Chapter 6

Marketing Strategies for Goods and Services (2)

p.168 Answers to Think it over 1 The introduction of a new range of moon cakes was due to keen competition in the Hong Kong moon cake market. Saint Honore wanted to create more unique products in order to outperform other competitors. 2 No. The company should not only focus on its existing moon cake products. As snowy moon cakes are new on the market, consumers are unfamiliar with them. To build product awareness, Saint Honore should spend a lot of marketing effort and resources on them. On the other hand, existing moon cake products (i.e., traditional moon cakes) are declining in sales. There is little room for the growth of these products. Therefore, Saint Honore should reduce its expenditure on existing moon cake products and switch to marketing the new products. 3 No, it would be inappropriate for Saint Honore to raise the price. Instead, it should set a low price for its snowy moon cakes so as to persuade more consumers to try it. Moon cakes are a fast-moving consumer product. This implies that if Saint Honore could make its new products more conveniently available for consumers, sales would probably increase. Hence, it seems appropriate for Saint Honore to use supermarkets and convenience stores to market its new moon cakes. 5 To attract younger consumers, Saint Honore may consider hiring an idol (e.g., pop singer, movie star) as a spokesperson for the new products. It may also advertise on the Web to better reach youngsters.

Teachers guide: In this case, there are two products which are in different stages of the product life cycle (i.e., snowy moon cakes in the introduction stage and traditional moon cakes in the declining stage). Therefore, their marketing mix strategies are different. In examinations, students may be asked to do the following: 1. Given the stage of PLC, design an appropriate marketing mix for the product (refer to Questions 12 and 13 on pp.195 196). 2. Identify which stage is being referred to in the question and design a marketing mix for the company.
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Given two products, identify their PLC stages and compare the differences between their marketing mix strategies.

p.171 Check Your Progress Q1 The five PLC stages are: (1) product development; (2) introduction; (3) growth; (4) maturity; and (5) decline. Q2 Fax machines are probably in the declining stage. While most offices today are still equipped with a fax machine, usage of these devices has been declining due to the growing popularity of the Internet and e-mail communications. As e-mail dominates inter and intra-office communications, the sales of and demand for fax machines will continue to decline.

p.175 Check Your Progress Q3 The marketer should spend more on promoting a newly introduced product rather than a mature product. This is because most consumers in the market are unaware of the new product. The marketer should spend a lot of promotional resources building the products awareness. On the other hand, the sales growth potential of the new product is high. A mature product is often popular among consumers. The need to promote a mature product is lower compared with a new product. Its sales growth is expected to be limited because of the presence of many competitors. Therefore, the marketer should focus promotional efforts on the new product. Q4 The marketer should defend the products current market share and maximise short-term profits before the decline begins. He may achieve these by the following strategies: Product: To attract consumers from various market segments, he should differentiate the product by adding new features and providing more new models. Price: He needs to set a price that is similar to or more attractive than those of competitors in order to avoid losing customers. Place: To ensure sufficient market coverage compared with his competitors, he should continue using intensive distribution. Promotion: He has to stress the products unique features (differentiation) in order to
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encourage consumers of competitors brands to switch. Advertising, sales promotion and personal selling are all important promotion mix tools in achieving this. Q5 The marketer should continue promoting the product, but reduce the promotional budget and focus on the most loyal consumers. To lower costs, he should reduce the products advertising and sales promotion to a minimal level so as to save more resources for more promising products (e.g., those in the growth stage).

p.176 Additional information While the traditional marketing mix (i.e., 4Ps) is applied in marketing products, services marketers often rely on three additional variables to satisfy their customers. This expanded marketing mix includes people, physical evidence, and process. People: People who are involved in the service delivery process. They include employees and customers of the service company. In fact, a customer may contribute to the service quality and influence other customers experience. Physical evidence: Refer to p.177. Examples include facility design, equipment, and employee uniforms. Process: The actual procedures and flows of activities which are involved in service delivery. Teachers guide To avoid confusing students, the above variables are skipped in the student text. Instead, general principles regarding the marketing mix design for services are discussed. In fact, the strategies to deal with the characteristics of services mentioned in the text are based on both the traditional marketing mix and the three additional variables. Teachers may explain the expanded marketing mix to students if they think that this can help students understand the concept.

p.179 Shift the demand The price differences not only reflect their variation in skills and professionalism, but also serve as a means of regulating consumer demand.

p.181 Additional information

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While many service companies try to standardise their service delivery processes, some may empower their employees and allow them to serve customers in their own ways. In general, compared with empowerment, standardisation is preferred in the following situations: 1. Employees are not required to build a long-term relationship with their customers. 2. Simple (rather than complex) technology is involved in the service delivery process. 3. There are few changes in the business environment. 4. Employees interpersonal skills are weak and they have low growth needs. 5. The business strategies are reducing costs and producing a lot of services.

p.183 Activity Ask students to suggest strategies that a service company can use to deal with waiting customers. Teachers may find the suggested answers in the Additional information on p.183. Additional information Provide complementary services Customers always need to wait for service (especially during peak periods). As such, companies have used different kinds of strategies to comfort waiting customers. Besides providing complementary services, companies can also: 1 Provide something for waiting customers to do. For example, restaurants staff may give waiting customers menus or order forms so that they can choose food items when waiting. 2 3 Tell waiting customers how long they need to wait to be served. Customers often feel more comfortable if the waiting time is known. Choose the appropriate waiting line configuration. There are different types of queue configurations such as multiple queues (customers need to choose which queue to join), single queues (first-come, first-served), or take-a-number.

Use part-time staff Since most service companies are bound to have some manpower idle during non-peak hours, the use of part-time rather than full-time staff can help these companies maintain flexibility and save on costs.

p.184 Teachers guide: This case has covered a number of marketing concepts (e.g., market targeting, marketing mix strategies). In answering the discussion questions, students are expected to determine the target market of red kiwifruit which is not directly mentioned in the case. After that, students can decide whether Sun Rising has adopted appropriate marketing strategies or not (Questions 3 to 5).
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p.185 Answers to Discussion questions 1 The brand name, which makes consumers associate the brand with New Zealand, provides an identity for all kiwifruit produced in New Zealand. This makes it easier for consumers to remember and recognise the product. The brand is also a symbol of the product quality (i.e., made in New Zealand). Assuming that Sun Rising is financially viable, it may consider launching a 15 or 30-minute special programme on a TV channel (e.g., Jade Channel of TVB) to advertise the product. On the programme, the company should introduce the merits of red kiwifruit to its target audience. If it can find some nutritionists and/or provide scientific reports to prove the claimed merits of the product, the effectiveness of the message would be strengthened. At the retail level, the company may negotiate with supermarket chains to set up booths in some of their outlets to promote the product. Well-trained salespeople should be hired to manage the booths and recommend the product to shoppers. To encourage trial purchases, a free trial (a technique of sales promotion) of the product should also be given at the booths. (Accept any other reasonable answers) 3 Yes, it was appropriate for the company to use the market skimming pricing method (i.e., a high initial price). Sun Rising would like premium positioning for its red kiwifruit. As mentioned in the case, red kiwifruit has a number of unique and desired benefits (e.g., rich in minerals and vitamins). It is likely that target consumers would recognise the products quality. On this basis, they would be willing to pay a higher price for this prestigious product. 4 Selective distribution is suitable as the company intends to target more affluent customers through the creation of premium positioning for its products. The company should sell its products in supermarket outlets located in higher-end residential areas. The company may also stock its products in more up-scale supermarkets (e.g., CitySuper, Taste) located in prime business districts such as Central district and Admiralty. Since the company targets more affluent consumers by using premium positioning, a price cut would be inconsistent with the intended positioning. The lower price may also project a lowerend product image to consumers. To avoid this, Sun Rising did not follow Zespris price cut. Instead, it gave more benefits to consumers (i.e., free green kiwifruit) but without lowering the image of red kiwifruit. In this context, the companys pricing strategy may be determined by the following major factors:

(i)

Internal factor Marketing objective: The marketing objective of Sun Rising is likely to be the pursuit of product quality leadership. To highlight the product quality, Sun Rising thus uses a highprice (skimming pricing) strategy. Cost: As mentioned in the case, Sun Rising invested millions to acquire the planting rights for red kiwifruit from the Chinese authority. If Sun Rising sets a low price for its product, it cannot cover the cost in a short period of time.

(ii) External factor: Consumer demand: As Sun Rising can demonstrate that red kiwifruit is unique and highly differentiated from other kiwifruit products (e.g., Zespris kiwifruit), its target consumers (i.e., the high-end consumers) have become less price-sensitive to its product. This allows the company to charge a premium price. Competitors strategies: Zespri cut its products unit price to only HK$1.9. Although the two companies target two different market segments (mass vs. high-end), a substantial price cut for Zespri may still persuade some high-end customers to try Zespris kiwifruit. To reduce this competitive pressure, Sun Rising thus needs to adjust its pricing strategy (i.e., giving away four pieces of green kiwifruit for free with every purchase of two red heart kiwis). Check Your Progress Q6 Caf de Coral could use the following ways to make its services more tangibly appealing: 1. Adopt a better interior design for its outlets 2. Display selected food items/dishes in eye-catching areas inside the outlets 3. Have a clean in-store environment 4. Have spacious dining areas 5. Design a stylish uniform for staff 6. Use an open kitchen design (Accept any other reasonable answers) Q7 HSBC should carefully recruit people with the right qualities. It should then adopt standardised training programmes for the new employees to ensure that they comply with the companys standards. Employees who have similar job duties should be assessed through standardised criteria. The bank should also provide regular and routine training to remind them of the companys standards. (Accept any other reasonable answers) Q8 Disneyland may better match demand and supply in the following ways:
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Demand side

To stimulate ticket sales during non-peak periods, Disneyland should offer group ticket discounts to tours and individual visitors who travel in groups on weekdays. Within its opening hours, it can also offer price discounts for those who visit in late afternoon (e.g., after 5pm). It could also charge higher entrance fees on weekends and major public holidays as consumer demand on these days is usually higher. Disneyland may inform consumers of busy days. This allows consumers to choose to visit the theme park on alternative days.

Supply side Disneyland may consider extending its opening hours on weekends and public holidays. It can then serve more visitors on peak days. In the long run, Disneyland may need to add facilities for expansion. For example, it may open more restaurants in the park. Visitors then do not need to wait a long time for lunch. (Accept any other reasonable answers)

p.191 Check Your Progress Q9 The drawbacks of delivering products via courier or postal services include: Lack of direct control over the delivery process: As the delivery service is handled by a third party, the seller lacks direct control over the delivery process. Therefore, the seller has to select an appropriate delivery company. If the delivery company fails to handle the delivery service properly, the sellers reputation would be adversely affected. Involved in complex coordination activities: Some e-marketers only acquire products from suppliers once they have received orders from on-line shoppers. This helps them save on warehousing costs. However, they have to make sure that the ordered items are actually available and can be delivered to on-line shoppers within a reasonable time frame.

Q10 Jacob may develop its business by the following e-marketing strategies: Product: Jacob may set up a database which would keep customers purchase records. With this information, Jacob can determine customers preferences (e.g., which kind of books they like to read) and background (e.g., education level). He can then suggest books that meet customers requirements. Price: Jacob can visit his competitors websites (if any) and compare his prices with those of competitors. This helps Jacob set prices for new books and adjust the prices of existing books.

Place: Jacob may consider establishing a website for his bookshop and selling his books on it. This allows customers to search for their favourite books and make purchases any time they want. Promotion: Compared with book shops on the ground level, bookshops that are upstairs are less eye-catching to passers-by. To deal with this problem, Jacob may use on-line advertising to promote his bookshop and new books. For example, he may post banner ads and skyscrapers on some popular websites (e.g., Apple Daily or Yahoo!). After collecting information from customers, Jacob may also send e-mails to them to promote new books. This may attract customers to visit the bookshop. (Accept any other reasonable answers)

Assessment Short Questions 1 The major communication objectives for IBM are to build product awareness and get consumers to try its product. As the notebook is a new product (introduction stage) and many consumers are unaware of its existence and product features, IBM should carry out large-scale promotions to inform target consumers about the merits of the product. It should also induce a trial purchase by launching sales promotions (e.g., sales discounts or free gifts). 2 VCD movies are a product that has entered the declining stage. Their decline is mainly due to the introduction of a more high-tech substitute, namely DVD movies. The resolution on a DVD is higher (i.e., better picture quality) and it has more memory capacity and audio effects. As a result, both sales and profits of VCD movies begin to drop. (Accept any other reasonable answers) A comparison of the marketing objectives and marketing strategies between a growing product and a mature product is given below: Growing product Marketing Objectives Product Price Distribution Advertising Sales Promotion Maximise market share Offer product extensions, service, warranties Lower price to penetrate market Build intensive distribution Build awareness and interest in the mass market Reduce to take advantage of heavy Mature product Maximise profit while defending market share Diversify brand and models Price to match or beat competitors Build more intensive distribution Stress brand differences and benefits Increase to encourage brand

consumer demand 4

switching

In the case of a hair salon, the intangibility of its services relates to the fact that customers may not be certain about its service quality before consumption. They are unsure if the hair cutting skills of its hair stylists are up to standards, and if the services of other supporting staff are good. To deal with these uncertainties, some hair salons try to tangibilise the services with physical evidence. For example, they may require their staff to wear standardised uniforms. The aim is to project a professional image to the consumers. Hair stylists may also place professional certificates and/or prizes they have won inside the hair salon. These efforts enhance consumers confidence in their services.

Inseparability means that the production and consumption of services often occur at the same time. In the case of a hotel, it cannot first produce the service and let the guests consume it later. Therefore, if the hotel rooms are fully occupied, some consumers will not be able to get a room when they want. Similarly, if the hotels restaurant is fully booked, consumers will also be unable to dine there at the time they want. To deal with the above problems, the hotel may take measures to shift the demand from peak to non-peak periods. It may set higher prices during peak seasons (for hotel rooms) or peak hours (for restaurant services). The hotel may offer price discounts to customers during nonpeak seasons/hours. The hotel may also consider enhancing working efficiency. For example, a hotels restaurant may simplify the service delivery process by only offering set meals during peak hours. The chefs can then perform the same tasks and efficiency will be enhanced. In the long run, the hotel may add more facilities for expansion. It may build another phase to increase room supply if consumers demand for its room services continuously exceeds the hotels capacity.

For example, Adobe (the company which designs software such as Acrobat and Photoshop) operates a web community on its Website. The community serves as a discussion forum for consumers to share their professional knowledge, practical product tips, and usage experience about Adobe products. The community greatly enhances Adobes corporate image among its target consumers and strengthens their sense of identification with the company. (Accept any other reasonable answers)

Essay Questions

It is likely that DVDs and VCDs are in the maturity and decline stages, respectively. While DVDs are very popular among consumers, there are a lot of DVD manufacturers in the market. The manufacturers thus experience a slowdown in sales growth. They should defend their current market share and maximise short-term profits before the decline begins. As a marketing executive at a disc manufacturer, I may apply the following strategies: Product: To differentiate our products from competing ones, we should keep adding new features such as increasing the disk storage capacity. Price: We need to set a price that is similar to or more attractive than those of our competitors in order to avoid losing customers. Place: To ensure sufficient market coverage compared with our competitors, we should continue using intensive distribution. For example, in addition to computer shops, we may also stock our DVDs in supermarkets and stationery shops. This increases the likelihood of consumers purchase. Promotion: We have to stress the products unique features (differentiation) in order to encourage consumers who buy other brands to switch. Advertising, sales promotion and personal selling are all important promotion mix tools in achieving this. For example, we may use more salespeople to contact various kinds of retailers. This not only helps us distribute DVDs more effectively, but also enables us to collect consumers feedback. As VCDs have entered the declining stage, we should reduce all unnecessary investments in this product category and gain as much profit as possible from it. Product: We may consider discontinuing production to reduce costs. Price: We may cut the prices of VCDs to stimulate consumers demand. Place: We may adopt selective distribution. We may phase out unprofitable channel members and focus on more promising ones. Promotion: We may reduce our promotional budgets and focus our efforts on our key or most important customers (i.e., disc users who are more price-sensitive and thus prefer VCDs).

The four major characteristics of services are: (i) Intangibility: This means that services are mainly concerned with performance and the
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effort of service providers. They cannot be seen, tasted, felt, heard or smelled before they are purchased. In the case of MTR services, a consumer does not know the exact outcome before using the service. For example, he may not know whether the trains are punctual, or whether the train compartments are well-ventilated or clean. (ii) Inseparability: This means that production and consumption of services often occur at the same time. Hence, the railway company cannot first produce the MTR service and let the passengers consume it later. This characteristic explains why some passengers are unable to get on a train during rush hours (because production capacity is less than consumers demand for the service). (iii) Variability: This means that within the same service company, the actual service quality varies among different service providers. For example, different customer service officers at MTR stations may vary in their service quality, enthusiasm, etc. (iv) Perishability: This means that services are perishable and cannot be stored. As a service company cannot stock unused services and provide them for customers later, it often finds it difficult to match its supply with consumer demand. For example, in the case of the MTR, the company may experience fluctuation in consumer demand between peak hours and non-peak hours (i.e., few passengers during non-peak hours (under-utilised capacity) and too many passengers during peak hours (insufficient capacity)). 9 The influences of e-marketing on traditional marketing practices are described as follows: Product: A marketer can make use of transaction records collected from e-marketing sources (e.g., the companys website) to understand his customers. Based on these records, the marketer can find out customers purchase preferences, habits and requirements. The company can then take the initiative to tailor its products for consumers (i.e., customisation). For example, through the consumers transaction activities on the website, Wellcome can better understand what product items or brands are specifically preferred by a particular consumer. Based on this information, Wellcome can recommend suitable items/brands for him from time to time. Price: In the e-marketing environment, prices become more transparent. This is because consumers can easily search for relevant product information (e.g., price, product features) on the Internet. For example, in the case of Wellcome, prices for the products it sells on the Internet are highly transparent as e-shoppers can easily compare its prices with those offered by PARKnSHOP on its website.

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Place: Unlike most traditional retail outlets that have fixed opening hours, e-marketing allows consumers to make purchases any time they want. For example, Wellcomes e-shopping facilities are in operation around the clock. This provides a great deal of convenience for busy people. They can buy grocery items even when Wellcome outlets have closed. However, Wellcome needs to deliver the ordered items efficiently and effectively. This implies that the supermarket chain has to cope with complex coordination activities to implement the process of orders and actual delivery. Promotion: The Internet enables on-line shoppers to have instant access to product-related information any time they want. E-marketers can use a number of non-traditional or on-line promotional means to build their brand awareness and image, and to attract on-line shoppers to visit their websites. In the case of Wellcome, it also makes use of its own website to advertise its offerings. This represents an effective way to reach those who spend much time on the Internet (e.g., youngsters, busy professionals and executives). (Accept any other reasonable examples) Case Analysis 10 (a) Tai Man should not set such a price. As his traditional Chinese herbal jelly is in the introduction stage, consumers in the area are unaware of it. Therefore, a price of 10% higher than that of his three major competitors may deter consumers from trying it. Moreover, Tai Man needs to consider if his target consumers, elderly residents in Kennedy Town, are willing to pay 10% more for the same product category. Given that Kennedy Town is an old established resident area, Tai Mans target consumers may not be as affluent as he thinks. They may be rather price-sensitive. Therefore, it does not seem appropriate for Tai Man to use a skimming pricing method. Instead, he should adopt a penetration pricing method to induce trial purchases. (b) As Tai Mans product is in the introduction stage, it is important for him to persuade consumers to try it. Tai Man should adopt a buy one, get one free strategy during the first month of operation. This strategy is a kind of sales promotion aimed at inducing trial purchases. (c) It is not appropriate. As Tai Man wants to target elderly people, a shop on the third floor may be inconvenient for them. A shop on the third floor also makes it difficult to attract the attention of passers-by.
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(d) It would be a good idea as more products could help attract consumers with different tastes and requirements. However, in order not to confuse consumers, the added products should be somehow similar in nature to traditional Chinese herbal jelly. The possible products that could be considered are different kinds of traditional Chinese herbal tea. (a) Charles may consider: (i) Offering only a limited number of dishes that require shorter preparation time during peak hours. This would help shorten the production time. (ii) Increasing the price so as to lower demand during peak hours. At the same time, he may also lower the price during non-peak hours to encourage people (e.g., those working on flexi-hours) to eat lunch before or after peak hours. (iii) Providing delivery services so that customers can eat their lunch outside the restaurant. (iv) Adding facilities for expansion or hiring part-time staff. The restaurant may redesign its facilities arrangement so that more customers can be accommodated. It may even open another restaurant on the same street to serve more customers. Charles may also hire part-time staff (e.g., a chef) to increase the restaurants productivity. (Any two of the above) (Accept any other reasonable answers) (b) As the occupants of the serviced apartment are mainly expatriates and local middleincome executives, this implies that Charles target customers in the evening are more affluent. The tastes of expatriates are also expected to be different from those of local consumers due to cultural differences. Therefore, Charles may offer finer (and thus more expensive) dishes and some Western food items in the evening. (c) He may consider providing delivery services. This means consumers can place their orders by phone and Charles may have employees deliver the ordered food door to door. The employees can do so by bicycling as his restaurant is only a 15-minute walk from the apartment. This would make Charles catering services more easily available.

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