in the company and its offering.If a company is seen to be lacking in
some way (aggressive stance, productionpolicies, ethics, etc.), the buyers
may well object to its pricing structure. On the otherhand, a company with a
good market standing and image is less likely to haveproblems when setting
prices as buyers will accept them more readily. Public relations,working
towards achieving this "good standing" certainly helps in controlling
pricelevels and fluctuations.

Place (Distribution)
It is likely that the main effect public relations can have on the distribution
channel willbe with the channel members – distributors, warehouses, retail
outlets, etc. Marketingplanning will take care to see that the distribution
channel chosen is suited to theneeds of the actual buying customer or end-
user, but public relations will help to keepthe distribution channel members
satisfied. It is not enough to simply issue productliterature to a member of a
distribution channel – they may need something more. If achannel member
is kept informed it means, ultimately, that customers, too, will benefit.Public
relations can help in this by providing additional information and support as
andwhen necessary, thereby helping to maintain the marketing effort.
Promotion (Communications)
Public relations is very much concerned with communications in that it adds
to, andenhances, the other promotional efforts. We have already seen that
public relations atits highest level will seek to ensure that the company has a
good image which iscommunicated to the public and, at its operational level,

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will see that the promotionaltools used are in keeping with the image that
the company wishes to project. Therelationship between "promotion" and
"public relations" is one of the stronger linkagesthat we can see where the
marketing mix is concerned. If these two aspects do notmatch you will soon
have a company that is struggling either with its image or in itsadvertising
campaigns. However, for the company that gets them balanced success
isguaranteed.For example, take a high profile organisation such as the Virgin
group of companies.The group includes a diverse assortment of companies
but, broadly speaking,advertises itself and its products as being go-ahead
and keeping up to date withpeople's requirements in the modern world. All
the promotional literature is presentedin glowing warm colours, with
messages meant to reassure the buyers that they aredealing with a
company that cares. Promotion is geared very effectively to all sectors –
young and not so young – and in all types of media. In addition to this the
group hasRichard Branson as its founder and chief executive. He is a highly
visible and well publicized personality who is very much presented as a "man
of the people", with acaring and modern attitude.There can be no doubt that
Richard Branson is an extremely astute businessman andyet he commands
tremendous liking and respect from many quarters. Because of thishe
himself is one of the best public relations tools that Virgin could have. Every
timehe is seen in public his Virgin group of companies reaps the benefit of
publicity. Butthis is no accident. He and his executives know very well that
all the advertising theydo, and the product literature they produce, will not
be as effective on their own. Theyfully utilise the public liking for Branson in
a very effective way. Consider only one ofthe products they have – Personal
Equity Plans. Can you think of another financialcompany where you would
instantly recognise not only the name of the company, butthe chief
executive too? A very difficult task for most people! Virgin are to
becongratulated on their effective use of promotion and public relations as
joint marketingtools.
Soft Elements
People – one of the so called "soft" elements of the mix – actually refers to
one of themost important resources of any organisation, its personnel. Good
internal publicrelations means "happy" people. Happy people usually means
good customerrelations so it follows that public relations is a definite help in
respect of employeeswho are working towards satisfying customer needs.
This type of internal public relations is relatively easy to arrange and effect,
providing
the company recognises the need for it.The existence, or otherwise, of a
public relations function within an organisation may,at first glance, appear
not to have a great deal of impact on the two remainingelements of the mix
– Physical Evidence (concerned with appearances, ambienceetc.) and
Processes (concerned with systems used to deal with customers
andbusiness in general). But consider for a moment the company which has

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to providewaiting areas for customers. If there is no public relations policy
these waiting areascould be poorly designed and uncomfortable and give a
completely wrong impressionto the customers. Likewise, if a company
presents itself as being "customer friendly"the processes or systems used
should reflect that.Intelligence gathered by those in the public relations
function will be added to thatgathered by those in the marketing function.
This intelligence will then help to ensurethat both the Physical Evidence and
Processes elements of the mix are amended inaccordance with the
company's attitude to its customers and in line with the strategicpolicies
which have been decreed, as well as in keeping with the customer needs as
identified by the marketing people.
The Public Relations Message
We know, from the overall communications process, that there will be a
sender – theorganisation which has a message to get across – and a
receiver – the public that we aretrying to influence in one way or another.
What we need now is to have a structured andcredible message which will
be accepted and believed by our public(s) – badly worded ordesigned
messages can actually work against the interests of the
organisation.Messages must always be designed and structured from the
point of view of the publicrather than from the point of view of the
organisation.
Any message can be informative or persuasive or a mixture of the two
types.
Informative messages will contain straightforward information on
whatever theproblem is. There may also be contact telephone numbers or
addresses to write to forinformation and so on.This type of message is often
used in public relations for corporate issues whenreassuring the various
publics on some issue (such as when Perrier had to reassurethe general
public that they had solved the problem of the traces of benzene which
hadbeen found in some of their bottles) or in the event of any major
problems (such asproduct recalls because of a technical failure in one or
more components).
Persuasive messages play on the personality of the recipient or target
public. Theywill concentrate on needs, wants, aspirations and desires and
will use emotionalaspects to win support.Messages can be designed to play
on emotion and manipulate public opinion inparticular ways, even though
they may really be aimed at achieving a completelydifferent objective. This
practice is quite common and is acceptable in the publicrelations field as long
as the message does not mislead and give false information.The nature of
the problem and of the public(s) will largely determine the type of
messagewhich needs to be sent and the messages might be "adapted"
somewhat if circumstanceschange.The type of message which is to be
communicated to the public will be dependent upon whatneeds to be said in
the prevailing circumstances, but it is worth mentioning that people aremore

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likely to accept messages which meet with their own beliefs, e.g. political
leanings/typeof newspaper read/public image of the communicating
organisation and so on. In addition,the message must be capable of being
sent out in a suitable format and by an appropriatechannel, or medium,
which will reach the target public.
Methods of Public Relations
Earlier in this course you will remember that we considered various methods
of salespromotion:
Direct mail
Exhibitions
Conferences/seminars
Sales literature
Merchandising
All of these methods are seen as being "below-the-line" in that, although
they could be usedto supplement the advertising effort, they are not using
media controlled by others and donot attract commission from any media
owners. Thus, they are not advertising in its truestsense. We have also seen
that public relations is not advertising, so it follows thatcommunication
methods used must also be "below-the-line". From there, we can see that
many of the methods we have already considered in respect of marketing to
the targetaudience are also suitable for us to communicate with our publics.
Not all will apply in everycase, but some of them certainly will be of use. The
difference is that instead of trying to"effect a sale" we are trying to "get the
message across" in order to influence attitude andopinion.Some of the more
typical channels for public relations are considered below in relation to
theaudience which it is the objective to reach.
(a) Internal Publics
Newsletters or In-house Publications
These can be an excellent method of keeping everyone informed of current
developments and can be used as motivational tools. Simple things like
monthlycompetitions, awards for good performance, etc. can be promoted
and, if it iswell done, the in-house publication in itself becomes a factor in
the satisfaction ofemployees with their employer. If people are kept
informed they become"involved" and are more likely to be loyal and
supportive to their company.

Briefing Meetings
If briefing meetings are held as a regular event, or in the case of some
importantdevelopment, they give employees the opportunity to ask
questions and to seethat the company is not trying to hide anything.
Announcements can be made onchanges in company policy, new product
launches or impending mergers. Thesemeetings are also very useful for
quelling any rumours that may have started tocirculate and, even more so,
to reassure on the future stability of the companyand its employees.

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Family Days and Parties
Any opportunity which allows employees to bring together their work and
personal lives can only be for the good. Events such as these are an
excellentopportunity for all levels of the company to mix together –
especially if there issome activity involved which acts as a "leveller", e.g.
races and other sports.Including families in activities not only makes the
employees feel better, but itmeans that the families can begin to understand
the nature of the company thattheir loved one works for.Everything that
helps to keep employees happy is to be applauded. This type ofactivity could
also be regarded as being part of the public relations effort in thelocal
community. After all, the employees live in the community too!
The difficulty here, of course, is that events such as these cost money.
However,many companies feel that the benefits gained outweigh the costs
and are happyto host family events – even if it is only a buffet supper at
Christmas foremployees and their partners.
(b) External Publics
The "Media"
When people refer to "the media" they are often thinking in terms of those
whichgive national coverage, but there is much to be gained from local
media. Localnewspapers, radio and television are all interested in news
items relating to localorganisations. Another aspect to consider is that often
local reporters have linkswith national, or even international, newsgroups
and will pass on a story. It isamazing how often a simple little story
concerning a company can soon bereproduced in media around the world.
I was once very impressed to read an article in a newspaper about
anachievement of one company which is based near where I live in the UK.
Whatmade it so impressive was that this is a very small company and I was
in theMiddle East at the time! The article had been reproduced in a local
Englishlanguage paper, for the region I was visiting, only two days after it
had firstappeared in the company's local paper in the UK. Gaining
international exposurein this way must be an advantage to companies.News
items may be good or bad, but the relationships between the organization
and the media may well determine how they are presented to the public.
Forinstance, if a company regularly refuses to give interviews to reporters,
orrefuses to comment on something that has been reported, it will gain
thereputation of being secretive or obstructive.The local media (national and
international, too) will soon be presenting articleswhich reflect this attitude,
and the company can lose a great deal of goodwill.Conversely, if the
company works with the media it is more likely to havefavourable reports
published. Good media relations means that an organization can have its
successes publicised and its failures treated gently. The publicrelations
officer who fails in media relations does not deserve to succeed.
Press Releases

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It is common practice for press releases to be issued to the media
givinginformation on a range of topics. These can include current or
intendedactivities, some particular achievement of which a company is very
proud, or
even to counteract bad press which has arisen for some reason. Such
pressreleases do not necessarily get published. Publication will depend on
just hownewsworthy the item is and whether or not any particular medium
wants to usethe release.Many companies use what is known as syndicated
press releases. A syndicatedpress release is one which is drawn up at Head
Office by the chief publicrelations officer and is then distributed to regional
offices for publication in thelocal press under the name of the local manager.
This method gives theadvantage of a common, or consistent, press release,
but with the added benefitthat local names and contact telephone numbers
can be added. Of course,great care must be taken to ensure that there is no
overlap of publications.For example, if the same release was then used in
the national, or internationalpress, the company could look very foolish.
Press Conferences
Perhaps the most important question that needs to be asked in the case of
pressconferences is: "Do we need one?" Press conferences should really only
beused when there is a major announcement to make or a major problem
toovercome; holding a press conference when it is not needed will often
prove tobe counterproductive. Press conferences involve inviting media
representativesto a suitable location and then "presenting a case".The
people who are entrusted with speaking at a press conference must be
wellbriefed on what they have to say and they must prepare in advance. If
reportersand commentators are given a free hand with regard to the topics
and questionsthey can put, the end result may be something akin to chaos
with a resulting lossof face for the organisation.Quite often the organisation
hosting a press release will take the opportunity of"courting" the press by
providing information packs, refreshments, and so on.However, media
people may be suspicious if the hospitality is overdone so, onceagain, great
care must be taken.
Open Days
If customers, and members of the local community, are invited to visit the
premises of an organisation it gives the opportunity to publicise future
activities,to give reassurances on current financial strength, and to highlight
the trial oftesting of new products, etc. but, more than anything, it gives the
organisation achance to show that they do care about their publics and their
opinions.Hospitality need not be expensive, but the goodwill it fosters can be
incalculable.
Sponsorship
You only have to watch a sports event on television, or visit a theatre, to see
justhow important sponsorship has become in the modern world. Vast sums
ofmoney are paid out in a variety of ways: sponsoring a sports personality

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fortraining; a team of racing cars; a snooker championship; a football
competition; adrama festival; an individual theatre, and numerous other
events.The main reason behind this form of support is, of course, to gain
corporateexposure, particularly when the sponsored event is televised
throughout theworld, e.g. tobacco companies who are restricted in their
promotional activitiesuse sponsorship to very good effect. However, there
are also other reasons forsponsorship.If a company can be seen to be
sponsoring something which is regarded asbeing "worthwhile" or "good for
society" it benefits greatly as far as its publics areconcerned. The company
gains image, prestige and standing in themarketplace, all of which increase
the power and influence of the company.An added benefit of this heightened
stature, of course, is the "spillover" effect ofthe image. Subconscious
impressions will be imposed upon the minds of thelatent publics which, if
ever the public becomes active, may work to theadvantage of the
organisation.After BT's Global Challenge (a sponsored round-the-world yacht
race), the headof BT's global marketing commented that the investment in
the sponsorship had"...pound for pound, delivered three and a half times
more exposure thanadvertising". And, as he said " that is just the
beginning...."You can see from this comment alone that sponsorship can be
a powerful tool touse in marketing and public relations.Sponsorship in many
cases is related to advertising. Consider the use of thesponsored
personalities in adverts: for hotels, sports equipment, soft drinks, cartyres,
and so on. But the underlying reason for sponsorship is the
increasedexposure that companies gain and the add-on benefits of increased
stature in theeyes of the public at large.It is worth mentioning the dangers
that exist when a company sponsors a"personality" rather than an "event".
If the personality falls foul of the law orpublic opinion in some way, the
image of the sponsoring company may beaffected rather badly. In such
cases companies usually react very quickly anddrop that particular
personality.Even though a lot of companies spend vast amounts of money on
sponsorship, itneed not be expensive to have your name publicised. It
depends on who you aretrying to reach and influence.A lot of companies do
not recognise the importance of local sponsorship,although it is fair to say
that many companies do. Local sponsorship is animportant aspect of
community relations and can be very effective in gainingpublic goodwill.
Whether it is support of a local rugby team, a hospice, a scoutgroup or even
a local mother and baby group, there is a great deal to be gainedby any
organisation that involves itself with the community in this way.
External Face of the Company
Media
Syndicated press releases to maintain the "local" perspectiveNational press
releases/conferences as and when major announcements are
madeCorporate advertising to reinforce image and reassure

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clientsSpokespeople who are trained to comment on both local and national
news broadcasts
Sponsorship
In one year alone, more than 100 major UK charities were supported by a
NationalCharities Initiative which was coordinated from the Head Office of
Sun Life of Canada.The charities supported included: the British Heart
Foundation; the Royal NationalLifeboat Institution; the Multiple Sclerosis
Society; and the Royal National Institute forthe Deaf, to name but a
few.Hundreds of local charities are supported each and every year by the
company's HeadOffice and its local branches.
Strategic Alliances
Special financial packages are designed where Sun Life of Canada works with
variousorganisations to give their members preferential rates, e.g. with the
National (British)Kidney Foundation where special rates apply to investors,
which results in financialbenefit to the Foundation; this money can then be
used for further research.
Internal Face of the Company
Communications
Regular magazines are sent to all employees giving up-to-date information
on what ishappening both at company business level and in respect of the
employeesthemselves. Promotions, marriages and so on are all
publicised.Special publications to celebrate major events. One such
publication was to celebratethe company's 100-year anniversary in 1993 and
even now a copy is kept verycarefully by the marketing director as a
"souvenir" of the company.
Sports and Other Activities
There are numerous activities, such as fishing, walking, etc. for employees
to take partin, and clubs have been formed by the employees – all supported
by the company.
Training and Development
The company has a very proactive policy on training for their employees. In-
housecourses are run by their own training officers and much specialist
external training isalso funded. What makes Sun Life of Canada rather
special, in this respect, is thatthey actually reward their employees when
they gain certain professional qualifications– an excellent motivational tool.
Managers take an active interest in the personal development of their
employees and,as part of their ongoing activities, seek to ensure that
employees are actually in theroles most suited to their individual skills and
experience.

DIRECT MARKETING
Advantages
• Precise targeting
• One-to-One Communication

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 • Relationship Building
• Encourage high level of interactionwith customers
• MeasurableMessages can be "personalised"
• High conversion rates
• Ability to gather detailed customer
• information and understand customerbuyer behaviour.

Disadvantages
• Lists can be out-dated/inaccurate
• Frequent mailings lead to dismissalof a product by the target audience
• Unsolicited communications such asspam can alienate customers
• Can suffer from low credibility due tounsolicited communications
Direct Mail/e-mail
Direct mail/e-mail means exactly what it says: mail (using some kind of
postal or e-mailservice) sent direct to the target audience. It may be only a
"reminder" or "news sheet"communication, in which case it could be
considered as part of the public relations activitiesof an organisation.
However, direct mail tends to be the first step in a chain of activitieswhich a
seller hopes will lead to an eventual sale.In the majority of cases, direct mail
is used to arouse interest in a possible/targetedcustomer, leading to a
request for further information, or a visit from a representative, or fora
sample of a product. Once this stage has been reached the advertiser can
give moreprecise information or actually use more intensively persuasive
material and/or follow-upactivities.Mail order is often linked with direct mail
– but they are not the same thing! Mail order issimply "ordering by mail" –
usually from a catalogue of products. The actual product may notbe
delivered by mail, depending on the requirements of the product, buyer
and/or seller.Changes in advertising techniques and in technology have
helped to introduce other formsof "mail order". These activities, which can
be described as Direct Response Marketing,can include such activities as
selling off the page (where an advert in the media will include aresponse
coupon) or selling from a TV advert (where viewers are invited to ring up
with theirorder). Direct response marketing tends to be aimed at mass
markets, whereas direct mail,which may result in a form of mail order, is
targeted at a very specific market segment.
Telemarketing
Telemarketing means the use of the telephone to target customers directly.
The telephoneallows organisations to create an immediate dialogue with
customers and gain immediateresponses. It also allows the marketing
activity to be flexible to the needs of the customer,for example by answering
questions and providing them with specific information.Telemarketing has
suffered from a lack of credibility in recent years and organisations mustbe
careful not to alienate customers. The cost of telemarketing can also be
high; however,with the developments in communications technology, many

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organisations are switching theirtelemarketing activities to less developed
countries to reduce costs.Telemarkeing is particularly relevant in business to
business marketing and often usedduring the prospecting stage to support
personal selling.
Internet/E-Commerce
E-commerce is the activity of buying and selling or other business
transactions via anelectronic media such as the internet.Types of e-
commerce activity could include:
Use of on-line catalogues for customers to seek information and evaluate
producets
Electronic ordering via on-line order forms such as buying cinema tickets
Sending order confirmations via e-mail or sms texts
Electronic payment via internet – EDI systems which allow for the transfer
of moniesbetween banks.
These direct and one-to-one communications assist organisations in building
strongcustomer relationships.

UNIT 14:0 DatabaseMarketing

Database Marketingwhich, in effect, is companies using good "lists" of
customers in order tocommunicate with them. Lists are on sale from a
variety of sources and will be specific tocertain target sectors – doctors,
students, sports fans, readers of certain publications,owners of particular
makes of car and so on. There is an endless range of lists that you canbuy
from list sellers but there is no guarantee that the list will be accurate.Many
companies create their own database of current and potential customers by
quitesimple and inexpensive means, e.g. when a purchase is made and a
customer has to sendin details to register the guarantee, the customer's
details will be added to the database andany subsequent promotional
material will be sent in the future. Potential customers can befound by
advertising in the press and inviting people to write in for a free sample.
They haveto give their name and address, of course, so that goes on to the
database for future use.Not only does this produce an accurate list, but it
also indicates that the person has at leastan "interest" in the product which
is being offered as a sample. Gathering lists by thesemeans is effective, but
the lists must be checked periodically to see if they are still accurateto avoid
wastage. Recent developments such as online purchasing, on-line
promotionalactivities and loyalty cards means that organisations are now
able to capture data about theircustomers more easily and quicker than in
the past, providing marketers with more detailedand up to date data and
information.Developments in database technologies and analysis techniques
have allowed organisationsto make increasingly effective and sophisticated
use of the information they hold oncustomers and potential customers. This
expansion of market intelligence is based on suchdevelopments as:

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Data warehousing – the storage and maintenance of large amounts of
captured datain one database (or a series of related databases), which
facilitates analysis andextraction of relevant information.
Data mining – the ability to analyse very large amounts of data from a
wide variety ofsources in order to identify more detailed and relevant trends
and relationships withinmarketing information, to support improved decision
making.

Data fusion – the combining of many different data items from many
different sourcesinto one single database (or series of related databases) in
order to develop a more
detailed understanding of the market.

Database marketing – the use of the enhanced market information

(derived from theabove techniques) to develop marketing strategies based
upon detailed understandingof the market and the behaviour/interests of
customers, and in particular, to buildrelationships with customers which both
exploit and enhance this understanding.The sheer level of competition and
increased choice for customers has helped to makedirect mail a very
attractive means of communication for marketers. Research into
customertastes and lifestyles has meant that accurate targeting can take
place with reduced costs forthe marketer and a greater possibility of
successfully completing a sale. However, as I saidearlier, the list must be up
to date or costs will be wasted and the company image will suffer.The
advantages and disadvantages of direct mail are set out in the following
table.
Advantages D
• Precise targeting
• Flexible
• Inexpensive
• Measurable
• Can be "personalised"
• Reader devotes full attention whilereading
Disadvantages

Lists can be out-dated/inaccurate

Frequent mailings lead to dismissal
of a product by the target audience
Too many advertisers chasing similar
market segments can lead to
saturation of target audiences with
resulting loss of sales
References and Bibliography

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Ace C(2001), successful marketing communications. Oxford:Butterworth-
Heinemann
Allen C, Kania and Yaeckel B (2001), one to one web marketing (2nd edition)
New York:Wiley
Baron S(ed),(1991), Macmillan f retailing. Palgrave Macmillan
Brsaaington F and Pettit S (2002), Principles of Marketing. Harlow, Essex: FT
prentice Hall
Bruce I (1997) , Successful Charity marketing:meeting need.London. ICSA
publishing
Cannon T (1998), Basic Marketing: principles and practice. Thompson
learning
Commonson J (2003), “ChACEM still market leader” Ghanian
Chronicle(Accra), March 9
Corey Er, Raymond F, Cespedes V and Kasturi Ranga, V (1989), Going to
Market. Boston, Ma: Harvard Business School Press.
Cowell Dw (1995), The marketing of Services. Oxford: Butterworth
HeinneMann
Dibb S Smith, Pride WM, Ferell O (2001), Marketing concepts and
strategies. Hougton Miffin
Drucker P (1955) , the practice of management, London:Heinnemann
Gronroos C(2005)”marketing redefined” , management Decision
Honey P and Mumford A (1992), A manual of learning styles(3 ed). Maiden
Head:peter Honey
Jasper C (2005)’pricing for more profit’, Business essentials Quarterly
Kotler P (1965) , ‘Diagnosing the marketing takerover’ Harvard Business
review
Kotler P(2002), Marketing management(11ed). US imports and PHIPES
Kotler P, Armstrong G and Bradly E(1999), Marketing: an introduction.
Sydeny: Prentice hall

Examination questions
Q1

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A company sells electrical equipment such as fridges, washing machines, Musical
players, stoves and television sets. It has 50 stores spread over the country working
from local retail parks. Purchasing is done on contractual basis and large portion of the
goods are sourced from countries such as China, Korea, Germany and Italy. Each store
or outlet places internal orders for supplies. There is a centralised HR department which
develops recruitment practices and training standards and programmes. However,
actual recruitment and training is done locally at each outlet.

The company believes in developing innovative financing arrangements to help

customers to buy its products. A popular arrangement is hire purchase schemes with
0% finance for the first 6 months.

a) What is the role of the marketing function in this organization? (5% marks)

b) What are the possible conflicts with the following departments with marketing and
what can you do if you were in charge of marketing department?

• Finance

• Purchasing and supplies (15 marks0

• Human resources

c) What marketing needs, wants and choices are being fulfilled by this
organization? (5 marks)

d) What role will internal marketing play in this case? (5 marks)

e) What role will relationship marketing play and which stakeholders will be targeted
for this strategy? (5 marks)

f) Suggest another role that supports the marketing concept for each of the above
mentioned departments above. (15marks)

Q2.0 The Banda Family

Mr Mulenga Banda lives in a small countryside suburb in Chipata where there is very
little public transport available. The Banda family consists of father, Mother, daughter
(aged 15), son (aged 12), daughter (aged 6) and a baby (aged 3).

The father works as a shop manager in a nearby town which is approximately 16 kM

away from Chipata. The mother has a part time job at the local bakery in central
business town of Chipata. The three eldest children are at school. There is a child carer
who looks after the 3 year old during the day when mother is working at the bakery.

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Mr and Mrs Banda are considering acquiring a motor vehicle. Discuss how the manager
of Toyota Zambia dealer might assess Mr and Mrs Banda in terms of:

• Needs

• Wants (25 marks)

• demands

Q3.

Why do you think the term “mix” is used when talking about ‘marketing mix variables’?
(5 marks)

Quality goods make a variety of widgets. Its chairman, in the annual report, boasts of
the firm’s passion for the customers. The customer wants quality goods, and if they
don’t get them they will complain, won’t they? Is this a marketing oriented firm? Discuss
(10 marks)

Q4.

A customer contacts your company and asks whether it can make a completely silent
washing machine. This is not possible with current technology. What is your reaction?
What would you do? (10 marks)

Q5 a) Discuss why there is a need to study post purchase behavior and explain its
implications to the marketer in consumer durables (10 marks)

b) Explain the different brand sponsorship options available to a company , their

advantages and disadvantages (8 marks)
c) Explain the product support services a car manufacturer can provide to its
customers for gaining competitive advantage? (7 marks)

Q6 You have been appointed as a strategic planning manager for a manufacturing firm.
Management has asked you to come up with a strategic marketing plan for the firm.
a) Outline the steps involved in strategic planning process (10 marks)

b) Explain which factors internal and external to the organisation you would

analyse before embarking on your planning process. (10 marks)

Q1

190
You are asked to undertake a SWOT analysis (corporate appraisal) of any organization of your
choice.
Consider the main opportunities facing the company and many weaknesses that can be identified.
What do you think are two threats to the company you have chosen?.

What do you suggest to remedy the situation? (20 marks)

Q2

a) Outline the process of decision making in Industrial Management (5

marks)

b) Illustrate an application with an application to a specific problem in the top

management field (5 marks)

c) Decision making involves risk and uncertainty. How can you improve the quality of
decisions? Explain. (10 marks)

Q3

a) Discuss any three contemporary strategic planning tools that you

know. Give advantages and disadvantages of each. (10 marks)

b) What do you understand by

i) Integration strategy
ii) Diversification strategy (10 marks)
iii) Market growth strategies
iv) Boston consulting Matrix(BCG)

Q4

a) Outline the critical functions in the implementation of the strategy

(10 marks)

b) Discuss why evaluation and review of strategy is important to the

Planning process. (5 marks)

c) What is control? What are the phases of Control process?

(5 marks)

Q5

Strategic intent of the organization is very critical for setting a direction of the company.

Discuss the importance of the following

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 a) Mission statement
b) Vision
c) Core values
d) Objectives (10 marks)
e) Goals

Give an example of an industry and choose market leaders, market challengers, market
followers, market nichers in the chosen industry. All players are in mature market.
(5 marks)

What would be the strategic responses for each of the players chosen above? (5
marks)

You have been appointed as a strategic planning manager for a manufacturing firm. Management
has asked you to come up with a strategic marketing plan for the firm.
a) Outline the steps involved in strategic planning process (10 marks)

b) Explain which factors internal and external to the organisation you would analyse before
embarking on your planning process. (10 marks)

Q6
You are asked to undertake a SWOT analysis (corporate appraisal) of any organization of your
choice.
Consider the main opportunities facing the company and many weaknesses that can be identified.
What do you think are two threats to the company you have chosen?.

What do you suggest to remedy the situation? (20 marks)

Q7

a) Outline the process of decision making in Industrial Management (5

marks)

b) Illustrate an application with an application to a specific problem in the top

management field (5 marks)

c) Decision making involves risk and uncertainty. How can you improve the quality of
decisions? Explain. (10 marks)

Question five

a) Discuss any three contemporary strategic planning tools that you

192
 know. Give advantages and disadvantages of each. (10 marks)

d) What do you understand by

i) Integration strategy
ii) Diversification strategy (10 marks)
iii) Market growth strategies
iv) Boston consulting Matrix(BCG)
Question one

a) You are newly appointed marketing manager of a major city cetre pop music
museum. Show in outline how you would plan the use of the 4 Ps of the
marketing mix and also include marketing research (10 marks)
b) The marketing tactics that you would employ to carry out this strategy over
next 12 months. (15 marks)

Total marks 25 marks

Question two

a) Briefly determine the determinants of pricing decision? (10 marks)

b) Ndaji Corporation is a manufacturing company intending to introduce a new product on

the market called “klin shapoo” for women’s hair and beauty. The company has a
problem of identifying the target market. As marketing officer show how the company
can segment its market and what bases it can use. (10 marks)
b) What will the criteria for selecting a suitable segment? (5 marks)

Total 25 marks

Question three

a) Your company chief executive officer has asked you to make prior preparation to the
presentation to be made at a workshop. The subject is development of target marketing.
Therefore, outline and explain the elements of target marketing and any information you
would consider being important (10 marks)

b) Tour company’s sales manager has presented a report to the marketing Director
complaining that the money spent on marketing research would be better spent on sales
force.
The marketing Director has now asked you to prepare notes that he can use in his reply to
explain how marketing research activity usually helps the sales force (15 marks)

Total marks 25

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Question four
a) Use Michael porter’s five force model of industry analysis to analyse the competitive
forces in the Zambian financial sector.(10 marks)
b) Discuss the factors marketers must take into account in designing and formulating
marketing mix. (8 marks)
c) Every product is expected to have a life. The product life cycle reflects the course of a
product’s sales and profits over its lifetime. Identify the five distinctive stages of product
life cycle. (7 marks)

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