BMMK5103 Marketing Management - Smay19 (MREP)

BMMK5103
Marketing Management
Copyright © Open University Malaysia (OUM)

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BMMK5103
MARKETING
MANAGEMENT
Assoc Prof Dr Norazah Mohd Suki
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Table of Contents
Course Guide xiăxvi
Topic 1 Understanding Marketing 1

1.1 Defining Marketing 2
1.1.1 Definitions of Marketing 2
1.1.2 Marketing Entities 3
1.1.3 Elements of Marketing 4
1.1.4 Importance of Marketing 6
1.2 Marketing Concepts 8
1.3 Customer Value and Retention 12
1.3.1 Importance of Customer Value 12
1.3.2 Maintaining Customer Value 14
1.3.3 Strategies to Deliver Customer Value 15
1.3.4 Relationship between Customer Value and 16
Customer Retention
Summary 19
Key Terms 20
References 20
Topic 2 Developing Marketing Strategies and Plans 22

2.1 Marketing and Customer Value 23
2.2 Strategic Planning Process 24
2.2.1 Initiating the Marketing Plan 25
2.2.2 Organisational Mission and Vision 27
2.2.3 Assessing Growth Opportunities 28
2.2.4 Corporate and Business Unit Strategies 30
2.3 Strategic Business Unit Planning 31
2.3.1 SWOT Analysis 32
2.3.2 Marketing Goals and Objectives 32
2.4 Formulating the Marketing Plan 35
2.4.1 Implementation of the Marketing Plan 36
2.4.2 Purpose and Significance of the Marketing Plan 37
2.5 Strategic Planning in a Market-oriented Organisation 39
Summary 42
Key Terms 43
References 43

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Topic 3 Analysing the Market 44

3.1 Analysing Market Opportunities 45
3.1.1 Macro-environment ă Demographic 46
3.1.2 Macro-environment ă Economi 48
3.1.3 Macro-environment ă Sociocultural 48
3.1.4 Macro-environment ă Natural 49
3.1.5 Macro-environment ă Technological 50
3.1.6 Macro-environment ă Political-legal 50
3.1.7 Micro-environment 52
3.2 Classifying Markets and Analysing Buyer Behaviour 55
3.2.1 Market Classification 56
3.2.2 Defining Buyer Behaviour through MaslowÊs 57
Hierarchy of Needs
3.2.3 Consumer Decision-making Process 58
3.3 Analysing Business Market 61
3.3.1 Characteristics of Business Market 61
3.3.2 Buying Situations 62
3.3.3 Stages in the Buying Process 62
3.4 Analysing Competitors 63
3.4.1 Types of Competitors 63
3.4.2 Market Expansion and Defending the Marketspace 65
Summary 68
Key Terms 68
References 69
Topic 4 Segmenting Markets 70

4.1 Purpose of Market Segmentation 70
4.2 Identifying Market Segment 71
4.2.1 Levels of Market Segmentation 72
4.2.2 Bases of Segmentation in the Consumer Market 73
4.2.3 Bases of Segmentation in the Business Market 81
4.3 Forming a Segment 82
4.3.1 Approaches to Segment Identification 83
4.3.2 Customer Group Identification 84
4.3.3 Forming Groups based on Response Differences 85
4.4 Market Targeting 88
4.4.1 Steps in Segmentation Process 88
4.4.2 Effective Segmentation Criteria 89
4.4.3 Evaluating and Selecting Market Segments 90
Summary 95
Key Terms 95
References 96

TABLE OF CONTENTS  v
Topic 5 Positioning 97
5.1 Positioning and Value Propositions 98
5.1.1 Choosing a Competitive Frame of Reference 99
5.1.2 Identifying Points-of-Difference and Points-of-Parity 100
5.1.3 Creating Brand Mantras 104
5.2 Establishing a Brand Positioning 105
5.2.1 Communicating Category Membership 106
5.2.2 Communicating the POP and POD 107
5.2.3 Monitoring Competitors 108
5.2.4 Maintaining Brand Positioning 109
5.3 Positioning and Branding for Small Businesses 110
5.4 Evaluating Positioning Effectiveness 112
5.4.1 Customer-based Positioning Evaluation Approach 112
5.4.2 Company-based Positioning Evaluating Approach 115
5.4.3 Importance of Evaluating the Effectiveness of 116
Positioning
Summary 120
Key Terms 121
References 121
Topic 6 Developing and Managing Products 122

6.1 Classifying Products According to Characteristics 123
6.1.1 Product Levels: The Customer Value Hierarchy 123
6.1.2 Product Classifications 124
6.2 Differentiation 129
6.2.1 Product Differentiation 129
6.2.2 Design Differentiation 131
6.2.3 Service Differentiation 131
6.3 Product and Brand Relationships 134
6.3.1 Product Hierarchy 134
6.3.2 Product Systems and Product Mix 135
6.3.3 Product Line Analysis 136
6.3.4 Product Line Length 136
6.3.5 Product Mix Pricing 138
6.3.6 Co-branding and Ingredient Branding 140
6.4 Packaging, Labelling, Warranty and Guarantees 141
Summary 145
Key Terms 147
References 147

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Topic 7 Pricing Strategies 148

7.1 Understanding Pricing 149
7.1.1 A Changing Pricing Environment 149
7.1.2 Price Setting in Small and Large Companies 149
7.1.3 Consumer Psychology and Pricing 150
7.2 Price Setting 151
7.3 Adapting the Price 158
7.3.1 Geographical Pricing (Cash and Countertrade) 158
7.3.2 Price Discounts and Allowances 159
7.3.3 Promotional Pricing 160
7.3.4 Differentiated Pricing/Price Discrimination 160
7.4 Responding to and Setting Up Price Changes 161
7.4.1 Initiate Price Cuts 161
7.4.2 Initiate Price Increases 162
7.4.3 Responding to CompetitorsÊ Price Changes 163
Summary 166
Key Terms 167
References 167
Topic 8 Designing and Managing Communication Efforts 168

8.1 The Communication Process 168
8.1.1 Defining Communication 169
8.1.2 Elements of Communication 170
8.1.3 Barriers and Channels of Communication 171
8.2 Communications Mix Decisions 172
8.2.1 Fundamental Marketing Communications Decisions 174
8.2.2 Marketing Communications Elements 175
8.3 Communications Mix Tools 176
8.3.1 Advertisement 176
8.3.2 Sales Promotion 177
8.3.3 Public Relations 181
8.3.4 Direct Marketing 184
8.3.5 Personal Selling 186
Summary 193
Key Terms 195
References 195

TABLE OF CONTENTS  vii
Topic 9 Designing and Managing Channels 196

9.1 Marketing Channel 197
9.1.1 Channels of Distribution 197
9.1.2 Role of Marketing Channels 199
9.2 Marketing Channel and Value Networks 200
9.3 Channel Design Decisions 201
9.4 Channel Management Decisions 202
9.5 Channel Integration 204
9.5.1 Vertical Marketing System 205
9.5.2 Horizontal Marketing System and Multichannel 206
Marketing System
9.6 Conflicts, Cooperation and Competition 206
9.6.1 Types of Conflicts and Competition 206
9.6.2 Causes of Channel Conflicts 207
9.6.3 Managing Channel Conflicts 207
9.7 E-Commerce Marketing Practices 208
9.8 Business-to-business (B2B) E-Commerce and M-Commerce 209
9.8.1 B2B E-Commerce 209
9.8.2 Benefits of E-Commerce 210
9.8.3 M-Commerce Marketing 211
Summary 214
Key Terms 215
References 215
Topic 10 Managing a Holistic Marketing Organisation for the Long Run 217
10.1 Internal Marketing 219
10.1.1 Characteristics of a Customer-driven Marketing 220
Department
10.1.2 Relations with Other Departments 225
10.1.3 Building a Creative Marketing Organisation 226
10.1.4 Marketing Insight: The Marketing CEO 227
10.2 Socially Responsible Marketing 228
10.2.1 Corporate Social Responsibility 230
10.2.2 Social Marketing 232
10.2.3 Green Marketing 233
10.2.4 Social Audit 233
10.3 Marketing Implementation and Control 234
10.3.1 Marketing Implementation 234
10.3.2 Marketing Control 235
10.4 Future of Marketing 239
Summary 244
Key Terms 244
References 245

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COURSE GUIDE
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COURSE GUIDE  xi
COURSE GUIDE DESCRIPTION

You must read this Course Guide carefully from the beginning to the end. It tells
you briefly what the course is about and how you can work your way through the
course material. It also suggests the amount of time you are likely to spend in order
to complete the course successfully. Please refer to the Course Guide from time to
time as you go through the course material as it will help you to clarify important
study components or points that you might miss or overlook.
INTRODUCTION
BMMK5103 Marketing Management is one of the courses offered at Open
University Malaysia (OUM). This course is worth three credit hours and should be
covered over 8 to 15 weeks.
COURSE AUDIENCE
This course is offered to all learners who enrolled in either the Master of Business
Administration or Master of Management programme. The learning module aims
to impart knowledge of the fundamentals of marketing management, which forms
the foundation for subsequent marketing courses.
As an open and distance learner, you should be acquainted with learning

independently and being able to optimise the learning modes and environment
available to you. Before you begin this course, please ensure that you have the
right course material, and understand the course requirements as well as how the
course is conducted.
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xii  COURSE GUIDE
STUDY SCHEDULE
It is a standard OUM practice that learners accumulate 40 study hours for every
credit hour. As such, for a three-credit hour course, you are expected to spend 120
study hours. Table 1 gives an estimation of how the 120 study hours could be
accumulated.
Table 1: Estimation of Time Accumulation of Study Hours
Study
Study Activities
Hours
Briefly go through the course content and participate in initial discussions 5
Study the module 60
Attend 4 tutorial sessions 8
Online participation 12
Revision 15
Assignment(s) and Examination(s) 20
TOTAL STUDY HOURS ACCUMULATED 120
COURSE LEARNING OUTCOMES

By the end of this course, you should be able to:
1. Analyse marketing concepts, analytical tools and techniques, marketing

process, functions and the marketing environment and effectively apply
relevant tools/analytical frameworks for making marketing decisions;
2. Distinguish among contrasting marketing strategies and markets and justify

the importance of a total commitment to customersÊ needs for organisational
success;
3. Develop the skills needed to solve complex marketing problems, and

formulate key decisions in strategic marketing management and planning;
and
4. Formulate a product marketing plan to achieve certain marketing goals and

objectives, with appropriate marketing strategies to attain these goals and
objectives.

COURSE GUIDE  xiii
COURSE SYNOPSIS
This course is divided into ten topics. The synopsis for each topic is listed as
follows:
Topic 1 focuses on three central subjects, namely the definitions of marketing,

development of marketing concepts as well as customer value and retention as an
introduction to this module.
Topic 2 examines marketing opportunities and strategies as well as the planning

that goes into developing an effective marketing plan. It also discusses the
differences between strategic planning and tactical planning.
Topic 3 explains the ways marketers analyse marketing opportunities, markets,

individual and organisational buyer behaviours as well as the competitors.
Topic 4 looks at issues related to identifying and targeting market segments.

Among the issues discussed are the levels of market segmentation, bases for
segmenting consumer markets and business markets as well as evaluating and
selecting market segments.
Topic 5 focuses on the market positioning process. It highlights three important

issue ă developing a positioning strategy, communicating an organisationÊs
positioning and evaluating the effectiveness of the positioning.
Topic 6 discusses product development and the management of the process. Areas
covered include describing product characteristics, the relationship between
product and brand, packaging, labelling, warranty and guarantees, and product
differentiation.
Topic 7 brings attention to the importance of pricing as an element in the

marketing mix. Pricing strategies, adapting to competitorsÊ price strategies and
conditions for setting and changing prices are among the subjects discussed.
Topic 8 concerns the two-way exchange of information and the tools to facilitate
such communication from a marketing perspective. Information communicated
include branding message, sales promotion, public relations, advertising and
personal selling.
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xiv  COURSE GUIDE
Topic 9 relates to marketing channels and value networks. Aspects covered

include channel design and management decisions, channel dynamics and e-
commerce marketing practices.
Topic 10 concludes this module by discussing the evaluation, management and

control of marketing organisations, the implementation of various marketing
initiatives and a discussion on the future of marketing.
TEXT ARRANGEMENT GUIDE

Before you go through this module, it is important that you note the text
arrangement. Understanding the text arrangement will help you to organise your
study of this course in a more objective and effective way. Generally, the text
arrangement for each topic is as follows:
Learning Outcomes: This section refers to what you should achieve after you have
completely covered a topic. As you go through each topic, you should frequently
refer to these learning outcomes. By doing this, you can continuously gauge your
understanding of the topic.
Self-Check: This component of the module is inserted at strategic locations

throughout the module. It may be inserted after one sub-section or a few sub-
sections. It usually comes in the form of a question. When you come across this
component, try to reflect on what you have already learnt thus far. By attempting
to answer the question, you should be able to gauge how well you have
understood the sub-section(s). Most of the time, the answers to the questions can
be found directly from the module itself.
Activity: Like Self-Check, the Activity component is also placed at various

locations or junctures throughout the module. This component may require you
to solve questions, explore short case studies, or conduct an observation or
research. It may even require you to evaluate a given scenario. When you come
across an Activity, you should try to reflect on what you have gathered from the
module and apply it to real situations. You should, at the same time, engage
yourself in higher order thinking where you might be required to analyse,
synthesise and evaluate instead of only having to recall and define.
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COURSE GUIDE  xv
Summary: You will find this component at the end of each topic. This component
helps you to recap the whole topic. By going through the summary, you should be
able to gauge your knowledge retention level. Should you find points in the
summary that you do not fully understand, it would be a good idea for you to
revisit the details in the module.
Key Terms: This component can be found at the end of each topic. You should go
through this component to remind yourself of important terms or jargon used
throughout the module. Should you find terms here that you are not able to
explain, you should look for the terms in the module.
References: The References section is where a list of relevant and useful textbooks,
journals, articles, electronic contents or sources can be found. The list can appear
in a few locations such as in the Course Guide (at the References section), at the
end of every topic or at the back of the module. You are encouraged to read or
refer to the suggested sources to obtain the additional information needed and to
enhance your overall understanding of the course.
PRIOR KNOWLEDGE
This is no prerequisite requirement for learners taking this course.
ASSESSMENT METHOD
Please refer to myINSPIRE.
REFERENCES
Boone, L. E, & Kurtz, D. L. (2016). Contemporary marketing (17th ed.). Boston,
MA: Cengage Learning.
Kotler, P., & Keller, K. L. (2016). Marketing management (Global ed.). Boston, MA:
Pearson.
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xvi  COURSE GUIDE
TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

LIBRARY
The TSDAS Digital Library has a wide range of print and online resources for the
use of its learners. This comprehensive digital library, which is accessible through
the OUM portal, provides access to more than 30 online databases comprising e-
journals, e-theses, e-books and more. Examples of databases available are
EBSCOhost, ProQuest, SpringerLink, Books247, InfoSci Books, Emerald
Management Plus and Ebrary Electronic Books. As an OUM learner, you are
encouraged to make full use of the resources available through this library.

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Topic
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Marketing "
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" LEARNING OUTCOMES
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By the end of this topic, you should be able to:
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" 1. Define marketing;
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 INTRODUCTION
Many people think that marketing only involves selling and advertising processes.
However, knowing these processes alone is not enough to explain what marketing
is all about. Today, marketing must be understood beyond the selling and
advertising concepts. This topic presents the definition of marketing, the evolution
of the marketing concept as well as the importance of customer value and
retention.
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2  TOPIC 1 UNDERSTANDING MARKETING
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1.1 DEFINING MARKETING

Before we proceed with the discussion on marketing, let us first discuss the
definition of marketing.
1.1.1 Definitions of Marketing

Marketing can be defined in a number of ways. Table 1.1 presents three general
definitions that are widely used when discussing about marketing.
Table 1.1: Definitions of Marketing
Source Definition
Grönroos The American Marketing Association defines marketing

(1989, pp. 52ă60) management as „the process of planning and executing the
conception, pricing, promotion and distribution of ideas, goods
and services in order to create, exchange and satisfy individual
and organisational objectives‰.
Kotler Marketing is the process of determining the product or services

(1996) that may be of interest to customers, the strategy to employ in
selling, and communicating the product or services as well as its
business development.
Kotler and Zaltman Social marketing is „the design, implementation and control of
(1971, p. 5) programmes which are calculated to influence the acceptability
of social ideas and involves considerations of product planning,
pricing, communication, distribution and marketing research‰.
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TOPIC 1 UNDERSTANDING MARKETING  3
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1.1.2 Marketing Entities

Goods and services in the market can be broadly segmented into 10 types of
marketing entities as outlined in Table 1.2.
Table 1.2: Types of Marketing Entities
Type Description
Goods Products that can be presented to customers in physical and tangible

form such as mobile phones.
Services Intangible products that fulfil customer needs and wants such as
repair services.
Events Something that happens at a given place and time, such as a

Christmas celebration.
Experiences The understanding or skill that results from direct participation in

events or activities, such as management skill.
Persons Someone who is involved in the purchasing of a product such as a

customer.
Places Somewhere the marketers present the goods and services such as a
shop.
Properties Intangible rights of owners for their real or financial properties.
Organisations A company combines all the elements of marketing to operate and

build good image and sustain its market share.
Information Knowledge acquired through learning, experiencing and

investigating, such as analysis of research data.
Ideas A content of cognition that helps in new product development and

product innovation, such as the improvement of technology.
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1.1.3 Elements of Marketing

The elements of marketing comprise the 4Ps, namely product, price, place and
promotion. The organisation blends these elements to produce the response it
desires from its target market. The 4Ps is also known in the industry as the
marketing mix ă a set of instruments that the organisation uses to achieve its
marketing objectives.
(a) Product
(i) Products are used to fulfil the needs of consumers.
(ii) Marketers can identify the needs of consumers by collecting feedback

from the consumers.
(iii) Marketers can reach target markets easily if they have identified the
products their consumers require.
(b) Price
(i) Price is the value which customers perceive as equivalent to the worth
of the product that they have bought.
(ii) The organisation must price the product carefully so that it can
maintain its profit level while remaining competitive.
(iii) There are a few pricing strategies available such as competitive pricing,
price skimming and penetration pricing.
(iv) Customers will normally check the product price first before buying
the product. Product price is very important because it can attract new
customers as well as retain existing ones.
(c) Place
(i) It refers to a geographic location in which producers sell their products

to their customers.
(ii) It involves intermediaries, channels of distribution and locations.
(iii) A good location and distribution channel can deliver products

promptly and efficiently to the customers, therefore, increasing the
sales of the product and profits for the organisation.

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(d) Promotion
(i) An activity that informs customers about the features and functions of
the product.
(ii) Marketers must promote their products so that consumers will know
about their brands.
(iii) Organisations can promote their products through the Web,

newspapers, leaflets, radio and word-of-mouth communication.
(iv) The type of promotion used is dependent on the stage of the product
life cycle. Each stage should use different strategies.
Figure 1.1 breaks down the four elements of the marketing mix into their
respective subcomponents.
Figure 1.1: Components of the marketing mix

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SELF-CHECK 1.1
What are the four elements or the 4Ps of marketing? Explain the functions
of the marketing mix.
1.1.4 Importance of Marketing

In general, the importance of marketing can be viewed from three perspectives,
namely the effects of marketing on consumers, society and country.
(a) Effects on Consumers
(i) Provide Convenience

Companies produce products that consumers want. They enable the
products to be purchased easily, thus, the needs of the customers can
be fulfilled.
(ii) Fulfil Needs and Enhance Customer Satisfaction

Competition and innovation leads to new products, which creative
marketers often introduce to consumers. Products with new features,
added functions and variants can enhance customer satisfaction.
(iii) Provide Information

Marketers use different ways of advertising to promote their products.
Information can enhance consumer knowledge of available products as
well as widen their choices and help them make informed decisions.
(iv) Improve Consumer-producer Relationship

Marketing is the link between consumers and producers, and facilitates
the communication between the two parties. It can enhance the
consumerÊs trust and confidence in the quality of the products.

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(b) Effects on Society
(i) Provide Job Opportunities

Marketing helps to increase the sale of products and services. The
increased demand for products and services will lead to more demand
for labour, thereby providing more and perhaps better job
opportunities.
(ii) Increase Living Standards

When people have jobs, they will have income to support their families
and to purchase additional goods and services. This will improve their
standard of living in the family and for the community as a whole.
(iii) Provide Utilities

Marketing activities not only create jobs but also promote a more
informed society so that consumers will be able to have access to more
varieties of products and services. All these provide additional utilities
to the consumers.
(iv) Generate Reasonable Prices of Products and Services

Marketing through efficient and effective distribution channels can
help to reduce or maintain prices. Low or reasonable prices can attract
more visitors to an area or region (especially for tourism locales).
(c) Effects on the Country
(i) Increase National Income

Marketing activities increase the demand for products and services,
thus creating job opportunities and attracting foreign investments.
These will lead to higher national income for the country.
(ii) Promote Peace and Stability

Marketing activities provide employment to people. Employed people
are usually happy people who will not disrupt national peace by
causing societal problems.
(iii) Provide Economic Development

Marketing provides variety of products and services. New products
and services will also stimulate new demand resulting in enhanced
spending and investment, which are necessary to boost the national
economy.
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1.2 MARKETING CONCEPTS

There are five concepts of marketing that organisations can adopt and implement
in order to meet their customersÊ needs, increase product demand and compete in
the marketplace. They five concepts are:
(a) Production Concept
(i) Consumers prefer products that are affordable and widely available.
(ii) The focus of this concept is to allow consumers to evaluate the product
quality and performance.
(iii) Organisations adopt this concept to expand their markets or to

penetrate into new markets.
(iv) Organisations need to reduce the cost of production to maintain its

competitiveness.
(v) Organisations can resort to this concept when there is a huge pool of
cheap labour.
(vi) Organisations must maintain good product quality and effective

delivery systems to make the products widely available.
(vii) To produce competitively priced products, organisations must achieve

high production efficiency, low costs and large quantity production.
(b) Product Concept
(i) Product concept concentrates on product quality, features and

performance rather than on market needs.
(ii) Its guiding principle is the sales-centred theory.
(iii) Organisations tend to resort to employing continuous improvements

for their product quality, features and performance. However, these
improvements do not guarantee that customers will purchase the
products.
(iv) The success of a product does not only rely on quality, features and
performance. Price and delivery are also important factors for the
success of a product.

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(v) This concept proposes that the better the quality and performance of
the product, the higher the customer satisfaction from consuming the
product. This could be erroneous because customers may not want the
additional features, performance and quality that are incorporated in
the product that often comes with an added cost or one that will
complicate the operation of the product.
(vi) This concept may also lead to „marketing myopia‰ whereby marketers
tend to focus too much on the features of the product instead of the
actual needs of the consumers.
(c) Selling Concept
(i) The selling concept is yet another ordinary business orientation, which
proposes that the consumers (organisational or individual) will not buy
enough of the organisationÊs product unless it places huge amounts of
selling and promotional efforts.
(ii) The concept assumes that consumers must be coaxed into buying the
product. Therefore, the organisation has to have a series of selling and
promotion approaches to motivate and persuade consumers into
buying the product.
(iii) The selling concept is typically used for marketing unsought goods or
those goods that customers usually do not think of buying such as
funeral plots and life insurance.
(iv) If aggressive or forced selling is practised on a continuous basis, it may

result in high risks to the organisation (Kotler & Armstrong, 2014).
(v) The selling concept is usually aimed at creating sales transactions

rather than building a long-term relationship with the customers.
(vi) The selling concept also takes an inside-out view, which focuses on the
existing product as well as intensive selling.
(vii) The purpose of this concept is to „sell what they make‰ rather than
„make what the market wants.‰ It also assumes that customers who are
coaxed into buying the product would not complain and might even
come back to buy the product again.
(viii) This approach is applicable to organisation which have excess

production capacity. The ultimate goal is to sell the excess production
even though the products are not needed nor wanted by customers.

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(d) Marketing Concept
(i) In this concept, marketers must understand and know the needs and
wants of their customers. The marketersÊ marketing strategies must
aim at maximising customer satisfaction.
(ii) All marketing strategies must follow the marketing mix or the 4Ps
(product, price, place and promotion) wisely in order to satisfy their
customers.
(iii) Marketers have to find the right products for the customers in order
to satisfy them.
(iv) The marketing strategy should be aimed at enhancing consumersÊ

awareness of the product brand.
(v) The products should be produced based on consumersÊ needs and

wants, and not based on organisational preferences and capabilities.
(vi) The organisation needs to understand the marketplace as well as the

market needs before venturing into the business.
(vii) All the departments must cooperate to provide good value to their
customers.
(viii) The organisation should identify the objectives of the marketing

strategies in order to carry out the entire marketing process.
(ix) The organisation should create, maintain and build good consumer
relationship (Kotler, 2001).
(x) The organisation needs to prepare a marketing plan and programme

to ensure the smooth implementation and control of the process.
(xi) The marketing strategies must be competitive and able to create

competitive advantage.
(xii) The marketplace should be divided into several segments through the
process of market segmentation (Kotler, 2001). This is to ensure that
various customer needs and wants are identified.
(xiii) Following that, the organisation should target the market segment
which meets the organisationÊs objective.

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(xiv) The organisation also needs to modify and improve the product based
on the changes in consumer taste or preference.
(xv) The chosen market segment must be able to generate profits in return.
(xvi) The organisation should apply customer-driven strategies to conduct

researches in order to identify consumer needs and demands (Kotler,
2001).
(xvii) Consumer feedback must be taken into account for product

modifications and improvements.
(xviii) Marketers should also sort out the marketing strategies that can
deliver consumer value in the best and most effective manner.
(xix) In this concept, marketers must believe that customers are always
right.
(e) Societal Marketing Concept
(i) Societal marketers believe that the adopted marketing strategy should
provide value to customers in such a way that it is able to maintain the
welfare of the society at large.
(ii) Societal marketing attracts the attention of consumers to the

understanding that the product is able to produce benefits to customers
while, at the same time, contributing to the societyÊs well-being.
(iii) Under this concept, organisations aim to balance their profits against
customer satisfaction and public welfare.
(iv) Implementing the societal marketing concept could include producing

more eco-friendly products as well as products that are beneficial to the
health of consumers.
(v) In this concept, organisations must focus on consumer satisfaction as

well as the obligation to fulfil the needs of society.

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SELF-CHECK 1.2
1. Of the five marketing concepts, why does the selling concept

emphasise on creating sales instead of building long-term
relationship with customers?
2. Under the production concept, in what ways can the reduction of

the production cost satisfy customers?
1.3 CUSTOMER VALUE AND RETENTION

This subtopic examines the reasons why customer value is important in marketing
and how marketers can maintain it well.
1.3.1 Importance of Customer Value

Customer value is often defined as the satisfaction a customer experiences for
taking an action (such as purchasing the latest smartphone) relative to the cost of
that action (paying a premium price for the smartphone). In short, benefits minus
costs equals customer value. In order to provide customer value, companies must
be able to create and add value to their goods and services. There are four
components of customer value, namely service, quality, image and price. Each of
these components affects the satisfaction (or dissatisfaction) levels of customers.
The following describes the importance of customer value to companies:
(a) Creates Company Value

The values that are created or added on to the product will increase the
customer value. This in turn will increase the value of the company.
Company value is enhanced when services, quality, image and price have
improved (McFarlane, 2013).
Customer value is highly related to the demand of product and services, thus
the profitability of the company. For example, if an air traveller is willing to
pay the price of a first class ticket from a particular airline, he must have
perceived good value from it. This value will translate into the airline
companyÊs profit and cash flows, which will enhance the value of the
company. Let us take another example ă five-star hotels typically know how
to deliver outstanding customer experience in order to justify their premium
prices. Customers are willing to pay the premium prices because they

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perceive value for such experience. The premium price will enhance
profitability and cash flows of the company and it ultimately translates into
company value.
(b) Guides Company to Focus on Major Contributors of Value

Customer value differs from one customer to another. All customers have
different desired needs and wants to be fulfilled when they pay for a product
or service. Lifelong and repeat customers place more value on the product
and services, thus they are always more valuable to the company than other
customers. Once the company has identified the major contributors of
company value, they can make smarter decisions on how to manage their
resources and time (Anderson, Narus & Rossum, 2006).
(c) Helps to Formulate Effective Strategic Marketing

Competition is one of the factors that causes the profits and value of
companies to decline. To compete, survive and progress, companies are
required to formulate marketing strategies that would enable them to
improve their values. This can be done through product differentiation. For
example, FordÊs product development team wanted to create a best-in-class
car and benchmarked some vehicle attributes. Unfortunately, they
compromised all the vehicleÊs features. As a result, most customers were
disappointed because there was not much differentiation from other models.
Consequently, Ford lost their customers as well as its company value.
(d) Drives Improvements in Product Quality

The acceptance of the companyÊs product and services often affects the
customer value, which will ultimately affect the value of the company.
CustomersÊ product acceptance can be due to product quality. If a company
has identified that its product quality has affected the customer value, it
needs to improve the product quality in order to ensure that its customersÊ
needs are met so that its customers are satisfied. Managers need to determine
which quality improvements are needed (Woodruff, 1997).
(e) Increases Sales and Profitability

The level of customer value affects the level of profitability in the company.
If customers perceive that the value from the products and services are low,
they will not be willing to pay more or accept the products and services.
Retaining an existing loyal customer is more profitable than trying to acquire
new customers. This is so because loyal customers tend to buy more from the
company, some even introduce the products and services to their friends and
relatives. It is easier to sell new products and services to this group of
customers as they already have faith, trust and confidence in the products
and services of the company.

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(f) Helps to Attract New Customers

When customers perceive high value in the product and services, it will
translate to added profits in the company. When customers perceive high
customer value, they will promote the image of the company through formal
or informal ways and this can bring in new customers to the company.
(g) Insulates Company from Competition

High customer value products and services often indicate high product
quality and reliability which can help to build a strong, loyal customer base.
This enables the company to avoid stiff competition from other suppliers
(Harrington-Griffin, 2012).
(h) Helps to Lower Promotional Costs

High customer value helps to win and retain customers and build loyal
customer base. Once the company has established a customer relationship
with this group, it will be easy for the company to sell their products and
services in the future. This is because the company has already develop
product trust and confidence among its customers. As such, the cost to
advertise and promote the products and services will be lower. When a
customerÊs perceive value exceeds his expectation, not only will he return for
repeat purchases but he will also spread the news about the product and
services to his friends and relatives.
1.3.2 Maintaining Customer Value

A good perceived customer value will provide opportunities to marketers to
expand and increase their market share. How can a company improve its customer
value and retention? The following are some of the ways:
(a) Conduct Promotions

Promotions can attract new customers to the product while retaining current
customers. Product promotion through the use of video is one of the methods
to attract customers. The message is easily accessible to customers if the
promotion is advertised based on a popular video or web-video series (Nalty,
2010).
(b) Conduct Survey and Research

Surveys and research can be conducted to find out customersÊ needs and
wants as well as to create opportunities to help customers meet their needs
and wants. Through surveys and research, companies can create and/or
enhance their product design, quality and services to fulfil the needs and
wants of their customers.

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(c) Be Innovative
Marketers need to be innovative to ensure that their products are always
attractive and perceived as value for money. Customers will be attracted to
the product if the application of innovation leads to higher customer value.
Potential products must possess certain characteristics in order for it to fall
within one of the realms of innovation (Mello, MacKey, Lasser & Tait, 2006).
(d) Establish a Complaint Centre

Nearly all dissatisfied customers do not complain. Dissatisfied customers
will simply walk away, leaving marketers with no idea whatsoever as to why
they do so. The reasons for walking away instead of filing a complaint
includes not knowing how to complain, believing that complaints will not
change for the better or sometimes the customers may just be too afraid to
complain.
Establishing a complaint centre can certainly improve customer value and

retention. This is because customers who complain provide valuable
feedback and information for the company to make changes and improve
their products and services. When changes and improvements have been
made as a result of the complaints received, customers will feel happy and
satisfied, and this will help to build greater customer value and retention.
(e) Set a Good First Impression or Customer Expectation

The first impression or expectation from the customer is important. In other
words, if the customerÊs first impression of the product is good, they will
likely be attracted to the product and may even become a loyal customer.
If the product did not meet the expectations of the customers, it will be
difficult to attract and retain customers.
1.3.3 Strategies to Deliver Customer Value

One of the reasons companies fail to survive in the marketplace is that they fail to
deliver value to customers. A successful company must deliver value that matters
most to the customers. How do companies deliver customer value?
Different pricing strategy is able to provide value to different customers. The

following pricing strategies stress the importance of having a link between
customers and price (Art, 1999):
(a) Satisfaction-based Pricing

This pricing strategy aims to reduce customersÊ perceptions of uncertainty
by providing good after-sales services and service guarantees to customers.
It is a benefit-based pricing.
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(b) Relationship Pricing

The relationship between the customers and the company will influence the
price of the products and services set by the company. This is contrary to the
conventional way of charging the price for each product or services rendered,
which is normally fixed.
(c) Efficiency Pricing

In this pricing strategy, the cost savings are passed to the customers.
1.3.4 Relationship between Customer Value and

Customer Retention
Customer retention refers to the actions and activities taken by companies to
reduce customers from going to their competitors. The goal of customer retention
can be achieved through providing value to customers such as high quality
product, attractive pricing and exceptional service. Customer retention is a key
success factor for many businesses and failure to pay attention to it has led to the
failure of major companies. For example, Nokia, which at one time was the worldÊs
largest producer of mobile phones, has declined into near oblivion in less than a
decade after the introduction of the iPhone in 2007 by Apple (a newcomer to the
business then and now a market leader).
Why are retained customers more profitable to a company? The main reasons
include:
(a) Lower Costs

The costs incurred to acquire new customers are high and require a lot more
resources to build and maintain a good relationship with them before
converting them to loyal customers.
(b) Repeat Sales

Retained customers are more likely to place bigger orders, some even solely
depended on one company for their supply.
(c) Good Reputation

It is easier to sell to retained customers since trust, confidence and image
have already been developed in the relationship. They may even assist in
promoting the products and services by introducing to their friends and
relatives.

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SELF-CHECK 1.3
1. State the importance of customer value.
2. Describe the ways a company can maintain its customer value.
3. Explain the methods of delivering customer value.
4. How does customer value relate to customer retention?
ACTIVITY 1.1
1. What are the 10 marketing entities? Why do marketers describe

products and services in these contexts?
2. Briefly explain the importance of marketing from the perspectives

of the:
(a) Consumers;
(b) Society; and
(c) Country.
3. Do companies need to apply the societal marketing concept to their

marketing strategy? Why or why not?
4. How can a complaint centre improve its customer value and

retention? Use examples to support your answer.
Share and compare your answers with your coursemates on myINSPIRE."
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ACTIVITY 1.2
CASE STUDY ă SINGAPORE AIRLINES
At the 2018 World Airline Awards in London, Skytrax named Singapore

Airlines (SIA) as the best airline in this world. SIA is one of the worldÊs
major passenger carriers and flies to over 60 destinations in more than 30
countries across all continents (except Antartica).
The company and its staff really deserved this award because they have
put in a lot of hard work on planning and implementing their strategy.
In the area of brand management, SIA has put in a lot of effort in the
innovation process in order to build their customersÊ trust on the airline.
They have also provided the best and latest technology on brand
innovation in an effort to meet their customersÊ demand. They were able
to inspire confidence in their customers towards the airline because they
have kept their promise to deliver genuine and excellent customer
service.
In particular, the promotion of its female flight attendants, known as

Singapore Girls, has been very successful. It is a common feature in most
of the airline's advertisements and publications. The Singapore Girls
have been projected as being gentle, warm and caring to their customers.
Its directors have applied many effective strategies to instil trust in their
airline from not only Singaporeans but from people from all over the
world. In addition, the effective and efficient linking of the operation
systemÊs pricing and promotion is able to gain their customersÊ
satisfaction.
Questions:
1. What has SIA done for their customers in terms of brand

management?
2. Besides attributing the promotion of the Singapore Girl as one of its

strategies for success, what other strategies have SIA applied which
contributed to it becoming the world's best airline?
Conduct more research to help you answer these questions. Share your
answers on myINSPIRE online forum.
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 The marketing process can be used to determine the products or services that
may be of interest to customers as well as the strategies to be employed in sales,
communications and business development.
 Marketing is important to consumers, society and country.
 The marketing mix comprises basic elements in the marketing strategy, which
are product, price, place and promotion.
 Marketing strategies can be used to potentially build profitable relationships

with target consumers.
 There are five different concepts of marketing, namely production concept,

product concept, selling concept, marketing concept and societal marketing
concept.
 Since marketing is about the relationship between the two parties (marketers
and consumers), marketers must know the importance of customer value and
develop good marketing strategies to maintain a good relationship with their
customers.
 There is a strong relationship between customer value and customer retention.

Retained customers are profitable to the company.
 The goal of customer retention can be achieved through providing value to

customers such as high quality product, attractive pricing and exceptional
service. Customer retention is a key success factor for many businesses and
failure to pay attention to it has led to the failure of major companies.

"
Customer value Marketing strategy

Customer satisfaction Product concept
Innovation Production concept
Marketing Retention
Marketing concept Selling concept
Marketing mix Societal marketing concept
Anderson, J. C., Narus, J. A., & Rossum, W. V. (2006). Customer value propositions
in business markets. Harvard Business Review, 24(3), pp. 90ă99.
Art, W. (1999). Designing and delivering superior customer value. New York, NY:
St Lucie Press.
Grönroos, C. (1989). Defining marketing: A market-oriented approach. European

Journal of Marketing, 23(1), pp. 52ă60.
Harrington-Griffin, A. (2012, August 7). The value and importance of customer

loyalty and retention [Web article]. Retrieved from http://www.
simplybusiness.co.uk/knowledge/articles/2012/08/2012-08-07-
importance-of-customer-loyalty/
Kotler, P. (1996). Marketing for hospitality and tourism. Englewood Cliffs, NJ:
Prentice-Hall.
Kotler, P. (2001). A framework for marketing management. New Jersey, NJ:

Prentice-Hall.
Kotler, P., & Armstrong, G. (2014). Principle of marketing (6th ed.). Upper Saddle
River, NJ: Pearson Education.
Kotler, P. & Zaltman, G. (1971). Social marketing: An approach to planned social

change. Journal of Marketing, 35(3), pp. 3ă12.

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McFarlane, D. A. (2013). The strategic importance of customer value. Atlantic

Marketing Journal, 2(1), pp. 62ă75.
Mello, S., MacKey, W., Lasser, R., & Tait, R. (2006). Value innovation portfolio
management: Achieving double-digit growth through customer value.
Plantation, FL: J. Ross.
Nalty, K. H. (2010). Beyond viral: How to attract customers, promote your brand,
and make money with online video. Hoboken, NJ: John Wiley & Sons.
Woodruff, R. B. (1997). The next source for competitive advantage. Journal of the
Academy of Marketing Science, 2, pp. 139ă153.

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Topic
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"  Developing
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Marketing
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Strategies
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and Plans"
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LEARNING OUTCOMES
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" 1. Explain the value delivery process;
" 2. Differentiate between strategic planning and tactical planning;
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" 3. Assess the opportunities for growth for an organisation; and
" 4. Develop an effective marketing plan.
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 INTRODUCTION
There is a saying which goes, „People donÊt plan to fail, they fail to plan. Without
a plan, any direction will take you to nowhere.‰ The same goes for any
organisation whose success depends on effective planning and marketing
strategies.
This topic focuses on strategic marketing planning and the process involved in
strategic planning. The process of strategic marketing planning includes
identifying or establishing an organisational mission, corporate strategy,
marketing goals and objectives, marketing strategy and finally, a marketing plan.
The end result of the strategic marketing planning process is an overall strategic
marketing plan, an outline of the activities and resources required to fulfil the
organisationÊs mission and to achieve its goals and objectives.

TOPIC 2 DEVELOPING MARKETING STRATEGIES AND PLANS  23
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The structure or component of a good marketing plan will also be discussed in this
topic as well as two challenging concepts, which are the definition of strategy and
understanding the difference between strategic and tactical decisions.
2.1 MARKETING AND CUSTOMER VALUE

The activities of marketing help to create value that organisation would deliver to
the customers at a profit. The marketplace is becoming more competitive. On the
other hand, buyers are increasingly well informed and they are presented with
abundant choices of goods. Marketers need to fine-tune the value delivery process
in order to provide and communicate more superior value to their customers.
The value delivery process includes choosing, providing and communicating
superior value.
The value chain, as proposed by Michael Porter and shown in Figure 2.1, is a tool
for identifying key activities that can create value and incur costs in a business.
Figure 2.1: PorterÊs value chain

Source: Kotler and Keller (2016)
In this model, there are nine relevant activities that can create value for a business
ă five primary activities and four support activities. The primary activities are:
(a) Inbound logistics ă Transport materials into the business;

(b) Operations ă Transform materials into finished goods;
(c) Outbound logistics ă Ship out finished goods;
(d) Marketing ă Includes sales; and
(e) Service ă Support provided after sales transaction.

24  TOPIC 2 DEVELOPING MARKETING STRATEGIES AND PLANS
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Meanwhile, the support activities comprise procurement, technology development,

human resource management and firm infrastructure. The organisationÊs success
depends on the coordination of all these activities required to carry out its core
business processes.
In facing the competitive environment, organisations need to develop core

competencies. A core competency has three characteristics:
(a) It is a source of competitive advantage and contributes significantly to

customer benefits;
(b) It can be applied in a wide variety of markets; and
(c) It is difficult for competitors to imitate.
SELF-CHECK 2.1
Describe the key activities stated in Porter’s value chain.
2.2 STRATEGIC PLANNING PROCESS

Market-oriented strategic planning is the managerial process of developing and
maintaining a viable fit between the organisationÊs objectives, skills and resources
and its changing market opportunities. The aim of strategic planning is to shape
the organisationÊs businesses and products so that they achieve target profits and
growth. Strategic planning takes place at four levels, namely corporate level,
divisional level, business unit level and product level.
The organisationÊs top management is responsible for designing a corporate

strategic plan to provide the direction for the whole organisation. It also decides
on the allocation of resources for all the divisions in the organisation. Each division
will develop a plan and allocate funds for each business unit. Each business unit
will then develop its plan to make its business profitable. Within the business unit,
there will be various products, each with its own plan to achieve its objectives.
"

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2.2.1 Initiating the Marketing Plan

The marketing plan is the blueprint that guides and coordinates all marketing
efforts. The marketing plan operates at two levels ă strategic level and tactical level.
At the strategic level, the plan determines the target market and the value
proposition of the products in the organisation based on market analysis of
opportunities. At the tactical level, the plan specifies the marketing tactics and
activities pertaining to all the 4Ps, namely the product, price, place and promotion.
Table 2.1 summarises the different features of the strategic and tactical levels of a
marketing plan. Meanwhile, the planning, implementation and controlling phases
of the strategic plan is shown in Figure 2.2.
Table 2.1: Strategic and Tactical Levels of a Marketing Plan
Strategic Level Tactical Level
 Target market decisions  Product features

 Value proposition  Promotion
 Analysis of marketing opportunities  Merchandising
 Pricing
 Sales channels
 Service
Figure 2.2: Strategic planning, implementation and controlling processes


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Figure 2.3 depicts the components of the strategic marketing planning process. The
strategic planning process begins with a situational and environmental analysis,
followed by SWOT (strengths, weaknesses, opportunities and threats) analysis,
defining the organisational mission, goals and objectives, and formulating the
business unit strategy.
Figure 2.3: The strategic marketing planning processes

Source: Ferrell, Hartline and Lucas (2002)
In the next subtopic, we shall begin our discussion on strategic marketing planning
with organisational mission and vision, and will revisit the other processes later
on.

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ACTIVITY 2.1
Discuss with a coursemate the purpose of strategic planning as well as

the consequences if an organisation fails to carry out this activity.
Share and compare your answer with the other teams on myINSPIRE
online forum.
2.2.2 Organisational Mission and Vision

The process of strategic marketing planning includes the identification as well as
the establishment of organisational mission and vision. Organisational mission
and vision, in the form of declarations or statements that are clear and concise, are
crucial in the process of developing an effective strategic planning process.
(a) Organisational Mission

This explains the organisationÊs reason for being. It identifies what the
organisation stands for and what its basic operating philosophy is. It is
important that the mission statement must be acknowledged and supported
by the organisationÊs employees. To define its mission, an organisation
should ask itself this question: „What is the purpose for our existence?‰
A well-devised mission statement, upon reading, should help a person to

answer the following five basic questions:
(i) What organisation is this?
(ii) Who are its customers?
(iii) What is its operating philosophy?
(iv) What are its core competencies?
(v) What are its concerns and interests in relation to its own employees,
community, social issues and the environment?
(b) Organisational Vision

Organisational vision seeks to answer this question: „What do we want to
become?‰ It is a declaration of where the organisation wants to go and how
it will get there. It serves as a roadmap or guiding principles for the
organisationÊs strategic planning and decision-making processes.

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Mission and vision statements should not be overly broad that they cannot serve
the organisationÊs planning and strategising purposes. Furthermore, the
organisationÊs mission statement should remain constant as a sign of stability.
Good mission and vision statements should have the following characteristics:
(a) Focus on goals instead of broad and vague statements of targets;
(b) Stress on organisationÊs major policies and values;
(c) Define the major competitive spheres where it operates;
(d) Present the organisationÊs long-term view and its aspirations for growth; and
(e) Use clear and concise language that is easily understood, memorable and
meaningful.
Furthermore, an organisationÊs mission and vision should be customer-oriented,

with stated intention towards enriching their customersÊ lives and include
businesses that have dealings with the organisation. Successful organisations
typically state how they prioritise the needs of their customers.
ACTIVITY 2.2
Engage in discussions with your coursemates about the mission and

vision statements of various corporations, including the organisation you
are working with. Cite examples of customer-oriented mission and vision
statements.
Share a mission or vision statement that you like on myINSPIRE and

comment on why it is a good statement.
2.2.3 Assessing Growth Opportunities

An organisation needs to assess its growth opportunities. This assessment also
involves the planning of new businesses and downsizing or discontinuing of older,
unprofitable businesses. Figure 2.4 illustrates the strategic planning gap. The gap
between present sales and future desired sales indicates that the organisation has
growth potential.

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Figure 2.4: Strategic planning gap

How can the organisation fill the strategic planning gap? There are three ways in
which the organisation can grow. They are:
(a) Intensive Growth

Under the intensive growth strategy, the organisation identifies the
opportunities to improve its existing business. One useful framework to use
is the product-market expansion grid, also known as the Ansoff matrix,
as shown in Figure 2.5. This framework considers the growth opportunities
in terms of current and new products as well as current and new markets.
Figure 2.5: Ansoff matrix or product-market expansion grid


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In market penetration strategy, the organisation tries to gain more market

share with its current products in the existing markets. For example, it can
employ intensive marketing efforts such as advertising and sales promotion
to increase its sales.
The organisation can also increase its sales by developing new markets for
its current products. It can target new market segments or expand its target
market geographically. This is known as the market development strategy.
Using the product development strategy, the organisation develops new

products for its existing markets.
The organisation can also review its opportunities to develop new products
for new markets in the diversification strategy.
(b) Integrative Growth

In the integrative growth, the business can increase its sales and profits
through backward, forward and horizontal integration within the industry.
In backward integration, the organisation acquires its suppliers. On the other
hand, in forward integration, the organisation acquires the wholesaler or
retailer. Horizontal integration occurs through mergers and strategic
alliances.
(c) Diversification Growth

Diversification growth takes place when there are business opportunities
outside of the present business. There are several types of diversification.
A concentric strategy seeks new products that have technological or
marketing synergies with existing product lines. In horizontal strategy, the
organisation may require different manufacturing processes. In the
conglomerate strategy, the organisation might seek new businesses with no
relation to its current technology, products or markets.
2.2.4 Corporate and Business Unit Strategies

All organisations need a corporate strategy, which can be defined as the central
scheme or means for utilising and integrating resources in the areas of production,
finance, research and development, human resource and marketing to carry out
the organisationÊs mission and to achieve the desired goals and objectives.
Larger organisations often find it beneficial to devise separate strategies for each
strategic business unit (SBU), which could be in the form of a subsidiary, division,
product line or other profit centres within the organisation. The business unit
strategy determines the nature and future direction of each business unit including
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its competitive advantages, the allocation of resources and the coordination of

functional business areas (marketing, production, finance, human resource and
others). In general, an SBU can be characterised in the following ways:
(a) It is a single business or a collection of related businesses that can be planned

separately from the rest of the organisation;
(b) It has its own set of competitors; and
(c) It has a manager who is responsible for the strategic planning and profit
performance of the unit.
The organisation needs to identify its SBUs so that it is easy to develop separate
set of strategies for each SBU as well as to allocate the necessary resources.
Dividing the organisationÊs businesses into separate SBUs also allows the
competitiveness and growth potential of each SBU to be analysed. Two well-
known methods of analysis are the General Electric/McKinsey matrix and the
BCG growth-share matrix. The former classifies each SBU in terms of its
competitive advantages and attractiveness in the industry while the latter uses
relative market share and annual market growth rate as criteria for investment
decisions.
2.3 STRATEGIC BUSINESS UNIT PLANNING

Each SBU needs to define is specific mission within the context of the
organisational mission. The SBUÊs mission has to be consistent with the
organisationÊs mission so that the achievement of the SBUÊs mission will contribute
to the achievement of the organisational mission. The strategic planning of an SBU
consists of the steps shown in Figure 2.6.
Figure 2.6: Strategic business unit (SBU) planning process


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2.3.1 SWOT Analysis

The SWOT analysis evaluates a company in terms of its strengths and weaknesses
as well as its opportunities and threats. It is an examination of the internal and
external marketing environments of the company.
(a) Strengths and Weaknesses

The internal environment or the strength and weakness analysis evaluates
the companyÊs internal strengths and weaknesses so that it can capitalise on
its strengths to earn more profits and try to improve its business by
overcoming its weaknesses, wherever possible.
(b) Opportunities and Threats

This evaluates the companyÊs external environment. The SBU must evaluate
its macro and micro-environmental factors that affect may its ability to earn
profits. It must observe trends and developments that may pose as
opportunities or threats to its business.
2.3.2 Marketing Goals and Objectives

After performing the SWOT analysis, the company should formulate its goals,
particularly specific goals for the planning period. The specific goals and objectives
relate to the profitability, sales and market share improvement. The SBUÊs
objectives must meet the following criteria:
(a) It is to be listed from the most important to the least important;
(b) The objectives should be quantifiable, for example, to increase market share
by 50 per cent by the end of next year;
(c) Goals should be realistically set and should be based on the market
opportunity analysis; and
(d) Objectives must be consistent.

"
Marketing and all other business functions must support the organisationÊs
mission and goals, translating these into objectives with specific quantitative
measurements. For example, an organisationÊs goal to increase the return on
investment might translate into a marketing objective of a 15 per cent increase in
sales in the next fiscal year. As such, marketing objectives must be:
(a) Consistent with organisational goals.
(b) Expressed in clear and simple terms so that all marketing personnel will
understand what is the type and level of the performance desired.
(c) In written form so that its accomplishments can be measured against

accurately.
(d) Expressed in terms of unit of measurements such as:
(i) Sales volume (in currency unit);
(ii) Profitability per unit;
(iii) Percentage gains in market share;
(iv) Sales per square foot;
(v) Average customer purchase; or
(vi) Number of repeat customers.
ACTIVITY 2.3
Select a recent or ongoing marketing campaign. Study and analyse the

campaign. Can you discern its marketing goals and objectives?
Present your findings as a short case study and share it in myINSPIRE

online forum.

"
SELF-CHECK 2.2
1. Identify and discuss the five questions that should be answered to

determine that it is a good mission statement.
2. Strategic planning includes all of the following except:
A. Establishing an organisational mission.

B. Identifying corporate and marketing strategy.
C. Developing a business plan for raising capital.
D. Analysing the organsiationÊs internal and external
environments.
E. Developing marketing goals and objectives.
3. The marketing plan is a particular type of ______________.
A. Analysis plan
B. Strategic plan
C. Total cost analysis
D. Functional plan
E. All of the above
4. ______________ define(s) an organisation and describes its reason

for being, what the organisation is focuses on, whom it represents
and the values or beliefs for which it stands for.
A. Organisational goals
B. A mission statement
C. Corporate objectives
D. A vision statement
E. Socialisation climate
5. An organisationÊs ______________ seeks to answer the question:

„What do we want to become?‰
A. Vision statement
B. Purpose statement
C. Corporate creed
D. Unique selling proposition
E. Business philosophy
"
"
6. The means for utilising and integrating resources in the areas of

production, finance, research and development, human resource and
marketing to carry out the organisationÊs mission and achieve the
desired goals and objectives is commonly termed as:
A. Marketing strategy
B. Cross-functional strategy
C. Cross-functional goals
D. Corporate strategy
E. Corporate mission
2.4 FORMULATING THE MARKETING PLAN

Marketing goals and objectives indicate what the organisation wants to achieve.
To achieve that requires the organisation to formulate strategies for an effective
marketing plan. PorterÊs generic strategies describes three strategies that an
organisation can put into practise:
(a) Overall Cost Leadership

The organisation operates with the lowest production and distribution costs
so that it can sell cheaper than its competitors in order to win more market
share.
(b) Differentiation
The organisation seeks to be the quality leader and concentrates to achieve
superior performance. It differentiates its offering with the best features and
superior quality.
(c) Focus
The organisation focuses on one or more narrow segments and becomes an
expert or specialist in that segment. It can pursue either cost leadership or
differentiation within that targeted segment.

"
An organisationÊs marketing strategy should be designed to provide a total

integration of efforts that focus on achieving the marketing objectives. The
marketing strategy involves selecting one or more target markets and developing
a marketing mix (product, price, promotion, distribution) that satisfies the needs
and wants of members of that target market. As such, the marketing strategy must:
(a) Fit the needs and purposes of the selected target market;
(b) Be realistic, given the organisationÊs available resources;
(c) Be consistent with the overall strategic planning; and
(d) Be evaluated to determine its effect on the organisationÊs sales, cost, image
and profitability.
2.4.1 Implementation of the Marketing Plan

Implementation of the marketing plan involves activities that are able to execute
the marketing strategy. Maintaining a customer focus is extremely important
throughout the market planning process and more so during the implementation
stage. One reason why marketing plan implementation is often difficult to achieve
is that the execution of the marketing strategy depends on the coordinated
execution of other functional strategies. Moreover, the implementation of any
marketing strategy would be incomplete without an assessment of its success and
the establishment of control mechanisms to provide and revise the strategy, its
implementation, or both if necessary. Evaluation and control serve as the starting
point for the planning process in the next planning cycle. Strategic market
planning is a never-ending process. Hence, managers should have a system for
monitoring and evaluating the implementation outcomes on an ongoing basis.
The marketing plan provides a detailed formulation of the actions necessary to

carry out the marketing programme. It is the handbook for marketing
implementation, evaluation and control. A great deal of effort and organisational
commitment are required to create and implement a marketing plan.
There are many different types of marketing plans which can be developed for
specific products, brands, target markets or industries. A plan can focus on a
specific element of the marketing mix such as a product development plan, a
promotional plan, a distribution plan or a pricing plan. A critical aspect of the
marketing plan is its ability to communicate to top managers. Figure 2.7 illustrates
the major problems faced by three categories of organisations when developing
marketing plans.

"
Figure 2.7: Major problems encountered when developing marketing plans

Source: Ferrell, Hartline and Lucas (2002)
2.4.2 Purpose and Significance of the Marketing Plan

The marketing plan not only serves the marketing department but is also referred
to by managers across the organisation and at all management levels. A good
marketing plan should be able to fulfil these five purposes:
(a) Explains both the present and future situations of the organisation;
(b) Specifies the outcomes that are expected (goals and objectives) so that the
organisation can anticipate its situation at the end of the planning period;
(c) Describes the specific actions that are to take place so that the accountability
and responsibility for each action can be assigned and delegated;
(d) Identifies the resources needed to carry out the planned actions; and
(e) Permits the monitoring of each action and its results so that controls can be
implemented.

"
The significance of a marketing plan for different levels of management can be

generally summed up as the following:
(a) Line Managers

They are particularly interested in the third purpose (mentioned earlier)
because line managers are responsible for ensuring that marketing actions
are implemented.
(b) Mid-level Managers

They have a special interest in the fifth purpose because they have to ensure
that tactical changes can be made, if necessary. Moreover, they must be able
to evaluate if the marketing strategy succeeds or otherwise.
(c) Top Managers

Top management will find the fourth purpose the most relevant one because
the marketing plan is a mean of communicating the strategy to the top
executives who will make critical decisions regarding productive and
efficient allocation of resources.
The contents of a marketing plan can be summarised in Table 2.2.
Table 2.2: Contents of Marketing Plan
Content Description
Executive summary Presents a brief overview of the proposed plan.

and table of contents
Current marketing Presents relevant background data on sales, costs, profits,

situation market situation, competitors, distribution and macro
environment.
Opportunities and Identifies the main opportunities, threats, strengths and

issues analyses weaknesses as well as issues relevant to the product line.
Objectives Defines the planÊs financial and marketing goals in terms of

sales volume, market share and profit.
Marketing strategy Presents the broad marketing approach that will be used to
achieve the planÊs objectives.
Action programmes Presents the special marketing programmes designed to

achieve the business objectives.
Projected profit and Forecasts the planÊs expected financial outcomes.

loss statement
Source: Adapted from Kotler and Keller (2016)

"
2.5 STRATEGIC PLANNING IN A

MARKET-ORIENTED ORGANISATION
In most organisations, the marketing plan is written by the marketing manager,
brand manager or product manager. Some organisations develop the marketing
plan through committees while others hire professional marketing consultants to
write the marketing plan. In most organisations, the responsibility for planning the
marketing plan falls on the marketing vice president or the marketing director.
Regardless of who writes the marketing plan, the plan must be clear and
persuasive in order to win the approval of the decision makers. To give the plan
every chance for success, very little time should elapse between the completion of
the plan and its implementation.
Many organisations have changed the focus and content of their marketing plans
by increasing its emphasis on the customer. Organisations have shifted their focus
from the companyÊs product to the unique requirement of specific target market
segments. Other changes include better analysis of the competition, more specific
objectives and measurements as well as more reasonable and realistic planning.
The marketing concept focuses on customer satisfaction and the achievement of
the organisationÊs objectives. Market-oriented organisations are those that
successfully generate, disseminate and respond to market information.
In contrast, a traditional organisation is often very authoritative with regard to

decision-making authority that emanates from the top. Market-oriented approach
decentralises decision-making whereby every level of the organisation is focused
on serving customer needs. The traditional and market-oriented organisational
structures are shown in Figure 2.8.
Figure 2.8: Traditional versus market-oriented organisational structures

"
The characteristics of a market-oriented organisation are as follows:
(a) The levels in a market-oriented organisation must „answer‰ to the next level
above them by taking the necessary actions to ensure that each level carries
out its job successfully;
(b) The role of the CEO is to ensure that his employees have everything they
need to carry out their jobs effectively;
(c) A helping mentality is carried upward through all levels of the organisation,
up to the customer level;
(d) The end result of the market-oriented approach is a complete focus on

customer needs; and
(e) Creating a market-oriented organisation requires an imaginative, visionary

and courageous leader ă one who is capable of relinquishing controls over
the organisation. A market-oriented organisation provides its employees
with the resources they need to carry out their jobs, trains them successfully
and then trusts them to serve the customers effectively.
"
ACTIVITY 2.4
Determine the merits and drawbacks of the traditional organisational

structure. Compare them with the pros and cons of a market-oriented
organisational structure. Which do you prefer? Explain.
Share your essay in myINSPIRE online forum.

"
SELF-CHECK 2.3
1. Explain how and why the process of developing a marketing plan

might be more important than planning the document itself.
2. The ______________ often focuses on the various business units of

the organisation and includes an allocation of the resources for each
business unit.
A. Marketing strategy
B. Functional strategy
C. Corporate strategy
D. Prospective strategy
E. Mission statement
3. When an organisation possesses certain capabilities which enable it

to serve the customersÊ needs better than its competitors, the
organisation is said to have a:
A. Resource advantage
B. Inter-functional advantage
C. Differential advantage
D. Supply-based economic advantage
E. Unique selling proposition
"
4. Which of the following statement is not the purpose of a marketing
plan?
A. It explains both the present and future situations of the

organisation.
B. It specifies the outcomes that are expected.
C. It describes the specific actions that will take place.
D. It explains how the marketing activities are to be coordinated
with the activities of other functional units.
E. It permits the monitoring of marketing actions so that controls
may be implemented.
"
"

"
5. A market-oriented organisation:
A. Focuses on improving internal manufacturing processes.

B. Concentrates on discovering customersÊ wants and satisfying
those wants with product or service benefits.
C. Uses a defensive strategy to obtain market share.
D. Tries to develop the very best product in the market.
E. Ignores its competition.
"
6. In a true market-oriented approach, the organisationÊs structure is
altered so that ______________ is/are placed at the bottom of the
organisational hierarchy.
A. Frontline employees
B. Customers
C. The CEO
D. Frontline managers
E. Shareholders
 The value delivery process includes identifying, delivering and

communicating superior value.
 The value chain is a framework that indicates the key activities which create
value and incur costs in a specific business within an organisation.
 Organisations with a competitive advantage develop superior capabilities and

core competencies in managing their core business processes.
 Market-oriented strategic planning is the managerial process of developing

and maintaining a strategic fit between organisational resources and market
opportunities.
 The strategic marketing planning process involves establishing an

organisational mission, corporate strategy, marketing goals and objectives,
marketing strategy and ultimately, a marketing plan.

"
 The marketing plan provides a detailed outline of the actions necessary to

execute the marketing programme and requires a great deal of effort and
organisational commitment to develop and implement the plan.
Business unit strategy Middle managers

Line managers Mission statement
Marketing goals or objectives Organisational mission
Marketing plan Organisational vision
Marketing strategy Strategic marketing planning
Market-oriented organisation Top managers
Ferrell, O. C., Hartline, M. D., & Lucas, G. H. (2002). Marketing strategy (2nd ed.).
Mason, OH: South-Western.
Pearson.

Topic
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"  Analysing
"
the Market"
3
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"
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"
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"
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LEARNING OUTCOMES
"
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"
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" 1. Describe the external environment especially with respect to providing
" marketing opportunities;
" 2. Explain how consumer characteristics influence buying behaviour;
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" 3. Explain how consumers make purchase decisions;
" 4. Describe the business markets and how business marketers make
" buying decisions; and
"
" 5. Define competitor and the types of competition.
"
"
 INTRODUCTION
Analysing the market is one of the ways that can assist the planning of marketing
strategy by providing a wide range of information for businesses to understand
what consumers want, know how they behave, identify which market segments to
target and be aware of industry trends. Within this activity of analysing the market
are a number of related aspects such as socio-economic conditions, technological
development and human behaviour. We shall be examining how businesses can
take advantage of opportunities whenever they arise in order to showcase their
products and services.

TOPIC 3 ANALYSING THE MARKET  45
"
Analyses of markets and consumer behaviours are essential for effective business
promoting. They encompass the understanding of information regarding all
aspects of marketing ă from advertising, merchandising and administration of the
business to wholesaler, retailers, end buyers as well as the products and services
consumed. For example, when advertisers recognise patterns in buyer behaviour,
they can better anticipate buyer reactions to different showcasing methods.
Rivalry is part of business. It forces the company to maintain its competitive

advantage. In order to stay ahead of competitors, marketers must understand their
competitorsÊ products and services as well as their marketing strategies. In this
topic, we will be looking at the types of competitors as well as the strategies for
expansion and defending the marketspace.
3.1 ANALYSING MARKET OPPORTUNITIES

Analysing market opportunities is essentially searching for opportunities to offer
products in the market. To do this, marketers need to grasp and analyse the
environment in order to enhance the existing business framework. Understanding
the environment can help an organisation recognise opportunities and threats that
exist in the business area. There are two main areas of research for market
opportunities, which are:
(a) Macro-environment
This is the main peripheral where the organisation has limited control or has
decided to abandon its ability to encourage societyÊs choice-making
eventhough it affects its performance and strategies. The macro-environment
can be divided into six major components, namely demographic
environment, economic environment, socio-cultural environment, natural
environment, technological environment and political-legal environment.
The individual organisation has little control over these environmental
factors which affect consumer choice-making as well as influence its
execution and methodologies.
(b) Micro-environment
This is the internal strength of the organisation and influences its people
(such as staff, management and stakeholders), partners (such as suppliers
and intermediaries), competitors and customers. We shall discuss more on
this later.
Let us now focus on the macro-environmental factors.

46  TOPIC 3 ANALYSING THE MARKET
3.1.1 Macro-environment – Demographic

The demographic environment enables an organisation to distinguish its target
markets by looking at the scope and growth level of the populace, age and gender
distribution, ethnic diversity, educational level, household pattern and
geographical shifts in population.
(a) Scope and Growth Level

Population growth is a main factor that affects the development of a stable
consumer society. Unchecked growth rate has big implications. It may lead
to insufficient food supply, water supply and basic needs. Moreover, high
population density in poor living conditions, such as those in urban centres
of many developing nations, may cause high infant mortality and add stress
to health services. On the other hand, well-managed development offers
plenty of opportunities for companies to prosper but they must carefully
analyse the market to discover the opportunities. Countries with declining
fertility rate such as Singapore may not be an easy place to market baby care
products but it may be a good market for luxury goods due to its high income
status.
(b) Age Distribution and Gender

The population can be categorised into age groups as well as gender, or a
combination of both, for the purpose of targeted marketing. For example,
in developed economies, older persons are expected to outnumber other age
groups by 2050. This also provides significant business opportunity for the
supply of facilities for elderly people, particularly given that these countries
are becoming less family-oriented. One of the most profitable products and
services is in the healthcare sector such as supplements, massage machines,
reflexology and footpads. For example, services to the elderly would be more
important in the European markets as compared to the African markets
where the population is growing and consumption is concentrated in the
younger generation.
(c) Ethnic Diversity

People of different ethnic backgrounds have their own specific wants and
needs. Their wants and needs are usually more associated with the clothing
they prefer to wear and the food they consume. Marketers must be careful
about marketing to various ethnic groups and must have various skills such
as linguistics, communication and creativity in promotion, among others.
This is because some ethnic groups are very sensitive in terms of food and
clothing. For example, in Malaysia, the ethnic diversity is very distinct (see
example in Figure 3.1). There are many ethnicities and cultures, every culture

"
has its own dialect and language, traditional food, clothing as well as religion
to a certain extent. Each culture also holds on to its cultural practices firmly.
Figure 3.1: The very distinct ethnic diversity of Malaysians
(d) Educational Level

The demographics in educational level comprise five educational groups,
namely ignorant people, secondary school dropouts, secondary school
degree holders, advanced education holders and expert degree holders.
Analysis of individual information and ability will lead to more demands for
quality books and instructional projects in the area, for example, numerous
colleges were set up in different Asian nations. Online courses, likewise,
provide many advantages and open up extraordinary opportunities for
advertisers.
(e) Household Pattern

A household may consists of a husband, a wife and children, and at some
point even grandparents. There may also be non-customary family unit,
which incorporates singles living on their own, grown-ups living together,
single guardian families and newly married couples without child. More
individuals are deciding not to wed, wed later or wed without expectations
to have children. As such, they may only require a small flat, some furniture
and outfitting. Advertisers must consider the unique needs of non-
customary families since they are growing in numbers.

(f) Geographical Shifts in Population

This refers to the time period parity between individuals leaving the nation
and individuals who enter a nation over a given period. This parameter
consolidates the conception and passing rates, as well as the adjustment
decisions in the size of the populace. From this relocation, forward-looking
organisations and business persons will exploit the development of the
migrant populace and promote their products and services particularly to
these new and successful members of the population.
3.1.2 Macro-environment – Economic

Economic environment is an external factor of the business sector that marketers
must monitor closely. The more extensive the economy of a country, the greater
the effect it will have on businesses. Variables and patterns under economic
environment that marketers need to be mindful of include wage dispersion, the
nationÊs debt obligation as well as access to credit and savings rate. These variables
have solid influence on the populationÊs ability to support businesses. For
example, Japan has been experiencing high personal savings rate since 1970 (gross
savings as percentage of GDP). The rate was 11.7 per cent in 1970 and peaked at
49.7 per cent as at December 2015. Hence, Japan is a good market for luxury items
such as expensive household electrical products since families in Japan have high
disposable incomes.
3.1.3 Macro-environment – Sociocultural

The sociocultural environment is a basic term which is used to describe social and
cultural elements that shape the convictions, social standards, religious data and
demographic data. Additionally, it incorporates the perspectives of the people,
of others, of associations, of environments and of the world.
(a) High Persistence about Core Cultural Values

Individuals hold many convictions and qualities that tend to persist. They
still think of family traditions, cultural norms, being diligent at work and
loyal. Such values are transferred from parents to children, and fortified
through social foundations such as schools, organisations and associations.
Marketers have more opportunities to create or advance something in light
of the individualsÊ convictions and qualities.

"
(b) Presence of Subgroups

Each person is part of a subgroup, through joint qualities of sharing common
backgrounds. Sub-social gatherings show utilisation conduct and diverse
needs, thus, advertisers can pick a few subcultures as an objective business
sector. Figure 3.2 shows an example of a subculture that emerged at the turn
of the millennium.
Figure 3.2: A short history of American hipster subculture from 2000 to 2009
Source: https://www.flickr.com/photos/26911744@N00/5043612031
3.1.4 Macro-environment – Natural

TodayÊs natural environment incorporates all living and non-living things, and in
urbanised community setting. Air pollution and water contamination are expected
as part and parcel of life and has reached perilous levels in some places. This
creates opportunities for marketers to offer products or services that could
accommodate the thriving environmental insecurities of modern society.

3.1.5 Macro-environment – Technological

Modern day consumption is increasingly seeing the adoption of technologically
advanced products by the masses. Modern technology already permeates many
aspects of peopleÊs life such as smartphones, e-book readers, wearable tech,
self-checkout cashiers and, possibly in the near future, driverless cars. Other less
apparent aspects include medical treatment such as keyhole surgery and gene
therapy, and education such as massive online open courses (MOOCs). Some of
the major enablers of this trend are:
(a) Development of Microprocessor Beyond the Limits of Computer

The success of the personal computer (PC), which derives its computing
power from advanced microprocessors, has led to the development whereby
computers are no longer constrained by their traditional forms.
Microprocessors have also been incorporated into other technologies, giving
us „smart‰ gadgets such as autonomous vehicles, 3D virtual reality headsets
and smart home appliances.
(b) Proliferation of Research and Development (R&D)

Major consumer products and services corporations such as Samsung,
Apple, Toyota, Tesla, Google and Amazon continue to invest heavily in R&D
on a wide scope of disciplines such as material science, biophysics and
software engineering.
(c) Rapidly Increasing Technological Change

New possibilities for marketers are emerging as consumers become more
tech savvy. Nevertheless, marketers should be aware of the rapidly changing
developments in technology when proposing, creating and dispatching new
campaigns because the results could be unpredictable.
3.1.6 Macro-environment – Political-legal

Laws and regulations can restrict businesses or open doors to new business
opportunities. The following are some of the main political-legal environment that
affects marketing:
(a) Rise in Trade Regulation

Trade regulations are aimed at protecting organisations from unreasonable
rivalry and shielding customers from unjustifiable trade actions. As
globalisation of trade intensifies, so does the governmentÊs attempt to
analyse and establish regulations to monitor many aspects of cross-border
trading such as contender conduct, item standards, business risks and

"
currency exchange. Other examples include regulations against the

production and distribution of imitation goods of renowned brands such as
Chanel, Rolex and Louis Vuitton (see Figure 3.3).
Figure 3.3: Counterfeit branded bags sold on the street

Source: https://www.scmp.com/news/asia/article/1487482/chinas-wily-fake-goods-
importers-have-japanese-officials-run
(b) Market Reform

Marketing strategies have to be aligned with the market reforms that the
authorities are pursuing at the time. For example, a policy change to
encourage the development of medium-sized properties to accommodate
small urban families could change the demographic make-up of the area. In
another example, marketing furniture as modular units that are easily
configurable to fit into small spaces would offer good customer value.
(c) Corruption
Leaders in developing nations generally suffer from the perception that they
place low value on morality and ethics when it comes to politics. Asian
government officials are no exception and many face an uphill battle to clean
up their reputation concerning their conduct when in office. Marketers may
have to be wary of such reputation. However, they should also know that
there are opportunities that can help them change the unfavourable
perception.

SELF-CHECK 3.1
1. Differentiate between micro-environment and macro-environment

in analysing market opportunities.
2. List and explain the components of macro-environment.
3.1.7 Micro-environment
Micro-environment refers to the conditions surrounding an organisation that
could be used to provide marketing muscles to the business. Figure 3.4 shows the
major micro-environments of a business.
Figure 3.4: Micro-environments of business

"
Let us discuss the major business micro-environments in detail:
(a) Consumers
Consumers have varied preferences, thus, a single product will not satisfy
the tastes of everyone. Therefore, to enter a market, a company needs to
know as much as possible about its target consumersÊ wants and needs as
well as their attitude towards the product. For example, some consumers
may form an adverse opinion towards a product because of the way it is
marketed as a result of the marketerÊs insensitivity towards their religious or
cultural background. Others may get bored with a product simply because
its packaging and labelling has remained the same for some time.
Marketing a product also involves identifying habits and characteristics of

the consumers, which can be associated with the product such as lifestyle,
income level and so on. For example, Garnier (see Figure 3.5) does not market
just one type of shampoo but offers a wide range of shampoo products in
order to satisfy the varied behaviours, attitudes and preferences of
consumers. This strategy also diversifies and improves the companyÊs sales.
Figure 3.5: Range of Garnier shampoo products

Source: http://www.matfashion.com/blog/garnier-naturals/launch-pack-zeco-
20091106/
(b) Competitors
Competitors are companies that offer similar goods or services in the same
market, with slight variations in price and quality. This is one of the main
micro-environments that need to be analysed before any business can enter
the market. To gain the upper hand, companies can compete in terms of
product quality, innovation, creativity, price and so on.

From a marketing perspective, marketers need to focus on obtaining as much

information as possible about their competitors in order to predict the
behaviour of their competitors and the respective consumer responses. For
example, if Toyota plans to launch a new model, it needs to obtain
information on its competitors such as Honda and NissanÊs comparative
models, timing of their launch or launch dates, performance data, pricing,
advertising campaigns and so on.
In addition, to enter a market, businesses need to be aware of the state of its

competitors in terms of their business objectives, assumptions, strategies and
capabilities. Through analysis of all these factors, the business will be able to
ascertain its competitorsÊ strengths and weaknesses and be able to improve
the quality of its own products or services to be on par or exceed those of the
competitors.
(c) Suppliers
Suppliers may comprise a group or an agency that supply goods such as raw
materials and other resources to a company that produces finished goods or
services. Raw material examples include flour, wood and machine parts. To
develop a new product, a company must first identify suppliers who can
supply the materials it requires. Having good suppliers is very important
because it enables production to run smoothly. For example, KFC sells fried
chicken, does not farm its own livestock but instead sources its raw materials
from farmers.
(d) Marketing Intermediaries

Marketing intermediaries could be any liaison agent who helps to promote,
sell and distribute the companyÊs products or services to the end users.
Typical intermediaries include the following:
(i) Agents
An agent is a representative for a product marketed to consumers.
Agents receive commission based on the revenues from sales.
(ii) Wholesalers
A wholesaler is an independent firm that buys products in bulk and
sells them to retailers or end users for a profit.
(iii) Wholesale Distributors

These refer to exclusive distributors who sell only one product or a
range of products from a single company to retailers.

"
(iv) Retailers
Retailers buy products from other market intermediaries to sell to
consumers. Independent retailers can sell many products from
different companies.
(e) General Public

This group comprises members of the population who may not necessarily
be customers of a particular companyÊs products or services but who are
nevertheless interested to know what it has to offer. They include journalists,
regulators, the neighbouring community, goods transporters and others who
play a role with regard to the product in the market.
The public forms the links and fills up missing gaps between the product and
its consumers, suppliers, distributors and other intermediaries. They provide
beneficial feedback to the business in areas which its customers may not be
able to provide such as pointing out weaknesses in the distribution model,
questioning the source of raw materials and giving impartial public
perception of the brand. The feedback allows companies to make
improvements on their products and services as well as their business
operations.
(f) Workers
Companies need to ensure they have the right employees to produce and
deliver the kinds of products or services they intend to market. In general,
quality labour is required to produce quality products as well as highly
capable management team to handle the various stages of the production
process to ensure a smooth flow of production from raw materials to finished
goods.
3.2 CLASSIFYING MARKETS AND ANALYSING

BUYER BEHAVIOUR
Conventionally, a market refers to a physical place that is often located at the centre
of the community where marketers and customers meet. The development of
information and communication technology (ICT) has extended the market
beyond its traditional description to encompass digital spaces independent of a
location and connected through postal services, telephone and the Internet.
"

3.2.1 Market Classification

For the purpose of our discussion, it is helpful to classify the markets
geographically or otherwise, as seen in the following:
(a) Local
Local market is the most common form of market for consumer goods.
An individual buys products within a limited geographical area, close to
where he lives. Traditionally, a local market is centred at the high street of a
particular town or city. However, out-of-town shopping centres have
developed in recent times. Although it may be a local market, companies
which trades in this market may be multinationals.
(b) National
National market can be classified in two ways. Firstly, a company would be
operating in a national market if it sells its products or services throughout
the entire country or at least in most towns and cities. Secondly, many
industrial and primary products, for instance building materials, are traded
at the national or international market. Businesses that provide these
products usually supply them to other businesses as well.
(c) International
International market is where goods produced in a country are sold in other
countries. However, companies operating in such markets are prone to the
uncertainties as a result of global trading. The uncertainties could be caused
by unforeseen circumstances such as trade war, financial crisis and natural
disaster.
(d) Physical versus Virtual

Physical markets are actual places where buyers and sellers meet face-to-
face, for instance a booth or stall in a mall, a shop house or other business
premises with valid addresses. The products can be viewed and touched,
thus the purchaser can make an informed decision based on such
interactions.
Meanwhile, virtual markets are where non-physical goods such as software

services and e-products are now readily available due to the rapid
advancement in ICT. For example, telephone sales and the Internet
(e-commerce) are ideal for selling digital music, content subscription and
mobile apps. In addition, ICT has also enabled physical products to be sold
through virtual markets. This is of particular significance to business start-
ups as it gives them the opportunity to compete in the national market
without having to fork out high capital outlay prior to the start of selling their
products.

"
3.2.2 Defining Buyer Behaviour through Maslow’s

Hierarchy of Needs
Buyer behaviour is the act of purchasing a product and/or service with the
expectation that the item bought will satisfy the buyerÊs needs. The needs of buyers
can be described using the famous theory by psychologist Abraham Maslow
(1908ă1970), known as MaslowÊs hierarchy of needs (see Figure 3.6).
Figure 3.6: MaslowÊs hierarchy of needs theory
The following elaborates MaslowÊs hierarchy of needs theory:
(a) Physiological Needs

Physiological needs represent the most basic needs for human survival such
as food, clothing, shelter, sleep and water. If a person does not fulfil these
needs, he will cease to function.

(b) Safety Needs

Safety is a factor that needs to be satisfied in order for a person to function
well. Safety needs are concerned not only with physical safety but also with
stability, familiarity, routine and control over oneÊs life and environment.
(c) Belongingness and Love Needs

These needs encompass a personÊs social circle, his relationships and
interactions with others who will influence his needs for affection, sense of
belonging, love and acceptance.
(d) Esteem Needs

The second highest level of MaslowÊs hierarchy becomes operative when a
personÊs social needs are more or less satisfied so that he is at liberty to
pursue his egoistic needs, which can either be inward (such as personal
hobbies and self-improvement) or outward (to gain respect and recognition
from others) in nature.
(e) Self-actualisation
The final and highest order of MaslowÊs hierarchy is achieved when a person
has satisfied most of his egoistic needs. In other words, he has reached the
stage whereby his full potential is realised. This need differs vastly between
individuals. For example, some have a strong desire to become the ideal
parent, others aim to be successful entrepreneurs or seek mastery over a
particular skill such as painting and cooking.
By recognising which stage of MaslowÊs hierarchy the buyer occupies, marketers

can predict their buyersÊ behaviours and will be able to market their product
accordingly.
3.2.3 Consumer Decision-making Process

Analysing the decision-making process of consumers requires marketers to
understand certain aspects of psychology, particularly those that influence the
behaviour of the consumers prior to making a purchase such as motivation,
perception, learning, personality and attitude. We shall examine some of these
behaviours in conjunction with the following:
(a) Needs Recognition

When a consumer is faced with a decision, needs recognition will arise to aid
the decision process. There are two stages in needs recognition:
(i) Actual State

Where the consumer accepts that there is a problem with an existing
product, such as a car that fails to perform satisfactorily.
"
(ii) Desired State

Where the consumer desires for an alternative model (such as a car with
a bigger engine capacity) or something new (a sports utility vehicle, for
example) that may initiate the decision.
(b) Pre-purchase Search

When a consumer perceives a need that might be satisfied by the purchase
and consumption of a product, the pre-purchase search will begin. Often
times, recalling past purchases will provide the consumer with adequate
information to make the present choice. However, without the experience,
consumers need to engage in an extensive search for useful information.
Consumer decisions are based on a combination of previous experiences
(internal source), marketing and advertising as well as non-commercial
information such as news and reviews (external sources).
(c) Online versus Traditional Search for Information

Research in ways consumers make decisions has found that the Internet
favours consumers who are skilled at processing information. Such
consumers will employ varied strategies for searching information online.
Meanwhile, consumers who lack information processing capacity prefer to
browse in physical shops.
(d) Brand Attributes Evaluation

Brand consciousness and perception are big influencers in consumer
decision-making. Brands can be classified into three sets:
(i) Evoked Set or Consideration Set

Refers to the various brands or models of the product that the consumer
considers when shopping for that particular product category.
(ii) Inept Set

Consists of brands or models that the consumer has excluded from the
purchase consideration.
(iii) Inert Set

Brands or models that the consumer feels indifferent towards because
he perceives them as not having any particular advantages.

(e) Consumer Decision Rules

Once the consumer is satisfied that he has all the required information, he is
ready to make a decision. However, there are rules established which will
guide him in the decision-making process. Decision rules can be split into
two categories:
(i) Compensatory Decision Rules

In which the consumer evaluates each brand in terms of the relevant
attributes and then selects the brand with the highest weighted score.
(ii) Non-compensatory Decision Rules

In which the consumer states the minimum value for the attributes for
all brands and where the positive evaluation for a brand attribute does
not compensate for a negative evaluation of the same brand for some
other attributes.
(f) Decision Rules and Marketing Strategy

An understanding of the decision rules that consumers apply in selecting a
product or service is very useful. A promotional message in a format that
will facilitate the consumerÊs information processing can be prepared while
the marketer can be familiarised with the consumerÊs prevailing decision
rule.
(g) Incomplete Information and Non-comparable Alternatives

A consumer can end up with missing information in many decision-making
situations due to advertisements and product packaging which only show
certain attributes, or due to the consumerÊs own inability to recall certain
attributes or remembering them incorrectly. Furthermore, some product
attributes are experiential and can only be evaluated after the product is
consumed. In all these circumstances, the consumer copes with the missing
information using one or more of the following ways:
(i) Delay the decision until the missing information is obtained.
(ii) Ignore the missing information and continue with the decision-making
process using only available information.
(iii) Change the decision strategy to one that could better accommodate the
missing information.
(iv) Infer or „construct‰ the missing information from the available

information.

"
3.3 ANALYSING BUSINESS MARKET

The business market consists of all companies that acquire products (raw materials
and component parts) and services for the production of other products and
services, which are then sold to other companies. Also called organisational
buying, such market activity is concerned with the establishment of decision-
making processes by formal organisations for the purchase of products and
services. It involves the identification of and making a choice among alternative
brands and suppliers.
3.3.1 Characteristics of Business Market

The following list comprises characteristics that differentiate business markets
from consumer markets:
(a) Fewer but bigger buyers;
(b) Close supplier-customer relationship;
(c) Professional purchasing;
(d) Multiple buying influences;
(e) Multiple sales calls;
(f) Derived demand;
(g) Inelastic demand;
(h) Fluctuating demand;
(i) Geographically concentrated buyers; and
(j) Direct purchasing.

"

3.3.2 Buying Situations

Buying situations, as the name suggests, describes the various buying behaviours
and characteristics in the business market which are associated with each buying
situation. There are three types of buying situations:
(a) Straight Rebuy

Under this situation, the purchasing department reorders items such as office
supplies or raw materials from suppliers on a routine basis. There is no
change in the terms and conditions of the purchase, and suppliers often
propose an automatic reordering system.
(b) Modified Rebuy

Under this buying situation, the buyer wants to modify the terms and
conditions of the order, for example, changes in product specifications,
prices, delivery requirements or other terms. The in-suppliers will try their
best to maintain their account. On the other hand, the out-suppliers sees this
as an opportunity to make a better offer to obtain the new business.
(c) New-task Purchase

A new-task purchase is the buying of products or services for the first time.
Businesses will face higher risks and may incur higher costs in this instance
when compared with the two previously mentioned buying situations.
3.3.3 Stages in the Buying Process

Stages in the buying process of the business market are more structured and formal
than in the consumer market. These stages are also called buy phases. In the
modified rebuy or straight rebuy buying situations, some of these stages are
compressed or bypassed. The following comprises the general stages of the buying
process:
(a) Problem Recognition

The buying process begins when a company recognises that there is a
problem or need that can be fixed by buying a product or service.
(b) General Needs Description and Product Specification

At this stage, the buyer determines the general characteristics of the item,
its technical specifications and the quantities required.

"
(c) Supplier Search

At this stage, the buyer tries to identify potential suppliers. This can be done
through a search in the trade directory, recommendations by contacts, trade
advertisements, trade shows and the Internet.
(d) Proposal Solicitation

Suppliers are then invited to submit quotations or proposals. The buyer
evaluates the proposals and invite suppliers to make formal presentations.
(e) Supplier Selection

After the presentations, the buyer re-evaluates each supplierÊs proposal.
Factors to be considered include delivery reliability, price and supplierÊs
reputation.
(f) Order Routine Specification

Once a supplier is selected, the buyer negotiates the final order and provides
the specifications and quantities needed. Items negotiated at this stage
include warranties, return policies and delivery schedule.
(g) Performance Review

The performance of the supplier is reviewed from time to time. During this
time, the buyer may ask the end users in its organisation for their feedback
and to rate the supplier based on several criteria. The outcome of the review
may lead the buyer to continue, modify or end its relationship with the
supplier.
3.4 ANALYSING COMPETITORS

The success or failure of a new product is determined by the actions of the
company. Companies in every industry operate in an environment full of
challenges from various perspectives including environmental, process,
managerial and financial. Some companies have a reputation for being aggressive
in the marketplace and are likely to attack a new competitor as soon as it enters the
market while others take a less aggressive approach.
3.4.1 Types of Competitors

A company could identify its competitorsÊ strengths and weaknesses in order to
discover the source of their competitive advantage through their strategic
alliances. For example, a competitor may have found an opportunity or gap in the
market and plans to create a unique product that could be sold for a premium
price.

Discovering the competitorsÊ strengths and weaknesses through customerÊs view

can also expand the companyÊs knowledge and understanding the consumers and
its competitors.
Competitors can generally be categorised into three types:
(a) Direct Competitors

Direct competitors offer products which are considered to be very close
substitutes for the companyÊs current products and services. They operate in
the same industry, where the main players are already known to each other
and they form part of the companyÊs competitor analysis. Marketing
managers generally have no trouble identifying direct competitors. The
challenge is to define them from consumersÊ perspective. Example of direct
competitors are Colgate, Fresh & White and Darlie in the toothpaste market.
(b) Indirect Competitors

Consumers perceive products to be able to solve a problem or meet a need.
This means they do not define competitors in terms of the companies in a
particular industry. Instead, they contemplate options beyond direct
competitors. As the options expand, the substitutability of the product also
increases. Expanding the numbers of potential competitors based on
customersÊ options can help a company identify indirect competitors. These
competitors offer products that may be substituted based on the customerÊs
need and choice options. Example of indirect competitors ă toothpaste
companies competing with mouthwash producers.
(c) New Emerging Competitor as a Result of Change in Product Usage

Customers sometimes find new uses that alter the original intent or design
of a product. This inadvertently creates competition in the marketplace.
A famous example is Coca-Cola, which was originally sold as a general
health tonic but is now well known for its soft drink beverage. Another
example is Listerine, which was originally intended to be used as surgical
antiseptic and floor disinfectant but is now a well-known brand of
mouthwash.
"

"
3.4.2 Market Expansion and Defending the

Marketspace
In this subtopic, we outline the typical strategies that companies apply in order to
expand their business as well as competing with challengers in their marketspace.
(a) Strategic Expansion

There are many strategies for market expansion. However, many of them are
a variation of one of the following key strategies:
(i) Increase Sales of Product in Existing Market

This could be a risky strategy because it requires significant capital
investment for acquiring a bigger location and for the business to
revamp its pricing strategy as well as to improve its marketing
technique.
(ii) Introduce New Product

A company will also need to allocate significant resources to produce a
new product in terms of data collection and market testing, and
customer feedback in the case of product improvement.
(iii) Develop New Market Segment or New Geographical Market

This involves moving existing products into new product category or
demographic segment, or introducing them to consumers at a new
location. For example, Crocs successfully penetrated the fashion shoes
marketspace across the globe with a product that was originally sold as
boating shoes.
(b) Defending the Marketspace

Every company goes into business with the goal to thrive. This goal can only
be achieved through maintaining and increasing profitability. In order to do
that, it must deploy best marketing strategy to sell its products and services.
Competition is to be expected and companies must defend its marketspace.
The following are the main marketing strategies for a company who needs
to defend its marketspace:
(i) Innovation ă Involves constant research and development to produce

new products and services;
(ii) Addition ă Offers more products and new variations of its products;
(iii) Expansion ă Adds new distribution channels; and
(iv) New buyers ă Increases its customer base.

In most cases, companies use a combination of the earlier mentioned

strategies to achieve a more effective marketing result. For example, a
marketing strategy that is executed through cooperative communication
among the companyÊs market intermediaries (expansion strategy) coupled
with the introduction of a new and innovative product variant (addition and
innovation strategies).
SELF-CHECK 3.2
1. Describe the following micro-environment components and

explain their roles in the business environment:
(a) Consumer;
(b) Competitor;
(c) Supplier; and
(d) Marketing intermediary.
2. Differentiate between the consumer market and business markets.
3. List and describe the types of competitor a company may face in

the market.
"
ACTIVITY 3.1
1. Marketers must understand every facet of consumer behaviour.

Explain the influences of the consumer buying-decision process.
Share and compare your answer with your coursemates on

myINSPIRE online forum.
2. „A consumerÊs decision can be influenced by inspiration,

discernment, learning and memory.‰
What can you infer from this statement? Discuss with a coursemate
and post your conclusion on myINSPIRE online forum.

"
ACTIVITY 3.2
CASE STUDY: BASKIN-ROBBINS
Baskin-Robbins is a world famous brand known for its tasty ice cream,
specially frozen desserts and beverages with almost 31 flavours to satisfy
the demands of their targeted consumers. It has expanded its business to
almost 50 countries throughout the world. Baskin-Robbins is registered
under D&L Ice Cream Co., Inc. (D&L). The company has two main
suppliers of ice cream and paper goods. It is also well known for its pink
spoons and the „BR31‰ logo.
Baskin-Robbins is famous for its 31 flavours of ice cream, first created so

that its customers can taste and enjoy a different flavour each day of the
month. Baskin-RobbinsÊ international location introduces new flavour of
ice cream to be tasted by people from every country. The flavours are
based on American events, festivals and cultural trends, leading to the
introduction of ice cream flavours such as Lunar Cheesecake, Green
Monster Mint and Sesame Sweet. Baskin-RobbinsÊ strength is in its
capability for international growth.
Baskin-Robbins also serves delicious, mouth-watering cakes in addition

to its ice cream. More than 1,000 ice cream flavours are low fat and
without sugar, very suitable for elderly customers. They also provide
services for different customer age groups. Baskin-Robbins emphasises
the importance of quality and fulfilled work with its focus on innovation
when dealing with or investing in international business.
Questions:
1. Determine the main factors that contribute to how Baskin-Robbins

successfully attracts customers into its shops.
2. In what ways can Baskin Robbins evaluate its brand positioning in

the consumerÊs mind?
Conduct more research to answer these questions and share them on

myINSPIRE online forum.
"

 Buyer behaviour and consumption trend are affected by three elements ă

society (subculture and social class), social connection (family and friends) and
individual characteristics (age and stage in life, occupation and lifestyle).
Research into such attributes can furnish marketers with information to reach
and serve buyers more effectively.
 To determine how consumers make purchasing decisions, marketers need to

understand what influences their purchasing choice.
 A consumer can simultaneously be the initiator, influencer, decider and

purchaser of a product. Diverse marketing efforts enable a business to target
every segment of the consumer.
 The general purchasing process comprises the following sequence of events:

Needs recognition, data seeking, assessment of options, buying choice and
post-buy conduct. The marketer needs to have a keen understanding of the
process at every stage.
 The business market consists of all companies that acquire products (raw
materials and component parts) and services for the production of other
products and services, which are then sold to other companies.
 Competitors include direct and indirect competitors. The former offers

products that are very close substitute to the companyÊs own products. The
latter offers alternative means to satisfy the needs of the companyÊs customers.
Business market Macro-environment

Buyer behaviour Micro-environment
Competitors Market classification
Consumers Market opportunities
Decision-making Marketing intermediaries
Direct competitors Suppliers
Indirect competitors

"
Geoff Lancaster, L. M. (2001). Marketing management (3th ed.). New York, NY:
McGraw-Hill.
Hall, D. T., & Nougaim, K. E. (1968). An examination of MaslowÊs need hierarchy

in an organizational setting. Organizational behavior and human
performance, 3(1), 12ă35.
Hoyer, W. D. (1984). An examination of consumer decision making for a common

repeat purchase product. Journal of consumer research, 8, 22ă829.
Jarrow, R. A., & Larsson, M. (2012). The meaning of market efficiency.

Mathematical Finance, 22(1), 1ă30.
Kerin, H. B. (2006). Marketing (8th ed.). New York, NY: McGraw-Hill.
Kim, D. J., Ferrin, D. L., & Rao, H. R. (2008). A trust-based consumer decision-
making model in electronic commerce: The role of trust, perceived risk, and
their antecedents. Decision support systems, 44(2), 544ă564.
Orville C., & Walker, J. J. (2011). Marketing strategy: A decision-focused approach

(7th ed.). New York, NY: McGraw-Hill.
Philip Kotler, K. L. (2009). Marketing management: An Asian perspective (5th ed.).

Singapore, Singapore: Prentice Hall.
Sheth, J. N. (1967). A review of buyer behavior. Management Science, 13(12),

B-718.
William D. Perreault, J. E. (2003). Essentials of marketing: A global-managerial

approach. New York, NY: McGraw-Hill.

Topic
""
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"  Segmenting
"
Markets"
4
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"
"
" "
"
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LEARNING OUTCOMES
"
"
"
"
" 1. Describe the purposes of market segmentation;
"
" 2. Identify the bases of segmentation and levels of market segments;
" 3. Explain the behaviours of companies toward their target markets; and
"
4. Describe the criteria for effective segmentation as well as evaluating
"
and selecting the market segment.
"
"
 INTRODUCTION
Market segmentation is a way of dividing the market into several segments in
which each segment consists of customers who share similar needs and wants.
Segmentation makes it easier for marketers to target the customers and fulfil their
needs. Besides, customers can be differentiated easily based on their needs and
preferences. Once the market is segmented, marketers will proceed to choose a
particular segment or segments to target.
4.1 PURPOSE OF MARKET SEGMENTATION

Marketers segment the market for a variety of reasons but the main purposes of
segmenting the market are as follows:
(a) To Serve the Market More Effectively

Every company has limited resources. With this constraint, the company
may not be able to serve the entire market effectively and efficiently. Rather
than marketing its products to the entire market, it is better to focus its
marketing efforts on a smaller segment of the market and serve it well.

TOPIC 4 SEGMENTING MARKETS  71
Imagine that there are two companies: company A and company B.

Company A segments the customers into a few groups such as children,
adult, and senior citizens according to needs and wants. Company B, on the
other hand, produce the products based on the majority of the needs and
wants. Which company do you think will be earning more profit? Yes,
company A will most likely be earning more profit than company B because
company A understands what the customers wants and needs. Segmentation
allows marketers to understand their customers better, thus, able to serve the
market more effectively, which in turn will increase the companyÊs profit.
(b) To Communicate More Effectively

Through segmentation, marketers are able to communicate more effectively
to its target audience. For example, marketers often promote their products
to children using cartoons and mascots to attract their attention. In contrast,
marketer will use different appeals to communicate to the adult segment.
(c) To Expand the CompanyÊs Market

When marketers understand the needs and wants of their customers more
precisely through segmentation, it helps to increase its companyÊs
competiveness. For example, Nike and Adidas are close rivals in the sports
apparel industry. To increase their company profits, frequent research must
be conducted. These companies need to be up-to-date on the latest style and
fashion in the world in order to expand their market. Hence, segmentation
enables them to expand to other market segments.
4.2 IDENTIFYING MARKET SEGMENT

In order to market a product, marketers must know which type of consumers that
they want to target at in order to ensure the product ise sold to the right market
and right consumers. How do marketers specifically target their consumers in
todayÊs huge market?
Marketers use segmentation to identify the consumers so that their products can
be delivered to the right consumers. The main objective of segmentation is to
enable marketers to use all the marketing mix strategies more effectively when
delivering their products to their target market.
The following subtopics looks at the various levels of market segmentation.

"

72  TOPIC 4 SEGMENTING MARKETS
" "
4.2.1 Levels of Market Segmentation

Segmentation can be done at various levels:
(a) Segment Marketing

Refers to a group of consumers who have similar needs and wants. In other
words, a market segment is defined as a group of customers who have the
same problem or are searching for the same benefits (Sexton, 2006).
(b) Niche Marketing

Refers to groups who have unique mixed benefits. For example, if you sell
sports cars, then your target market is males ranging from the ages of 20 to
50 years old. However, within that segment, you may still have niche
consumers who want red cars with sport seats and racing tyres.
(c) Local Marketing

Refers to marketing activities which emphasise a close relationship with the
community and possibly knowing individual customers by name. For
example, local TV channels or local restaurant chains producing food
products.
(d) Individual Marketing

Requires more attention to market products or services that can be highly
personalised. For instance, a craft shop which offers customers the freedom
to design and configure their own product.
ACTIVITY 4.1
1. There are four reasons why marketers should segment the market.
Use your own words to explain the reasons.
2. By using examples, explain the four levels of market segmentation

ă segment marketing, niche marketing, local marketing and
individual marketing.

4.2.2 Bases of Segmentation in the Consumer Market

Consumer market refers to the market in which consumers buy the product for
their own use or consumption. These consumers are also known as end users.
We can segment a consumer market based on the following variables:
(a) Demography
Demographic segmentation is the most common method used to segment a
market because it is closely related to consumersÊ needs and preferences.
Demographic variables include age, gender, race, ethnic group, income level,
occupation, family size, nationality, social class and religion. Some of the
variables are discussed in the following:
(i) Age
Age is one of the demographic criteria that marketers consider when
marketing their products. CustomersÊ behaviours differ according to
their ages. For example, children tend to persuade their parents to buy
a product that they see on television such as cartoons or advertisements
related to sweets or candies. Children are different from teenagers.
Teenagers tend to buy products that are up-to-date and suitable for
their age. They do not buy the same products that children like
anymore. McDonaldÊs, for instance, uses different promotions, media
and advertisements to target the children (see Figure 4.1), young adults
(see Figure 4.2) and senior citizens (see Figure 4.3).
Figure 4.1: McDonaldÊs promotion to children

Source: http://iconic88.soup.io/tag/charity

" "
Figure 4.2: McDonaldÊs promotion to adults

Source: https://nmtp01logan.wordpress.com/
Figure 4.3: McDonaldÊs promotion to senior citizens

Source: http://runwitme.blogspot.my/2013/09/photos-top-5-results-mcdonalds-
olympic.html

(ii) Gender
Gender segmentation is clearly visible in the marketing of clothing,
cosmetics, healthcare and magazines. Nowadays, the automobile
industry also applies segmentation based on gender to differentiate its
market audience. Some companies offer cars with a variety of colours
including pink and incorporate some desired accessories for women
such as face mirror on the side of the driver, power steering, easy to
open bonnets and hood, and other aspects that require less body
strength. It also takes into account greater safety concerns.
There are many other examples of how marketers have used

demographic variables to segment their market. Procter and Gamble,
which produces Head & Shoulders shampoo, not only focuses on female
hygiene products but also produces shampoo specially for men (see
Figure 4.4).
Figure 4.4: Proctor & Gamble produces Head & Shoulders

shampoo specifically for men as well as for women
Source: http://makeupbyhina.com/head-shoulders-anti-hair-fall-shampoo-review/
(iii) Income
This segmentation has long been used in the marketing of goods that
require a good match with customersÊ income such as automobiles,
cosmetics, clothing, gadgets, travel agencies and many others. Usually,
the products are luxury brands which are sold at premium prices and
targeted at the higher income groups. For example, SK-II products
(see Figure 4.5) target women with high income level while Nivea
(see Figure 4.6) and Garnier (see Figure 4.7) are targeted at women in
the middle income level.

" "
Figure 4.5: SK-II products targets women with high income level
Source: http://nicolekiss.blogspot.my/2013/07/sk-ii-stempower-essence-kit-promo-
for.html
Figure 4.6: Nivea products target women in the middle income level
Source: http://www.beiersdorfusa.com/brands/nivea
Figure 4.7: Garnier products target women with middle income level
Source: http://ainamini.blogspot.my/2015_12_01_archive.html

(b) Geography
Marketers use geographic segmentation to divide the market into
geographical areas such as country, state, region, city and even
neighbourhood. This is also an effective approach for marketers to segment
the market because consumers in different regions may have different needs
and preferences due to their differences in culture and practices. This
segmentation allows marketers to easily focus on consumers from the same
geographical area. It also helps marketers to understand the local needs as
well as the acceptance of product among the consumers. For example,
Coca-Cola uses the same brand name but different languages in different
countries for their product taglines. In one incident, Coca-Cola pulled out its
two-litre bottle product in Spain after discovering that the size cannot fit into
the average refrigerators (Kotler, 2014).
(c) Psychography
Psychographic segmentation divides the market based on psychological
traits such as values, beliefs, attitudes, interests, lifestyles and consumer
personality traits (see Figure 4.8). This segmentation strategy helps
marketers to develop and promote their products more precisely. A clear
example of this strategy can be seen when Toyota company categorised its
consumer preferences into a few groups comprising luxury class, SUV class
and normal usage class. Hence, their customers can have clear choices based
on their values, lifestyles and interests.
Figure 4.8: Psychographics include opinions, attitudes,

activities, behaviours, values and interests of human beings
Source: http://induxtree.com/content-marketing/
psychographic-segmentation-in-b2b-marketing/

" "
(d) Behaviour
In behavioural segmentation, the market is divided based on consumer
behaviours or their responses to a product. Consumers may be grouped
based on the needs and benefits that they look for in a product. Buyers can
also be identified based on the decision roles in decision-making, namely
initiator, influencer, decider, buyer and user.
Similarly, marketers also apply user-related variables such as occasion, user

status, usage rate, buyer readiness stage and loyalty status to identify market
segments. Even if customers share the same demographic make-up, they all
have their own distinct behavioural pattern. For instance, higher income
earners are more willing to spend their money for a luxury and high quality
automobile as compared to budget-conscious earners.
Behaviour variables classify market into sub-segments such as:
(i) Occasion
The market can be segmented according to the various occasions in
which customers actively participate in. For example, greeting cards
are designed for different festive seasons and occasions such as
Christmas, Chinese New Year, Hari Raya, Deepavali, birthdays and
wedding anniversaries. By using this approach, marketers can identify
their buyersÊ needs according to the occasions and develop suitable
products to fulfil the needs.
Segmentation based on occasion can also be used to expand the product

usage. For example, the demand for mandarin oranges in Malaysia
increases during the Chinese New Year (see Figure 4.9). Similarly, the
demand for dates from the Muslim market increases during the month
of Ramadan.
Figure 4.9: Mandarin oranges are considered as a symbol of properity

during the Chinese New Year. Therefore, a must-have food during the occasion.
Source: http://food.ndtv.com/food-drinks/chinese-new-year-2015-traditional-food-
rituals-740763
(ii) Benefits Sought

Not everyone buys a product to fulfil the same need. Benefits sought
categorise the market based on the dissimilar needs of customers.
For example, shampoo can offer many benefits such as basic cleaning,
conditioning, shine effect and dandruff control. People can choose
different types of benefits for their hair condition. Similarly, in the
purchase of handbags, some women buy bags for its functional benefit.
Others purchase luxury handbags for the emotional benefits (such as
prestige) that they can obtain from carrying the branded handbag.
(iii) User Status

The market can also be segmented based on the user status of a product
such as non-user, ex-user, potential user, first-time user or regular user.
For example, blood donation organisation cannot depend on regular
donors to supply blood. They need to find other alternatives such as
recruiting new donors or contacting ex-donors.
(iv) Usage Rate

When analysing the users, their consumption pattern can be measured
according to their rate of consuming the product ă light, medium or
heavy users. Let us take the instant noodle as an example. If a person
regularly consumes instant noodles but changes from one brand to
another, say from Maggi (see Figure 4.10) to Mi Sedaap (see
Figure 4.11), he is considered as a light user of Maggi and Mi Sedaap
instant noodles. However, if the person continuously consumes the
same brand, then he is classified as a heavy user. Marketers are more
interested to enter into a heavy-user market than a light-user market.
Figure 4.10: Maggi instant noodles

Source: http://www.friedchillies.com/articles/detail/delectable-instant-noodles

" "
Figure 4.11: Mi Sedaap instant noodles

Source: http://www.friedchillies.com/articles/detail/delectable-instant-noodles
(v) Loyalty Status

Customers can also be segmented according to their loyalty to a brand.
Customers who are loyal to a product will make all efforts to find the
brand that they desired. There are four types of customers in terms of
their loyalty status to a brand. Firstly, the hard core loyal are customers
who buy the same brand of a product every time. Secondly, split loyal
customers are loyal to two or three brands at a time. Thirdly, shifting
loyal customers are those who easily switch their loyalty from one
brand to another. And lastly, switchers, are customers who always
change their product brands and not loyal to any brand at all. They are
also called brand switchers. Figure 4.12 shows a permanent arm tattoo
on a user. This clearly denotes a high level of brand loyalty (hard core
loyal status) in the user, who is a fan of Apple products.
Figure 4.12: Tattoo of the brand logo on the arm. A symbol of loyalty to Apple products
Source: http://www.goluputtar.com/traditional-apple-logo-tattoo-design-for-man/

(vi) Buyer Readiness Stage

When a product is marketed, not all consumers have the same level of
awareness towards the product. Some are unaware, some are aware,
some are interested and some may already have the intention to buy.
Therefore, the market can also be segmented in terms of buyer
readiness stage.
4.2.3 Bases of Segmentation in the Business Market

Similar to the consumer market, the business market also needs to be segmented.
Some of the variables used in segmenting the consumer market are also used in
segmenting the business market, for example, demographic variables. The major
segmentation variables used in the business market are:
(a) Demographic Variables

Business markets can be grouped according to industry, company size and
location.
(b) Operating Variables

Marketers can identify their business buyers in terms of their operating
variables such as the technology that they use, their status as a user or non
user as well as their capabilities.
(c) Purchasing Approaches

Business markets can be segmented according to their purchase criteria.
(i) Is the organisationÊs purchasing function highly centralised or

decentralised?
(ii) What is their power structure like ă is it engineering-dominated or

financially-dominated?
(iii) What is the nature of existing relationship between the marketer and
the potential buyer?
(iv) Should the marketer serve organisations that have specific purchasing
requirements such as leasing, service contract, system purchasing and
sealed bidding?

" "
(d) Situational Factors

Business markets can also be divided in terms of situational factors such as
urgency of purchase, specific application of product or size of order.
(e) Personal Characteristics

Business buyers may also be identified according to their personal
characteristics such as buyer-seller similarities in terms of their values,
attitudes towards risk and loyalty towards their suppliers.
SELF-CHECK 4.1
1. What is segmentation? Do you think market segmentation is

important? Justify.
2. Do you think marketers will gain more profits by using the

segmentation strategy?
3. Discuss all the bases of segmentation and provide relevant

examples.
4.3 FORMING A SEGMENT

Forming a segment means to develop marketing strategies for a target segment.
A market segment builds up customers who have similar interests or demands for
a product. Therefore, forming market segments include requirements for
segmentation, approaches to segment identification, customer group identification
and forming groups based on response differences.
"

4.3.1 Approaches to Segment Identification

Segment identification can start with identifiers of customer groups or with
customer response profile as shown in Figure 4.13.
Figure 4.13: Segment identification
Now, let us discuss the segment identification in greater detail.
(a) Identifiers of Customer Groups

For a start, it is essential to decide on one or more of the characteristics of
people and organisations. Segments which form customer groups use
descriptive characteristics which are then contrasted against the different
groups across the demographics such as family, income, size and industrial
sector. By using these variables, segments are formed based on management
judgment and experience or supporting statistical analyses. The purpose of
identifying customer groups is to discover and identify the differences in
their responsiveness towards marketing mix elements.
(b) Customer Response Profile

Response differences can be identified through the differences in
characteristics. Customer relationship management (CRM) systems provide
ample opportunities for detailed analysis of response differences between
customers. Additional applications would be cluster analysis and perceptual
maps. Cluster analysis refers to a statistical technique that groups people
according to the similarity of their answers to questions such as brand
preferences or product attributes. Meanwhile, perceptual maps provide
applications which are used to build the perceptual maps of buyers towards
a particular brand or product. The data from customer response profile helps
marketers to spot a product for a target market and select appropriate target
market strategies.

" "
4.3.2 Customer Group Identification

For customer group identification approach, some of the characteristics of
organisations or people are necessary to be used as the basis of segmentation.
In this approach, supporting statistical analyses are usually formed whereby the
main purpose is to determine the differences in responsiveness among the various
customer groups. There are three statistical analyses that can be utilised:
(a) Cross Classification

Cross classification is one of the ways in which to identify customer groups.
It is distinguished by the descriptive characteristics, in addition to comparing
the response rates such as sales by tabulating all the information in a table.
The identified groups of customers will be shown in rows whereas the
response categories will be shown in columns. An important concern for this
method is to determine whether a segmentation scheme could distinguish
the customer groups that shows the distinctive products and the responses
of the customers to the brand. There are some advantages through this
method such as ease of use and cost. This method is often used in
organisational markets and businesses.
(b) Data Mining for Segmentation

A wide range of segmentation analysis capability is made possible by the
availability of computerised databases which are more useful in consumer
market segmentation. These databases are developed based on buyersÊ
descriptive characteristics and geographical variables in order to identify the
various customer groups, to design effective marketing programmes as well
as to improve the effectiveness of existing programmes. Groups of customers
are distinguished by the descriptive characteristics and then contrasting
them in terms of responsiveness among customer groups to a marketing mix
such as product usage rate (for example, the number of the printer ink
cartridges used per year by a customer). In this way, the potential segments
can be identified. The segments can also be identified if the differences in
response exist between the segments, provided the response rates are similar
within a segment.
(c) Segmentation Illustration

CustomersÊ needs and preferences can differ much within a market. It is
difficult for marketeers to persuade buyers in the marketplace using a similar
marketing approach for all. Thus, it is important to analyse both the
consumers as well as the competitors. Determining gaps between customersÊ
needs and competitorsÊ offerings can also provide opportunities to improve
customer satisfaction.

There is a connection between the need for financial services and lifestyle as
well as the responsiveness to different offers. As a result, understanding the
differences in lifestyle is essential to provide financial services which are
adapted to the differences in each of these groups. Psychological profiles can
be gleaned from customerÊs monthly statements, which can provide clues to
their personality profiles and lifestyles, such as the following:
(i) Hedonistic grazers are uninhibited people who have the tendency to
only think about satisfying their present wants and needs. Their buying
and consumption habits are typically spontaneous and impulsive since
they prefer instant happiness over deferred fun, and they adopt a „live
for the moment‰ attitude.
(ii) Material martyrs are experts in time management and efficiency.

Control extremists decide their meals in advance and prefer to buy
furniture online rather than to purchase at the retail outlets. These
people are introverted and home-loving. They are generally more
careful and frugal.
(iii) Steady builders are more mature and responsible people with a strong
sense of responsibility. They prefer to deliberate when buying
expensive things rather than spend spontaneously.
4.3.3 Forming Groups based on Response Differences

To decide groups based on characteristics, we have to identify the customer groups
depending on their response differences. This approach is more general than the
customer group identification approach. There are two applications:
(a) Cluster Analysis

Cluster analysis is a set of statistical practices used to reveal customer groups
that are similar to each other within a group but different from other groups.
Cluster analysis uses response differences to structure market segments.
It can be used to discover details in the data without providing any
interpretations. Customers who have similar responses to the questions
should be categorised into the same cluster and customers with different
responses should be in different clusters, respectively. Each cluster can be
targeted by companies who position themselves in unique clusters. For
example, Ferrari (see Figure 4.14) is in the high end sports car market
whereas Alto (see Figure 4.15) is in the middle or affordable car market.

" "
Figure 4.14: Ferrari is positioned in the high end sports car market
Source: http://www.caranddriver.com/ferrari
Figure 4.15: Alto is positioned in the middle or affordable car market

Source: http://www.shifting-gears.com/2016/01/14/alto-now-comes-with-driver-
airbag/
(b) Perceptual Mapping

Perceptual mapping is used as a marketing research technique to visually
display customersÊ perceptions of products and brands in the marketplace.
Customers are asked to respond with regard to their experience with the
product in terms of performance, price, packaging and so on. This helps
marketers to understand about the level of customer satisfaction based on
product characteristics and enable a comparison to competing brands.
"

The perceptual mapping approach can be done according to the following

steps:
(i) Select nine product-market areas;

(ii) Decide the types of brands which are competing in the product-market;
(iii) Gather buyersÊ perceptions of the products or brands;
(iv) Analyse the data of clusters containing more than one composite
attribute dimensions, independent of each other;
(v) Prepare a map of attributes;
(vi) Plot consumersÊ ideal preferences and locate sub-groups, if any;
(vii) Evaluate the solution; and
(viii) Interpret the results.
Figure 4.16 shows various competing hotels as seen on the dimensions of

perceived quality and price.
Figure 4.16: Example of a perceptual map of hotels

Source: Reid and Bojanic (2010)
From Figure 4.16, the Four Seasons Hotel is perceived as a quality and expensive
hotel. Conversely, Motel 6 is perceived as cheap and of low quality.
" "
4.4 MARKET TARGETING

Market targeting follows after an organisation has precisely segment the market.
It decides how many and which segment to target. Often marketers try to combine
several variables when identifying a specific target group. Recognising that target
segment is a key step in promoting the next course of action, it helps to invest
marketing spending more efficiently in this aspect.
4.4.1 Steps in Segmentation Process

Best (2013) has proposed the needs-based segmentation approach which is
outlined in the steps in segmentation process as shown in Table 4.1.
Table 4.1: Steps in the Segmentation Process
Step Description
Needs-based Groups customers into segments based on similar needs and

segmentation benefits sought by customers in solving a particular
consumption problem.
Segment For each needs-based segment, determine which

identification demographics, lifestyles and usage behaviours create a distinct
and identifiable (actionable) segment.
Segment Using predetermined segment attractiveness criteria (such as

attractiveness market growth, competitive intensity and market access),
determine the overall attractiveness of each segment.
Segment profitability Determine segment profitability.
Segment positioning For each segment, create a „value proposition‰ and product-
price positioning strategy based on the segmentÊs unique
customer needs and characteristics.
„Acid Test‰ Create „segment storyboard‰ to test the attractiveness of each

segmentÊs positioning strategy.
Marketing mix Expand segment positioning strategy to include all aspects of

strategy the marketing mix ă product, price, promotion and place.
Adapted from Best (2013)

"

4.4.2 Effective Segmentation Criteria

In order to successfully execute a segmentation strategy and to determine whether
the segment is useful, the following are the criteria required for an effective
segmentation:
(a) Substantial
The segment needs to be large enough and profitable to serve. The segment
should be able to justify the cost of developing a separate marketing mix.
For example, the selected segment needs to earn sufficient sales to breakeven
and to recover the investment. It also needs to generate cash flows and justify
the investment made in the segment. The segment should be a large
homogenous group of consumers which will be profitable for the
organisation to pursue. This is because the organisation needs to have a
minimum return or profit from its investment. As such, it is necessary to
pursue a market segment which is substantial enough to generate a profit.
For example, fashion apparel brand Nike sells and focuses solely on the sport
industry because it is a huge market that can be tapped into and generate
tremendous amounts of profits.
(b) Measurable
This means the selected segment can be measured in terms of its market size.
Purchasing power and consumer demands are useful to determine the size
of the market segment. Several information must be available to measure the
profile and size of the segment. These measurements generally help to assess
the attractiveness of the whole market segment. For example, demographical
factors such as age, education, income or race are variables of segmentation
that can be measured (see Figure 4.17).
Figure 4.17: A sample of the demographic data depicting the various races in the US
Source: https://gemoomay.wordpress.com/tag/art-supplies/page/2/
" "
(c) Accessible
This means the market segment needs to be successfully reached and served.
Accessibility refers to the organisationÊs ability to communicate with the
customers and to deliver products to them. Print and electronic media are able
to provide coverage for defined market segments. For example, the Internet
offers a great potential for direct marketing channels to reach specific
segments. As long as there is Internet access, communication with the target
segment is possible. However, the organisation also has to ensure that the
products can be delivered to the targeted market via its distribution strategy.
Communicaton is important because without proper communication a
product will be unknown. Therefore, every segment needs to be reached and
communicated in an efficient manner.
(d) Differentiable
Differentiable means that the segments are distinguishable from each other
and the consumers in the respective target market respond in different ways
to the marketing mix elements. The key to segment identification requirement
is to determine the differences from the buyers in the product-market
positioning strategy. If each groupsÊ responses are similar with other groups
with regard to the marketing mix strategy, then they are not considered as
different market segments. Market segments are differentiated depending on
their responses to the marketing mix elements. If a segment overlaps another,
both the segments should be placed under one segment. The simplest example
to depict this is by comparing between a man and a woman. For instance,
when buying a pair of formal shoes, a man might prefer (and look for) leather
shoes while a woman will prefer (and look for) high heels.
(e) Actionable
Actionable means that marketers are able to formulate and implement their
marketing programmes effectively in the segment. This is essential for the
organisation to capture the target market and to sell its products in that
particular market segment.
4.4.3 Evaluating and Selecting Market Segments

There are two factors that must be considered when evaluating a market segment.
The two factors are the segmentÊs overall attractiveness and the companyÊs
objectives and resources. Marketers may evaluate the attractiveness of the segment
in terms of its size, growth rate, profitability, economies of scale and the level of
risk. Marketers also need to assess the segment whether it fits the companyÊs
objectives, competencies and resources.

In deciding to target the selected segment, marketers can choose from a range of
possible levels of segmentation. On the one end is the mass market while on the
other end is the individual. Across this continuum are four possible levels of
segmentation, as discussed in the following:
(a) Full Market Coverage

To perform this strategy, the company must be large enough to have the
capability to serve the entire customer group with the companyÊs entire
product range. The marketing expenses will be high. It requires the
organisation to have strong distribution channels, huge assets and numerous
items. Usually only large companies can undertake the full market coverage
strategy. Based on Ashworth and VoogdÊs (1990) classification, full market
coverage can be achieved by:
(i) Undifferentiated Marketing

In undifferentiated marketing, the company treats the whole market as
having similar needs and preferences. It attempts to serve the whole
market with one product offering. It uses mass communication and
mass distribution in its marketing programme. This strategy is
appropriate when all consumers have common needs and basically, the
market need not be segmented. An example of this strategy is gasoline
company such as Petronas, which focuses on one product to fulfil every
consumerÊs basic needs.
(ii) Differentiated Marketing

When consumers have different needs and wants, it is advisable for
marketers to segment the market. In differentiated marketing, the
company sells different products to different market segments.
Its marketing programme and activities are also designed specifically
for each segment. Separate promotional strategies can target numerous
markets. For instance, a shoe company frequently offers different
products that appeal to both men and women in various age categories.
Differentiated marketing would result in higher sales than
undifferentiated marketing. However, it would also incur higher costs.
(b) Multiple Segment Specialisation

There are three types of specialisation:
(i) Selective Specialisation

A company selects numerous segments, each equally attractive and
promising. The segments may have little or no similarity among
themselves but each is considered to be a potential money-maker. This
multiple segment specialisation strategy is an essential tool for

" "
companies that wants to diversify its risks. For instance, Samsung is a

manufacturer of smartphones and also television, among others.
The two products obviously belong to two different markets.
(ii) Product Specialisation

Different products are provided to several different markets which
focus on targeting the larger market segment. This strategy of targeting
the larger market will undoubtedly bring more profits in the long run.
For instance, a company that manufactures safety boots and sells them
to construction workers, factory workers and any segment that requires
safety shoes. This enables the organisation to have a strong reputation
in the product category.
(iii) Market Specialisation

Market specialisation aims at the demands of a certain group of
consumer. For instance, companies that sell a diverse range of products
which are targeted at consumers with high dental consciousness. The
company gains the trust of consumers towards its product. As a result,
increasing the customer base and generating opportunities for
additional product line. An obvious example would be Colgate, which
caters to many consumers with different wants and needs in dental care
products that go beyond just toothpaste (see Figure 4.18).
Figure 4.18: A sample of ColgateÊs range of dental care products

Source: https://www.theindianwire.com/wp-content/uploads/2017/07/Colgate-Oral-
Products.jpg

(c) Single-segment Concentration

A company which adopts the single-segment concentration strategy will
focus only on one segment of the market. Therefore, the main objective of
such a company is to become the largest supplier or distributor in the market
with enough resources to achieve those objectives. For example, Yonex is a
company that specialises in selling racquet-based sports equipment such as
badminton racquets, shuttlecocks, tennis racquets, court shoes and nets. In a
sense, Yonex gains specialisation in the manufacturing of these products and
ultimately brings more value to its products and to the market. However, a
company which focuses in this strategy might face the risk of the segment
collapsing due to a new entry or competitor, for example, Li-Ning, a serious
contender for Yonex.
(d) Individual Marketing

A market segment can also be of one specific buyer, in which the market
offering is customised for that buyer. This is also known as one-to-one
marketing. For example a tailor may design a dress for one specific customer.
A company may also go for mass customisation if it has the ability to meet
its customersÊ requirements and produce individually designed products on
a mass basis.
ACTIVITY 4.2
1. Differentiate the requirements for market segmentation with

appropriate examples.
2. A company which produces shoes needs to evaluate the

segmentation of its market and decide which segment to market to.
Using your own words, describe these segments and share your
answers in myINSPIRE online forum.
3. Companies also need to evaluate the effectivenss of its

segmentation. Discuss the requirements for an effective
segmentation and provide examples to illustrate.
SELF-CHECK 4.2
1. List and discuss the five criteria used for forming market segments.
2. State three methods of customer group identification. Elaborate

your answer.

" "
ACTIVITY 4.3
CASE STUDY ă AIRASIA
AirAsia was established in 1993 and began operations in 1996. However,

the low-cost airline was taken over by Tony Fernandes in September
2001. The flight began with only short-haul flights around Asia but has
now expanded with some long-haul flights after the success of its short-
haul flights in Asia. The long-haul flights, called AirAsia X, is operated
by a different management team, marketing team, engineering team and
pilots. Fernandes made sure that the two cultures are symbiotic without
being parasitic. Besides, he also made sure that the team maintain a
healthy growth on demands and profit margin.
Due to the AirAsiaÊs business tagline of „Now everyone can fly‰, it priced
low fares to consumers in order o make affordable air travel a reality to
almost everyone. Other than that, it sometimes offers limited numbers of
free airline tickets to consumers at certain times. With the concept of no
frills low-cost carrier or LCC, AirAsia does not provide recreation and
free meal services on board to its customers. This is an obvious difference
from full service airlines such as Malaysia Airlines (MAS). Although it
does not provide free meals, AirAsia is quick to embrace the latest
technology in an effort to provide better services. AirAsia also offers a
frequent flyer programme where the company signed a contract to start
a joint venture with the financial service company called Tune Money,
which launched a programme called „BIG‰. BIG members comprising
AirAsia customers will be able to redeem their AirAsia flight tickets and
other AirAsia products by utilising the accumulated frequent flyer
points.
Questions:
1. How does AirAsia segment its customers in the long and short-haul
flight markets?
2. Identify AirAsiaÊs method(s) of ensuring customers loyalty.

Evaluate the effectiveness of the method(s) used.
Share and compare your answers in myINSPIRE online forum."

 The three reasons for conducting market segmentation are to increase the
profit of the company, to provide better communication and to expand the
companyÊs product market.
 There are several bases for market segmentation, which are demographics
(such as age, gender, income), geographical, psychographics and behavioural
(such as occasion, benefits sought, user status, user rate and loyalty status).
 For segmentation to be effective, it must be measurable, differentiable,

accessible, substantial and actionable.
 After evaluating the segments, marketers can consider five patterns of market
selection, namely single-segment concentration, selective specialisation,
product specialisation, market specialisation and full market coverage.
Behavioural segmentation Niche marketing

Demographic segmentation Product specialisation
Geographic segmentation Psychographic segmentation
Individual marketing Segment marketing
Local marketing

" "
Ashworth, G. J., & Voogd, H. (1990). Selling the city: Marketing approaches in
public sector urban planning. London, England: Belhaven Press.
Best, R. J. (2013). Market-based management (6th ed.). Upper Saddle River NJ:
Prentice Hall.
Kotler, P., & Armstrong, G. (2014). Principle of marketing. Upper-Saddle River, NJ:
Pearson.
Reid, R. D., & Bojanic, D. C. (2010). Hospitality marketing management (5th ed.).
Hoboken, NJ: Wiley & Sons.
Sexton, D. (2006). Professor marketing: Trump University marketing 101 (2nd ed.).
Montreal, Canada: Wiley.

Topic
""
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"  Positioning"
"
5
"
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"
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LEARNING OUTCOMES
"
"
"
"
" 1. Describe the methods used to establish an effective positioning in the
" market;
"
2. Explain how marketers identify and analyse the competitors;
"
" 3. Describe how brands can be differentiated; and
"
4. Explain how companies communicate their positioning to their target
"
market.
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 INTRODUCTION
Once the company has identified the different needs and groups of consumers,
and select the segment that it can serve effectively, it should now position its
offering so that its brand stands out in the minds of its target consumers relative
to competitorsÊ brands. If the company is able to deliver high customer value and
satisfaction, it should be able to gain customersÊ loyalty, which will in turn
contribute to high profitability.
This topic focuses on four important issues ă understanding positioning and value
propositions, establishing a brand positioning, positioning and branding for small
businesses, and evaluating the effectiveness of positioning.

98  TOPIC 5 POSITIONING
"
5.1 POSITIONING AND VALUE PROPOSITIONS

Positioning can be defined as the process of designing the companyÊs offering and
creating an image of the brand so that it occupies a distinctive place in the minds
of the consumers. The goal is to make the brand appear to be different and unique
in the eyes of the consumer so that it will maximise the potential benefit to the
company. A well-positioned brand describes what the brand is and what it could
be in the future. It makes the brand meaningful to the consumer.
A successful positioning will create a customer-focused value proposition, which

is the reason why a customer would want to buy the brand. A value proposition
highlights the key benefits of the product or service and provides value to the
customers to satisfy their needs. Table 5.1 shows some examples of value
propositions.
Table 5.1: Examples of Value Propositions
Company and Product Target Customer Value Proposition
Hertz (car rental) Busy professionals Fast, convenient way to

rent the right type of car at
the airport.
DominoÊs (pizza) Convenient-minded pizza A delicious hot pizza,

lovers delivered promptly to your
doorstep.
Volvo (station wagon) Safety-conscious, upscale The safest, most durable

families station wagon for your
family.
In the positioning process, marketers need to communicate the differences and

similarities of their brand in relation to the competitorsÊ brands to their target
market. But before that happens, we need to decide on a positioning strategy by
following these steps:
(a) Choose a competitive frame of reference;
(b) Identify the points-of-parity and points-of-differences; and
(c) Create a brand mantra.

TOPIC 5 POSITIONING  99
5.1.1 Choosing a Competitive Frame of Reference

The competitive frame of reference refers to other competitorsÊ brands that the
companies compete with. These brands would be the focus of the competitive
analysis. Defining the competitive frame of reference involves two steps:
(a) Identifying the Competitors

The first step in developing a positioning strategy is to identify the
competitors. This step provides the company with a basis for a more detailed
analysis which is important to generate a positioning strategy. Firstly, the
company needs to decide on the category of membership, that is, a set of
products that acts as substitutes for the companyÊs brand. These are the
brands that the company competes with. For example, Colgate toothpaste
would consider other toothpaste products such as Darlie, Close-up,
Pepsodent and other toothpaste brands as its competing brands. The range
of the companyÊs competing brands can be much broader especially if there
are many emerging competitors in the industry.
(b) Analysing the Competitors

After having identified the competitors, the company needs to conduct a
competitor analysis. A company needs to look at the strengths and
weaknesses of each competitor such as its key success factors. A company
must have total understanding about the competitors and be able to evaluate
the products. Subsequently, marketers should be able to create a product that
has more benefits so that customers can compare it against the other brands
and able to fulfil their needs. Determining the needs and wants of customers
from the competitive products requires marketing research. The company
may conduct a survey among its customers and ask them to rate the
competitors as shown in the example in Table 5.2.
Table 5.2: RespondentsÊ Ratings of Universities on Key Success Factors
Quality of Library Financial Academic

Reputation
Programme Facilities Assistance Staff
University A E E P P G
University B G G E G E
University C F P G F F
Note: E = Excellent, G = Good, F = Fair, P = Poor

"
Based on the competitor analysis, marketers can define its competitive frame
of reference in order to guide its positioning strategy. In this step, knowing
and understanding how well each of the competitorsÊ products is evaluated
against the important attributes or benefits will effectively help to describe
the positioning. A mapping of products on key dimensions are then used to
express the necessary attributes or benefits. Perceptual mapping is normally
used to understand the competitive positions of various competitng brands
in a marketing environment.
The company should take time to objectively assess the company against its
adversaries in the marketplace. Never make the mistake of underestimating
a competitor. For example, Apple was a complete newcomer in the market
when it launched the iPhone in 2007 and went on to the become a dominant
player within a few short years, edging out, and in some cases, eliminating
bigger and more established competitors from the market. Marketers have to
constantly monitor the competition particularly in the areas of strategies,
ideas, product features and styles, which may threaten their own companyÊs
position. If a company wants to be successful and grow fast in the
competitive marketplace, it is crucial to understand the competitive business
environment when planning for its future profitability.
5.1.2 Identifying Points-of-Difference and

Points-of-Parity
This subtopic shall discuss the points-of-difference and the points-of-parity, and
the concepts associated with them.
(a) Points-of-difference (POD)

POD refer to the positive attributes or benefits that are associated with a
brand and it is believed that they are not found in the competitorsÊ brands.
The positive brand associations can be based on any one of the attributes or
benefits. For example, AirAsia may seek a POD as an airline that offers very
low price tickets. RolexÊs POD reflect a high quality watch while Chanel may
differentiate itself as a brand which has the most stylish and exclusive
handbags. Although creating a strong, favourable and unique association is
not easy, it is essential in order to create a competitive brand positioning.
There are three criteria that determine a brandÊs point-of-difference. A brand
must be:
(i) Desirable to the consumer;

(ii) Deliverable by the company; and
(iii) Differentiable from its competitors.
(b) Points-of-parity (POP)

POP are attributes or benefits of a brand that are not unique. In fact, the
attributes are similar to other brands. In other words, the product attributes
are shared with other brands. For a brand to have a POP based on an attribute
or benefit, consumers must perceive the brand as „good enough‰ on that
particular attribute. It may not be seen as equal to other brands but it is
sufficient that consumers believe it can function just as good as other brands.
(i) Category points-of-parity are attributes or benefits that consumers

view as essential to an offering within a product or service category.
For example, when consumers go to a travel agency, he expects that the
travel agency can book airline tickets, make hotel reservations and
provide advice on holiday packages.
(ii) Correlational points-of-parity are negative associations that arise from

the existence of positive associations in a brand. Many attributes or
benefits that make up their POP or POD are inversely related. This pose
a challenge to marketers. For example, if a brand is good at one
attribute such as being affordable, consumers may think that it is not
good in other areas such as „high quality.‰
(iii) Competitive points-of-parity are associations designed to overcome

perceived weaknesses in the brand in light of the competitorÊs POD.
This means that a weakness in the competitorÊs POD can be a suggested
or taken up as the brandÊs POP.
(c) Choosing Specific POP and POD

To build a strong brand, marketers need to create a competitive advantage
for the brand. The company must have the ability to perform in one or more
ways where competitors are not able to do so. For a company to sustain its
business, it must continuously create new competitive advantages that can
serve as POD. Brand benefits and attributes are the main focus when
developing POD and POP. Consumers are usually interested in the product
benefits and how they will benefit from using the product or service.
"

"
(d) Means of Differentiation

For a brand to have POD, it must be sufficiently desirable, deliverable and
differentiatiable. The most important means of differentiation is the benefits
that the brand offers to consumers, which is related to product performance.
For example, AirAsia differentiates itself by promoting its low fares which
enables everyone to fly while Swatch offers colourful and fashionable
watches. Marketers must be creative in generating the means of
differentiation by scanning the environment which often opens up new
opportunities.
There are two sub-dimensions under differentiation, namely dissimilarity

and uniqueness. Brand differentiation refers to how consumers identify the
brand or product differently from its competitors based on the physical or
non-physical characteristics. The basic principle of brand differentiation is
that the company must ensure that consumers are able to recognise the brand
or product amongst its competitors. Dissimilarity indicates the degree of the
brandÊs similarity when it compares with its rivals in the same market.
Uniqueness refers to how a brand stands out amongst its competitors.
(e) Unique Selling Proposition

A unique selling proposition can provide a great advantage to a company.
With a strong unique selling proposition, the company can clearly explain
the usefulness of a potential new business, product or even services as
compared to the available businesses in the marketplace. Examples of unique
selling propositions are:
(i) M&MÊs „The milk chocolate that melts in your mouth, not in your
hand‰; and
(ii) FedEx Corporation „Where it absolutely, positively has to be there

overnight‰.
To create a unique selling proposition, there are four steps that should be
followed. They are:
(i) List the target audience;
(ii) Explain the challenges faced;
(iii) List the biggest advantage of why customers choose our company or
product; and
(iv) Describe the promise.

(f) Perceptual Map

In order to position a brand based on specific benefits such as the POD and
POP, it is useful to apply the perceptual map. Perceptual maps are visual
representations of consumer perceptions and preferences. These maps
provide the market situations of brands or products and how consumers
view the products and services along two dimensions, for example, quality
and price.
Figure 5.1 shows a hypothetical perceptual map for a beverage category.

The four brands ă A, B, C and D ă vary in terms of how consumers view their
taste profile (light versus strong) and personality and imagery
(contemporary versus traditional). Also displayed on the map are the three
market segments (1, 2 and 3). The ideal points represent each segmentÊs most
preferred combination of taste and imagery. For example, consumers in
Segment 3 prefer beverages with a strong flavour and traditional image
whereas consumers in Segment 2 prefer light flavour with an image
somewhere between traditional and contemporary.
Figure 5.1: A hypothetical beverage perceptual map

In deciding to position or reposition a brand, marketers would require a detailed

consumer and competitive analysis on various factors including resources,
capabilities and the likely intentions of competing companies in order to identify
the markets where consumers can profitably be served.

"
5.1.3 Creating Brand Mantras

A brand mantra is the heart and soul of the brand. Its purpose is to ensure that the
organisationÊs employees and all external marketing partners understand what the
brand represents in the eyes of the consumers.
(a) Role of Brand Mantra

Brand mantra plays a very important role in positioning. By highlighting the
POD of the brand, brand mantra provides guidance on what product(s) that
the brand should carry, the type of ad campaigns to run as well as where and
how to sell the product(s). Brand mantra provide suggestions to marketers
on the appropriate marketing activities and actions to be carried out in order
to achieve the necessary customer impressions. Basically, brand mantra
communicates what the brand is all about.
(b) Designing the Brand Mantra

There are three criteria when designing a brand mantra:
(i) Communicate
A good brand mantra highlights the uniqueness of the brand.
Marketers may also need to define the category of business for the
brand and set the boundaries for the brand.
(ii) Simplify
An effective brand mantra should be memorable. It should provide a
short, crisp and vivid meaning.
(iii) Inspire
Ideally, the brand mantra should be meaningful and relevant to as
many employees in the organisation.
For rapidly growing brands, it is best to define the product or benefit space in
which the brand would like to compete. For example, Nike competes in the area
of „athletic performance‰ while Disney competes in the area of „family
entertainment‰. In fact, Nike and Disney succeeded because no competitors could
deliver on the combined promises suggested by their brand mantras.
"

For brands in a more stable category, their brand mantras may focus exclusively
on the POD. Figure 5.2 shows a hypothetical example of StarbucksÊ brand
positioning.
Figure 5.2: A hypothetical example of StarbucksÊ brand positioning bullÊs eye

5.2 ESTABLISHING A BRAND POSITIONING

Positioning is a significant strategy for every marketer who wants to effectively
cater his brands or products to the target consumers. Marketers will have to
position the core competencies of the product or brand in the minds of the
consumers. Positioning helps the company create a good impression of the
product or brand amongst its target market relative to the competitorsÊ products
or brands.
After marketers have designed the positioning strategy, they should communicate
it to everyone in the organisation in order to guide their words and actions.
It would be very helpful if the company could provide a schematic diagram of the
brand positioning bullÊs eye that outlines the companyÊs positioning strategy.

"
A good positioning strategy should have several POD and POP. A good
positioning should also follow the 90ă10 rule, which should be applicable to 90 per
cent of the products in the brand. The remaining 10 per cent should be reviewed
to ensure that they have the proper branding strategy.
5.2.1 Communicating Category Membership

Products can be classified into various categories. For example, Mary Kay and
Avon belongs to the cosmetics category, Quaker Oats and Cheerios belong to the
cereal category, Sharp and Sony TV belong to the audio/video (AV) category and
so on. When a company introduces a new product, marketers must inform
consumers of the brandÊs category membership. The typical approach to
positioning is to inform consumers of the brandÊs membership before stating its
POD. Consumers also need to know what product it is and what function does it
serve. For new products, the initial advertising should concentrate on creating
brand awareness. Subsequent advertising will attempt to create the brand image.
There are three main ways to convey a brandÊs category membership:
(a) Announcing the Category Benefits

In order to convince consumers that a product will deliver as promised,
marketers usually use product benefits to announce its category
membership. For example, marketers may highlight the durability of the
product or high quality ingredients of the product.
(b) Comparing to Exemplars

One way to specify a brandÊs category membership is by comparing the
brand with some other well-known and noteworthy brands in that category.
For example, when Tommy Hilfiger was an unknown brand, it was
advertised as a brand that is as great as Calvin Klein.
(c) Relying on the Product Descriptor

The product descriptor that follows the brand name is often used as a means
to convey the brandÊs category. For example, a car can be categorised as an
MPV, an SUV, a station wagon or a sports car.
"

5.2.2 Communicating the POP and POD

One of the challenges in positioning is that many of the benefits that make up the
POP and the POD are negatively correlated. Some examples of negatively
correlated attributes and benefits are shown in Table 5.3.
Table 5.3: Examples of Negatively Correlated Attributes and Benefits
 Low price vs High quality  Powerful vs Safe

 Taste vs Low calories  Strong vs Refined
 Nutritious vs Good tasting  Ubiquitous vs Exclusive
 Efficacious vs Mild  Varied vs Simple
Consumers usually want to maximise both the negatively correlated attributes or

benefits. The best approach is to develop a product or service that performs well
on both dimensions. Other approaches include launching two different marketing
campaigns, each devoted to a different brand attribute or benefit, linking the brand
to a person, place, or object that possesses the right kind of equity in order to
establish the attribute or the benefit as a POP or POD.
Every product has its own characteristics and attributes. Marketers need to choose
and plan a good marketing programme to promote the product or brand. There
are several ways to promote the productÊs core benefits to the target market or
segment. The values or benefits obtained by the consumers can be seen when they
consume the product.
Marketers can use advertising, product placement, social network and other
means to promote the product. The advertisement needs to emphasise the benefits
and core values. An advertisement can use some of the appeals such as humour
appeal, fear appeal, comparative appeal to highlight the benefits of the product or
brand, for example, DominoÊs pizza whose core service value is „to deliver pizza
within 30 minutes or it is free‰ (see Figure 5.3). Social network such as Facebook,
Twitter or Instagram is a useful place to promote certain products or brands by
sharing, liking and commenting on the post.

"
Figure 5.3: DominoÊs pizza advertisement

Source: http://sproutsocial.com/insights/call-to-action-phrases/
5.2.3 Monitoring Competitors

Positioning requires commitment from the entire organisation. Once a positioning
strategy has been decided upon, it should not be changed constantly. At the same
time it is important to regularly check the desirability, deliverability and
differentiability of the brandÊs POP and POD in the marketplace in order to
determine if the brand positioning needs to be changed or, in rare cases, to be
replaced.
In assessing potential threats from competitors, the following three high-level

variables are useful:
(a) Share of Market

The competitorÊs share of the target market in terms of volume of sales in
relation to other competitors.
(b) Share of Mind

The percentage of customers who named the competitor or company in the
industry that comes first to their minds.
(c) Share of Heart

The percentage of customers who named the competitor or the company
which they would prefer to buy the product from.
Companies that make steady gains in the share of mind and share of heart will
inevitably make gains in market share and profitability.

5.2.4 Maintaining Brand Positioning

Marketers have to improve their products and brands to satisfy consumer needs
and wants. Quality control is important in maintaining the brand position.
The good name of a brand has value in the marketplace. The brand name is
sometimes taken into account when evaluating a companyÊs value. Marketers
should modify their products to suit the wants and needs of their consumers.
Marketers should follow market trends and adopt the latest technology.
For example, FinlandÊs cellphone brand, Nokia, was eliminated from the market
because it failed to catch up with the other competitors as the industry moves
towards the smartphone era.
Marketers have to always look for ways to satisfy and retain their consumers. It is
more costly to look for new customers than to maintain existing ones. Marketers
should keep track of their customersÊ behaviours and try to meet their
expectations. To meet the desired service expected by the customers, the
performance of the product should satisfy and delight the customers.
The positioning strategy is always discussed with regard to the product or brand.
Generally, it is mostly focused on the changing tastes of customers satisfaction.
There is an interesting example on the impact of changing the logo. The first logo of
Starbucks contained a brown coloured logo with the words, „Coffee.Tea.Spices‰ (see
Figure 5.4). It is easy for customers to see that Starbucks is selling products which
are related to coffee. Starbucks coffee positioned itself as „good taste and fresh
coffee.‰ This information was given to customers to help them understand the
products that Starbucks is selling as well as to attract customers. Starbucks then
decided to change the appearance of its logo from brown colour to green colour.
Starbucks attempted to reposition itself by changing the logo and to inform their
customers that Starbucks is not only selling coffee but it has also expanded to
offering various types of food. The logo change helped to create a better image and
positioning of its products to its customers.

"
Figure 5.4: Starbucks logo ă then and now

Source: http://1000logos.net/wp-content/uploads/2016/12/starbucks-logo-
evolution.jpg
5.3 POSITIONING AND BRANDING FOR

SMALL BUSINESSES
For small businesses with limited resources and budgets, building brands may
pose a big challenge. However, numerous entrepreneurs have successfully built
their brands from scratch. For businesses with constraints in their resources, it is
very important for them to stay focus in their marketing programmes. The
following are some branding guidelines that will be useful for their marketing
programmes:
(a) Find a Compelling Product or Service Performance Advantage

Just like any other brands, highlighting the meaningful differences in a
product or service can be the key to success.
(b) Focus on Building One or Two Strong Brands based on One or Two Key
Associations
Small businesses can rely on one or two brands and key associations as POD.
These associations must consistently be reinforced in their marketing
programmes.
"

(c) Encourage Product or Service Trial in Every Way Possible

In order to give customers a feel of the product, small businesses must
encourage potential customers to try out the product or service. This can be
done through demonstrations, free samples, free trials or any means to
engage the consumers with the brand.
(d) Develop a Cohesive Digital Strategy to Make the Brand Appear „Bigger and
Better‰
Small businesses should utilise the Internet and social media such as
Facebook, Twitter, Instagram and YouTube to promote their brands to the
whole world. This will keep the brand name in the minds of the consumers.
Mobile marketing is also effective for small businesses.
(e) Create Buzz and a Loyal Brand Community

Small businesses often rely on word-of-mouth to establish their positioning.
They can utilise viral marketing through social media. Besides, they can also
make use of public relations, social networking and low-cost promotions as
well as sponsorship.
(f) Employ a Well Integrated Set of Brand Elements

It is important for small businesses to maximise the contributions from all
aspects of the brand elements, namely the brand name, logo, packaging and
all other types of brand equity drivers to enhance its brand awareness and
brand image. For example, marketers should use brand names that are
meaningful and memorable, and innovative or unique packaging to attract
the attention of customers.
(g) Leverage as Many Secondary Associations as Possible

Leveraging on secondary associations means to associate the brand with any
persons, places or things that are favourable. It is often a cost-effective
shortcut means to build brand equity especially for those that associates with
quality or credibility factor.
(h) Creatively Conduct Low-cost Marketing Research

Small businesses can engage a variety of low-cost research methods to
connect themselves with their customers as well as to analyse their
competitors. To save cost on research, these small businesses can encourage
university students who are required to carry out project papers as part of
their course or programme requirement to conduct the research for them.
They can also offer some small research grants to university lecturers to
conduct research for them.

"
SELF-CHECK 5.1
1. What is positioning? How is the practice of positioning related to

the marketing concept?
2. Explain why positioning is important.
3. How can advertisements be used to promote the product or brand

benefits in the positioning process?
5.4 EVALUATING POSITIONING

EFFECTIVENESS
Evaluating positioning effectiveness is problematic in the real world. However, it
can help to overcome some key limitations and to serve as a support tool for
positioning-related decisions. Positioning effectiveness can be evaluated based on
two approaches. The two approaches are explained in the next subtopics.
5.4.1 Customer-based Positioning Evaluation

Approach
The customer-based positioning evaluation approach is divided into two types:
(a) Perceptual Mapping

Perceptual mapping represents consumersÊ perceptions of competing brands
in two dimensions, for example, properties and preferences. Perceptual
maps show marketers how consumers view the brands in relation to
competitors. Marketers need to ensure that the data and information
collected to build the map is accurate and correct in view of the subjectivity
of consumer perception. Perceptual maps allow marketers to identify gaps
in the market while the gaps represent new market opportunities.
Figure 5.5 shows perceptual map for UK chocolate confectionery brands

along two dimensions, namely price and quality.

Figure 5.5: Perceptual map for UK chocolate confectionary brands

Source: www.learningmarketting.net
Based on Figure 5.5, Belgium Chocolate is placed at the top right hand
quadrant due to the high quality and high market price of the product.
On the other hand, Twix is sold at a reasonable price that can be afforded by
the majority of consumers. It is, therefore, perceived as having low quality
and low price, and placed at the bottom left hand quadrant of the map.
(b) Customer-based Multidimensional Construct

Positioning effectiveness can be viewed in terms of consumer perceptions
based on differentiation, brand favourability and credibility. These are
considered as key dimensions of a well-positioned brand (refer to Figure 5.6).
Figure 5.6: A study model to measure the effectiveness of brand positioning strategies
Source: Fuchs (2008)
"
There are three interrelated dimensions used to evaluate positioning strategy

effectiveness. The three dimensions are:
(a) Differentiation
As mentioned earlier in Subtopic 5.1.2(d), brand differentiation refers to how
consumers identify the brand or product differently from its competitors
based on the physical or non-physical characteristics. Under differentiation,
there are two sub-dimentions, namely dissimilarity and uniqueness.
As explained earlier, dissimilarity indicates the degree of the brandÊs
similarity when it compares with its rivals in same market while uniqueness
refers to how a brand stands out amongst its competitors.
The main difference between dissimilarity and uniqueness is that

dissimilarity refers to whether the brand has attributes that are common with
its competitors in the same product category. On the other hand, uniqueness
refers to whether the brand possesses attributes that are different for users.
(b) Favourability
Favourability indicates the magnitude of positive brand attitude of
consumers towards a brand that satisfies consumersÊ needs. Whenever the
brandÊs features or benefits are able to satisfy the consumersÊ needs and
wants, they will perceive the brand to be favourable. Favourability can seize
extra general impressions about a brand. This dimension ensures that value
is generated to consumers and a set of brand associations are delivered by
the brand.
(c) Credibility
Credibility refers to the trustworthiness of the positioning information in
which the company declares to the public. Credibility is also known as the
willingness and the ability to carry out what the company has proposed.
ConsumersÊ confidence and trust is the result of a well-positioned brand.
When a company successfully delivers high credibility through its products
or brands, consumersÊ uncertainty and annoyance will be lowered. This is
because the information given is convincing and worthwhile to consumers.
Credibility can affect price sensitivity and has a positive impact on brand
consideration and choice.

5.4.2 Company-based Positioning Evaluating

Approach
With this approach, managers evaluate the positioning based on financial
performance of the product or brand. This financial performance includes sales
and profit as well as market share.
By looking at the sales and profit of the company, the effectiveness of the brand or
company positioning can be evaluated. Sales can be defined as the total amount of
money that a business receives from its business activity such as selling products
or services, whereas profit is known as the surplus after total expenses are
deducted from the total revenue together with computed taxes and paid dividend.
One of the most notable results of effective positioning is the positive change in
the company, product sales and profits. When marketers built up an effective
positioning, the brands or the company will generate a deep impression in the
consumers. Brands or companies that first appear in the minds of the consumers
normally record higher sales levels since these brands or products are seen as the
perfect solution for particular consumer needs. As a result, these companies
eventually gain higher profits.
In evaluating positioning effectiveness, marketers can also used market share as

one of the company-based positioning evaluation approach. The market share of
a company refers to the percentage of sales that a particular company earns from
the total sales in the industry within a time period. To measure the market share,
researchers divide the company sales during the accounting period by the total
sales of the specific industry.
When a brand or a company captures a significantly larger market share in the

industry, the brand is said to have developed an effective positioning. For instance,
Microsoft is well known for its „accessibility‰ positioning. MicrosoftÊs mission is
to create technology that is accessible to everyone, at all ages and abilities. When
Microsoft first launched Microsoft Windows in the 1980s, MicrosoftÊs success
captured over 90 per cent market share of the worldÊs personal computers. It was
proof of their effective positioning.
"

"
5.4.3 Importance of Evaluating the Effectiveness of

Positioning
One of the reasons that can lead to the failure in positioning a brand, product or
company is that marketers do not give sufficient attention to the importance of
evaluation. Although marketers develop attractive positioning statements or well-
developed positioning strategies, positioning will not be successful if there is
insufficient effort and emphasis given to positioning evaluation and monitoring.
Evaluating the positioning effectiveness is not taking a snapshot of the result at the
final stage of the process to show stakeholders that it worked or failed. Marketers
should use evaluation as an ongoing management and learning tool to improve
the effectiveness of positioning. By evaluating the effectiveness of positioning
frequently, marketers will be able to have a clearer idea of the companyÊs current
position and can look deeper into the markets as well as discover new
opportunities in the marketplace.
"
ACTIVITY 5.1
Work with a coursemate on the following activities and post your

answers in myINSPIRE online forum.
(a) Describe the positioning process and illustrate with relevant

examples.
(b) Compare any two positioning strategies that you have learned by
listing the advantages and disadvantages.
(c) Illustrate and explain the use of perceptual mapping in an

automobile industry. Select at least five competing brands.
(d) The brandÊs identity has to be supported by a simple tagline which

is easy to pronounce and remember. The brandÊs statement or tagline
helps the company to positon its brand or product in the mind of the
customer. Think of one brand that has impressed you and write
about the brandÊs statement. In addition, describe how the company
has positioned the brand in the minds of its customers.

SELF-CHECK 5.2
1. Why do marketers utilise the customer-based positioning

evaluating approach more often than the company-based
positioning evaluating approach?
2. Why do marketers need to understand the target audience well?
3. How do marketers overcome the competition amongst similar

brands which have strong positioning?
4. Give an example of a brand positioning strategy.
5. List the process of developing a positioning strategy.
6. How can positioning effectiveness be evaluated?
7. Why does the effectiveness of positioning need to be evaluated ?
ACTIVITY 5.2
CASE STUDY ă THE COFFEE BEAN & TEA LEAF
Coffee has become a favourite drink for most adults. One of the
successful coffee brands is The Coffee Bean & Tea Leaf (Coffee Bean).
Today it has many branches throughout the world. It was first
established in America in 1963. There are around 850 cafes in 23 distinct
countries, both domestically and overseas. The company has expanded
to North America, Asia, Europe, Africa and South America. The founder
of Coffee Bean is Herbert Hyman who provided coffee service to offices
before he embarked on the idea of starting a coffee shop business. The
founder started the first coffee shop in Los Angeles in 1968. The initial
idea of the founder was to sell whole beans in the country while the most
impressive idea was to allow customers to try out the beans themselves
before making any purchases.

"
The mission of Coffee Bean is to produce the finest and rarest loose-leaf
teas and premium coffee. The Coffee Bean promises to give each and every
customer quality coffee and tea. The company offers various types of
drinks such as Original Ice Blended Coffee and Tea drinks. The company
also sells its own merchandise such as the different flavoured coffee
powder, whole bean coffee from different countries as well as premium
whole-leaf teas. The target market of Coffee Bean is men and women
between the ages of 18 and 40. The company knew that this age group
tends to drink more coffee and tea. The main objective of Coffee Bean is to
offer good quality roasted coffee and satisfactory service. Coffee Bean is
usually compared against other cafes such as Starbucks.
The companyÊs competitors (such as Starbucks Coporation and Spinelli

Coffee Company) are leading with higher sales values. The competitor
analysis highlights Starbucks and Spinelli as Coffee BeanÊs main
competitors in terms of target market, pricing strategy as well as similarity
in variety. At the beginning of the business, Coffee Bean only offers
breakfast set meals. However, the company wanted to differentiate its
products by offering whole set of sit-down meals in the morning and
afternoon, and its own recipe of cakes and pastries. Comparatively, the
competitors only provide normal and ala-carte meals. This is what the
company calls a „coffee joint with meals‰ strategy.
Coffee BeanÊs cakes are also available for online purchase. Customers can
order the custom-made cakes and pastries via online. The company has its
own specialised cake section.
In addition, the company has also created its own brand of beverage
machines called the CBTL™ System which was launched in December
2011. This product has given the company a competitive advantage over
its main competitors. This system is very convenient for coffee and tea
lovers who wants to make their own beverage at home with the
handcrafted Italian technology, producing quality coffee tastes. The
innovative design is by Caffitaly System. The company is able to provide
quality coffee to consumers.

Consumers have minimum expectations of their standard of quality coffee

since Coffee Bean is a „coffee-café‰ where coffee is their specialty beverage.
Coffee Bean, Spinelli and Starbucks all provide or offer quality coffee to
their customers. Ice-blended coffees have been the points-of-parity in the
coffee-café market.
The companyÊs beverage, The Original Blend, has proved to be a big hit
among its customers when the product first appeared in 1989. Coffee Bean
has also engaged in corporate social responsibility campaigns. One of its
campaigns, Caring Cup, not only nurtures and plants in the domestic
communities served by Coffee Bean but also in international communities
where the coffee are sourced from. Coffee Bean raised money through the
sales of its products and partly donated the money to support some vital
programmes such as Education for Growing Families in Columbia and
Aids Lanka Kids in Sri Lanka. These initiatives are fully supported through
valued partnerships. The companyÊs main competitors are also engaging in
social responsibility activities.
Coffee Bean also designed a loyalty card with various designs for their loyal
customers. Like Starbucks and Spinelli, Coffee Bean also introduced a
unique loyalty card to its customers, which is the Coffee Bean card. The
card can be used at every outlet owned by Coffee Bean. By purchasing a
beverage using the loyalty card, customers are able to get extra reward
points which they can exchange for small gifts or a cup of free beverage.
It is convenient for Coffee BeanÊs customers.
Questions:
1. How did Coffee Bean differentiate itself from its main competitors?
2. What are the strategies that Coffee Bean adopts in order to attract its
target market?
"
Share and compare your answers with your coursemates in myINSPIRE
online forum.

"
 Positioning helps organisations project a good impression of their products or

brands by offering better quality products that can satisfy consumer needs and
wants.
 To develop an effective positioning, the company must study both the

competitors and the customers. It needs to determine the competitorÊs
strategies, objectives, strengths and weaknesses.
 In developing a positioning strategy, a company must identify a frame of

reference by determining the target market and the competition. It must also
identify the points-of-parity (POP) and points-of-difference (POD) pertaining
to its brands.
 POD are associations which are unique to the brand in relation to the
competitorsÊ brands and they are favourably evaluated by consumers. These
differences may be related to the product or service, or other considerations
such as employees, channels of distribution, image or services.
 POP are associations which are not necessarily unique to the brand. It consists
of characteristics that are similar to the characteristics of competitorsÊ brands.
 As an on-going management and learning tool, the evaluation of positioning

effectiveness is able to provide the organisation a clearer picture of its current
position and the discovery of new opportunities in the marketplace.
 There are two approaches to evaluating positioning effectiveness. They are

consumer-based positioning evaluation approach and company-based
positioning evaluation approach. The evaluation is able to help the
organisation overcome some key limitations and to serve as a support tool for
positioning-related decisions.
 The consumer-based positioning evaluation approach involves two methods,

namely perceptual mapping and customer-based multidimensional construct.
 Perceptual mapping represents consumersÊ perceptions of competing brands

in two dimensions, for example, properties and preferences. The perceptual
map shows the marketers how consumers view the brands in relation to the
competitors. It also enables marketers to identify gaps in the market.
"

 In the customer-based multidimensional construct, the positioning

effectiveness can be viewed in terms of consumer perceptions based on
differentiation, brand favourability and credibility. These are considered as
key dimensions of a well-positioned brand.
 The second approach to the evaluation of positioning effectiveness is the

company-based positioning evaluation approach. In this approach, companies
can use sales and profits as well as its market share to evaluate its positioning
effectiveness.
 Small businesses may also employ the same principles of positioning as larger
companies. However, they must place extra emphasis on their brand elements
and secondary associations.
Credibility Positioning
Dissimilarity Positioning process
Favourability Positioning strategy
Points-of-difference (POD) Unique selling proposition
Points-of-parity (POP)
Fuchs, C. (2008). Brand positioning through the consumersÊ lens (Dissertation).

University of Vienna, Vienna, Austria.
Kotler, P. T., & Keller, L. K. (2016). Marketing management (Global ed.). Boston,
MA: Pearson.

Topic
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"  Developing
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and
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Managing
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Products
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LEARNING OUTCOMES
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" 1. Describe the characteristics of products;
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2. Explain product differentiation;
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" 3. Discuss the importance of product and brand relationships; and
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4. Explain how packaging, labelling, warranty and guarantees function as
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marketing tools.
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 INTRODUCTION
This topic discusses product strategies by underlining the characteristics and
classifications of products, product differentiation and the relationships between
products and brands. Packaging, labelling, warranties and guarantees of the
product will also be discussed in the last part of this topic.
"

TOPIC 6 DEVELOPING AND MANAGING PRODUCTS  123
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6.1 CLASSIFYING PRODUCTS ACCORDING TO

CHARACTERISTICS
Products are manufactured to satisfy the needs and wants of consumers. They can
be in the form of physical goods, services, experiences, events, persons, places,
properties, organisations, information and ideas.
6.1.1 Product Levels: The Customer Value Hierarchy

Marketers are required to plan five product levels in their product offering.
At every product level, marketers aim to create customer value.
(a) The service or benefit that is provided to the customer is the core benefit. This
is the reason why the customer really wants to buy the product. In this
situation, the marketer must realise that he plays an important role;
(b) At the second product level, the marketer must turn the core benefit into a
basic product;
(c) At the third product level, the marketer must produce or offer an expected
product. The expected product must have a set of characteristics which
coincide with the buyerÊs expectation when he buys the product or service;
(d) At the fourth product level, the marketer needs to improve the product to
the extent that it can perform more than what the customer needs and wants;
and
(e) At the fifth product level, the product has the potential to include
enhancements and variations that will cause the product to well into the
future.
Therefore, companies need to find ways to differentiate their products from those
of the competitors in order to ensure that they can increase their market share.
"

124  TOPIC 6 DEVELOPING AND MANAGING PRODUCTS
"
6.1.2 Product Classifications

Marketers generally classify products according to various characteristics.
An effective marketing mix strategy can be applied to each product based on the
characteristics in the classifications. The various characteristics are listed in the
following:
(a) Durability and Tangibility

The durability and tangibility characteristics of products can be attributed
into non-durable and durable goods and services.
(i) Non-durable Goods

Refers to products that are immediately consumed in one use or over
several uses. For example, food and drinks (see Figure 6.1).
Figure 6.1: Examples of non-durable goods

Source: https://www.pinterest.com/pin/491666484293181711/
https://www.pinterest.com/pin/305681893428121980/
(ii) Durable Goods

Refers to products that can normally be used for a long time.
Consumers do not need to purchase them too often because the lifespan
of the product is longer. Furniture, television and refrigerator are some
of the examples of durable goods (see Figure 6.2).

"
Figure 6.2: Examples of durable goods

Source: http://pubpages.unh.edu/~epd28/project/separatepage-home.html
https://www.newtechnology.co.in/micromax-led-tv-price-list-india/
(iii) Services
Services offered require the service provider to control the quality of
the service, supplier credibility and adaptability since it is intangible,
inseparable, variable and perishable. For example, AirAsia provides
affordable flying experience for their customers (see Figure 6.3).
Figure 6.3: An example of service

Source: http://www.goodprice.my/sales-offer/air-asia-free-seat-promotion-77

"
(b) Consumer Goods Classification

Consumer spending can be categorised on the basis according to spending
behaviours.
(i) Convenience goods are purchased regularly and with less effort. There
are three types of convenience goods:
 Staple
Consumers consume this type of goods daily or regularly.
Examples include rice, bread, vegetables and fruits.
 Impulse
An unexpected consumer decision to buy a product. For example,
a customer decides to buy candies while at the cashier counter at
the supermarket. Customers usually buy this type of product if they
can experience the taste, smell, hear, see and feel of the product.
 Emergency
Goods that purchased when consumers feel the need for the
product in an urgent or emergency case. Examples include
umbrellas, snow shovels, medicines and candles. In addition,
emergency goods are usually ready-to-use items.
(ii) Shopping goods are goods that consumers will evaluate before
deciding on the purchase. They will evaluate the price, quality, value
and make comparisons with other brands, and will usually take more
time to decide on the purchase. Two types of shopping goods are:
 Homogeneous Goods
These goods are differentiated in terms of price, design and brand
image because they have similarity in term of quality. For example,
Nike and Adidas produce shoes for marathon athletes. The quality
of both products is similar and both are suitable for athletes during
tournaments. However, they have differences in terms of style,
price and brand image.
 Heterogeneous Goods
For these goods, consumers often need more information and
advice from other people such as salespersons and advisors who
are experts in that particular field. For example, consumers who
want to buy a car will ask the salesperson for more specific
information about the car.

"
(iii) Specialty goods are goods whereby buyers willingly make special
purchasing efforts prior to purchasing the exclusive or unique brand.
For example, luxury watch manufacturers usually offer a custom-made
watch to their customers.
(iv) Unsought goods are products that consumers would not normally buy
or prefer not to buy. It could be due to consumers not being aware of
the existence of the product or they may be aware of the product but
do not think that there is a need to buy it. Examples include insurance,
funeral services, reference books and smoke detectors.
(c) Industrial Goods Classification

Products are classified as industrial goods when they are used to make into
final products. Figure 6.4 illustrates the classification of industrial goods.
Figure 6.4: Classification of industrial goods

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The following describes the industrial goods classifications in more detail:
(i) Materials and Parts

These are raw materials or manufactured materials. They can be
divided into two major groups:
 Raw materials can be further categorised into farmed products

(bred or grown such as palm oil, milk and meats, and can generally
be replenished) and natural products (harvested from nature and
generally not replaceable when depleted such as timber, oil and
metals); and
 Manufactured materials and parts can be further split into two

major parts, namely component materials (such as latex, plastic
compounds and paper) and component parts (such as fasteners,
screws and wood panels).
(ii) Capital Items

These comprises long-lasting merchandises that can assist in the
making or handling of final products. They include:
 Installations on-site; and
 Tools and equipment.
(iii) Supplies and Business Services

Supplies and business services are short-term merchandises and
services which can assist in the making or handling of finished
products. There are two kinds of supplies, namely:
 Maintenance and repair items (including business advisory

services such as legal advice, consulting and advertising); and
 Operating supplies (such as office stationery).

"
6.2 DIFFERENTIATION
Differentiation arises when brands or products have a special feature or
characteristic that are valued and perceived by consumers to be better or more
special (unique) than competing brands or products.
6.2.1 Product Differentiation

In general, there are nine product differentiations as follows:
(a) Form
This refers to the size, shape or product structure that can be identified by
the customer. For example, shoes have different sizes and colours. The
advantage of having different sizes and colours is to cater to different
customer preferences in order to offer choices to customers.
(b) Feature
The product feature refers to the product characteristic. One type of product
feature is product quality, which makes the product more attractive to
consumers. For example, a pair of designer branded shoes is likely to be
perceived as being more beautiful and better quality than a pair of non-
branded shoes. Product features can differentiate a product from its
competitorsÊ products.
(c) Customisation
Marketers can understand customer preferences by customising according
to the customersÊ tastes and preferences. For example, by understanding the
requirements of the customers, many luxury car brands customise their cars
according to the colour preferences of their customers. Marketers can also
modify their products to meet the needs of a few rich people.
(d) Performance Quality

In terms of performance quality, companies need to differentiate on specific
criteria such as product planning, design, manufacture, testing, measurement,
transportation, storage, sales and after-sales service. Performance quality
refers to the product having achieved its intended purpose according to the
expected performance perceived by the customers.
For example, in the commodities market, many companies need to

differentiate by demonstrating that their product performance quality is
higher than or equal to the market quality standards. Manufacturers,
therefore, have to demonstrate performance quality to its target market in

"
order to compete with the performance quality shown by its competitors. The
advantage is that there is opportunity to improve the overall quality of the
product in the market.
(e) Conformance Quality

Conformance quality is measured within an acceptable tolerance range. For
instance, if customers expect food that has been ordered to be served within
15 minutes, any delay out of the time frame of 15 minutes will not be
acceptable because it does not conform to the quality expected.
(f) Durability
Product durability is the average lifespan of the product. For example,
magnetic hard disk generally have a lifespan of up to 10 years. Customers
who buy products that are long lasting and durable are likely to recommend
them to others.
(g) Reliability
Reliability means specific conditions are met within the recommended time
and is consistent for every occasion. For example, an equipment that the
marketer claims to be good and it actually works throughout the expected
duration of time, is said to be reliable. However, when a marketer claims that
the product is good but it only works occasionally, then it is not a reliable
product. The higher the reliability of the product, the better it the product is.
Unfortunately, to produce a highly reliable product would take a long time
and requires lots of research and development.
(h) Reparability
Reparability refers to damaged or defective products whose product features
are restored to an acceptable operating condition within a specified period.
For example, when one component of a car malfunctions, the car can be
driven again after it has been repaired. Products that can be repaired not only
attract more customers but also save customers money in terms of the
maintenance cost.
(i) Style
Product style can be summed up as a product's unique or distinctive
appearance and feature. For example, Bugatti produces the world's top super
sports car, while Rolls-Royce produces the world's top luxury car. Products
have different styles to meet different customer needs but that does not
always mean better performance or quality.
"

"
6.2.2 Design Differentiation

Design refers to how a product looks like and functions, and meets the
requirements of the customer. Nowadays, customers not only concern about the
quality but also the design of the product. A high quality product is not marketable
if the design is unattractive. Design is important because it can differentiate your
product with the competitorsÊ products and it may give an impression that there
is no available substitute in the market. Although all products may have similar
features, a well-designed product will be considered as being different from others
because it has its own uniqueness in terms of style, design and features. Product
quality and design are important in order to grab the attention of consumers,
which will eventually lead to repeat purchase of the product.
6.2.3 Service Differentiation

Some of the main service differentiations are explained in the following:
(a) Ease of Ordering

Ease of ordering means making it easy and convenient for customers to
choose and order the goods from the company. Ease of ordering is often
associated with online shopping. Nowadays, consumers can order and
receive goods without having to go to the supermarket or store. They can just
purchase through web-based services. For example, the largest online
shopping website in China is Taobao. Many people in China use the website
to purchase products because it is very convenient.
(b) Delivery
The delivery service brings the product to the customer after he has ordered
it. Delivery of the product to the customer should have the advantage of
accuracy, speed and customer care service. For example, pizza delivery
services that guarantees delivery time or offer free of charge if late gives
customers a good impression of their respective brands and services.
(c) Installation
Differentiation by installation is important for companies whose customers
buy equipment that includes free home installation services. For example,
when the customer buys a product from GREE Electric Appliances such as
air conditioner or washing machine, the company will provide free home
installation services for the customer. In a scenario whereby two companies,
Company A and B, are selling the same brand of air conditioner, Company A
sells the equipment at a cheaper price than Company B but it does not
provide installation services while Company B does. In this situation, most

"
customers will choose to buy from Company B although it is more expensive

as customers value the installation service. In service differentiation,
installation of equipment plays a major role.
(d) Customer Training

When a customer buys a product that requires him to learn how to use it, the
company has the responsibility to teach the customer how to use the product
correctly and efficiently. If the company offers customer training along with
the sale of the product, customers will be more familiar with the product and
will feel that the product is easy to use. This will create a good customer
impression on the product as well as the company.
(e) Customer Consulting

If buyers have enquiries about the product, the seller will offer some
additional information about the product and give advisory services to help
the customer solve his problems regarding the product.
(f) Maintenance and Repair

This service is also known as after-sales service. Many electrical home
appliances companies offer a warranty period, covering the sale of the
electrical accessories for a certain period, for example, one year. Another
example is buying a car that comes with a service warranty. After the
customer buys the car, the company will inform the customer about the need
for oil change after a certain mileage or some product features that are
covered under the car warranty. Moreover, for a limited period of time, if the
customer goes to the carÊs after-sales service centre, their mechanics will help
him perform the required maintenance. A good after-sales service will attract
customers.
(g) Returns
Returns is a service whereby after a customer has bought the product, he has
the option to return the product and receive the amount of money according
to the price of the product. One of the main reasons why customers return
the products that they have bought is because the products did not conform
to the quality, choice, specifications and requirements as advertised. Returns
from customers are considered normal and part and parcel of doing business
today.

"
There are two types of returns, namely:
(i) Controllable Returns

These are sold goods whereby its quality, choice and specifications do
not conform to the requirements of the product, therefore, customers
want to return the goods. Because it is within the companyÊs control, it
is considered as controllable returns. Before selling the product to
customers, companies need to improve its product quality in order to
obtain customer satisfaction.
(ii) Uncontrollable Returns

Taste and aesthetic appeals of products varies with customers.
Customers return products because they may not like the appearance
and/or the design of the product after buying it. Since, this is subject to
buyersÊ tastes, it is considered as uncontrollable returns. At times, some
customers also create trouble by not having any just cause for their
returns.
SELF-CHECK 6.1
1. Differentiate the two types of shopping goods.
2. Describe the definitions of product returns.
ACTIVITY 6.1
Share and compare your answers to the following on myINSPIRE online

forum:
(a) There are several elements in product differentiation. Identify three

elements of product differentiation and elaborate.
(b) Briefly explain about design differentiation.
(c) Describe the main aspects of service differentiation.
(d) Contrast the difference between controllable returns and

uncontrollable returns.

"
6.3 PRODUCT AND BRAND RELATIONSHIPS

Products are related to brands because they represent the brands to fulfil
consumersÊ needs and wants. Consumers often choose a product based on the
brand.
6.3.1 Product Hierarchy

Product hierarchy defines a group of products with different criteria in terms of
the way customers perceive key characteristics of the products. According to
Kotler and Keller (2016), product hierarchy consists of the following five categories
(refer to Figure 6.5):
Figure 6.5: Levels of product hierarchy


"
The five levels of product hierarchy are described in the following:
(a) Need Family

The basic need inherent in a product family, for example, home appliances.
(b) Product Family

The various product classes which will satisfy the basic needs of the customer
effectively, for example, cooking utensils.
(c) Product Class

Product category which consists of a group of products within a product
family, for example, investment products.
(d) Product Line

A group of products which are closely related and targeted to the market
through the same distribution channels or priced at a specific price level, for
example, investment accounts.
(e) Product Type

Items within a product line that are used in a similar function, for example,
capital guaranteed accounts. Two product types are:
(i) Brand
The name, image, symbol or sign of a product such as Maybank Bhd.
(ii) Item
A unit within a brand or product line which is distinguished by the
size, price or some other characteristics, for example, renewable
Prudential Term Life insurance policy.
6.3.2 Product Systems and Product Mix

A product mix is the total composite of products offered by a particular company.
Individual products within a product line are called product items. The product
mix has certain width, length, depth and consistency (Kotler & Keller, 2016).
(a) The width of a product mix refers to the total number of different product
lines in a company. For example, pasta and pasta sauce are two different
products.
(b) The length of a product mix refers to the total number of brands of different
product lines that a company has. For example, three different pasta brands
and two different brands of pasta sauce.
"
(c) The depth of a product mix refers to the average number of variants of the
companyÊs products. For example, three pasta brands with each brand in two
sizes (for example, small and medium size) and two pasta sauce brands, each
in one size only (for example, large size only).
(d) The consistency of a products mix refers to how it is related to the companyÊs
product lines in terms of characteristics, production process and distribution
channels.
6.3.3 Product Line Analysis

A company needs to know the sales and profits of every item in their product line.
This will enable the company to know which item requires improvement, which
item needs to be maintained, harvested and/or divested. For example, what are
the opportunities and weaknesses that can be improved to strengthen the product
line against the companyÊs competitors? The company can take a decision whether
to shorten or lengthen its product line. The product line analysis will help the
company implement fundamental changes to meet different customer
expectations while lowering the companyÊs cost of production. There are four
types of products emphasised by the manufacturers, namely core products, staple
goods, specialty goods and convenience items.
6.3.4 Product Line Length

Product line level tends to lengthen a companyÊs product mix. Product line refers
to a group of products manufactured by the company to satisfy a group of needs,
bundled together, as well as offered to the same group of consumers. Product line
items of a company are significantly influenced by the companyÊs objectives and
resources. A company can offer more than one product line. It can be extended in
three ways:
(a) Line Stretching

This happens when the company stretches its product line out of its current
capability. There are three ways of line stretching:
(i) Down-market Stretch

A company that serves the upper or middle segment of the market but
wants to attract a new consumer group by introducing low-priced
products to the new consumer group is called down-market stretching
(Avlonitis & Papastathopoulou, 2006). They can stretch its line
downwards to produce a new low-priced products using a different
brand name, sub-brand name or the name of the parent company.

"
For example, Gillette razors are often known as upper-end shaving

razors but the company decided to introduce Gillette Vector to capture
the lower-end market.
(ii) Up-market Stretch

In contrast to down-market stretch, a company that serves in the lower
or middle segment of the market now wishes to enter into the higher
segment market to cater to higher-end market, thus stretching
upwards. For instance, Honda decided to produce the Acura model to
grow the brand, to gain higher profit margins as well as to serve a larger
group of customers.
(iii) Two-way Market Stretch

Two-way market stretch refers to a company whose products are
positioned in the middle segment of the market and aims to stretch its
product line in both directions.
(b) Line Filling

This occurs when new products are added to the product line under the
existing price range. The reason for line filling could be that the company is
trying to be a leader as a manufacturer, trying to take advantage of its excess
production capacity, filling gaps in their market segments or trying to
achieve additional targeted profit. For example, KelloggÊs Cornflakes has
new brand variants under the line filling strategy by introducing brands such
as Chocos Planets and Stars, Froot Loops and many others. Line filling
strategy is excessive if it results in customer confusion and self-
cannibalisation.
(c) Line Modernisation, Featuring and Pruning

Product line modernisation is needed to make the companyÊs products more
competitive and relevant to its customers and competitors. Product line
modernisation occurs when the company wants to introduce new product
lines or product diversification. Companies need to plan for continuous
modernisation particularly if they are in a rapidly changing product market.
They also need to select few goods from their product line that can be set at
a higher price (also referred to as featuring). This is to encourage customers
to make move from lower to higher-valued as well as higher-priced goods to
boost sales. Product line managers need to identify which products can be
removed (also referred to as pruning) from their product line in order to
optimise the cost of their production.
"

"
6.3.5 Product Mix Pricing

Product mix pricing is a crucial element that companies can utilise to position
themselves in the marketplace. Companies need strategic planning in order to
know how to price all their products so that they can gain the highest possible
profit.
(a) Product Line Pricing

A company usually have many product lines rather than have a single
product. Product line pricing differentiates every single product line that a
company or manufacturer produces. For example, a plasma television
manufacturer will produce 17-inch and 21-inch televisions. Both sizes are the
same item but in different sizes, thus allowing for differentiation in prices.
(b) Optional Feature Pricing

Many companies need to decide to give options to their customers by
offering more products, features and services. For example, a low-cost airline
company offers very low price to its customers. Regardless of the initial
RM99 ticket fare, an average flyer will end up paying an additional RM28 for
15kg of checked luggage, RM5 to RM10 for a meal as well as RM3 for
headphones and other additional costs if they are willing to pay for the
services offered. All of the additional or optional services that the product
offers can be decided by the flyers.
(c) Captive Product Pricing

Captive or ancillary product pricing is generally higher than core product
pricing. A company might price the core product lower than its captive
product. For example, when we purchase a printer, we need to also purchase
the ink in order to print efficiently. When we purchase a car, once a
component of the car is broken, we need to repair or change the parts in order
to enable the car to move again. From these examples, consumers often do
not realise that they actually need to pay for the captive product as well.
It will be an unfavourable situation if the company price the captive product
price much higher than a substitute product should consumers find out that
other companies are offering their products at lower prices.

"
(d) By-product Pricing

By-products pricing has its own substantial advantages in terms of pricing
the main product. This is because sometimes the pricing of the main product
is so low that the company cannot make good profits. Therefore, pricing the
by-products together with the main product will help to generate additional
revenues for the company. The company can maintain the price by lowering
the by-products pricing while increasing the main product pricing. For
example, one company may produce processed meat. On the other hand,
it also generates by-products such as the bones from the carcasses of animals,
which can be turned into pet foods for cats and dogs.
(e) Product Bundling Pricing

Bundle product pricing means combining two or three products into one
package. Customers pay for the few products in a single price instead of
paying for the products separately. And the single price is lower than paying
for individual products. Obviously, companies can earn more profit by using
this strategy because customers will tend to buy three items instead of one
item only because it is more value for money. For example, McDonalds give
their customers an option to choose a menu with combined items, usually
comprising three items (French fries, a soft drink and a burger of their choice)
for one (cheaper) price.
ACTIVITY 6.2

forum:
(a) What is product hierarchy? Discuss the levels of product hierarchy.
(b) Briefly explain about a product mix. Provide relevant examples.
(c) Product line length can be extended via three ways. Identify three
ways of how a company can lengthen its product line. Provide
relevant examples to support your answer.
(d) Briefly explain the five elements of a product mix pricing.
"

"
6.3.6 Co-branding and Ingredient Branding

Reinforcement is one of the ways to create a stronger brand. A company can
increase its sales opportunities by creating associations to its brand or product so
that customers will see its brand name more frequently. This is because a brand is
a way to express the productÊs value and identity.
(a) Co-branding
Co-branding is a marketing partnership between two or more products.
It provides many advantages to the company with lesser known brand
products because co-branding can create deeper, positive impressions to the
public.
Co-branding is usually used by companies to increase sales by enhancing its

products or services to the consumers. On the other hand, co-branding can
also be disadvantageous for companies because of the vulnerability of
reliance for the two brands. If one brand has a bad reputation, it can affect
the other brand and their branding partnership as well.
(b) Ingredient Branding

Ingredient branding is used by large and small companies to increase the
awareness of their brands and to generate profits. The ingredient branding
product must have its own strong identity because it needs to be a visible at
the product label as well as its packaging. One of the companies that have
successfully applied ingredient branding is Intel.
SELF-CHECK 6.2
1. In your own words, differentiate between:
(a) Product family; and
(b) Product class.
2. Describe:
(a) Co-branding; and
(b) Ingredient branding.
"

"
6.4 PACKAGING, LABELLING, WARRANTY

AND GUARANTEES
This subtopic shall describe the functions of packaging, labelling, warranty and
guarantees:
(a) Packaging
Packaging serves several functions for products, namely:
(i) Protect the Product

Effective packaging can reduce costs as a result of damaged goods
during the process of transporting the products and on the shelf,
especially for fragile products such as light bulbs and wine in glass
bottles.
(ii) Promote the Product

Packaging can also be used to complement other promotional activities
and communicate information such as core benefits, design, function,
ingredients and sharing interesting facts with consumers. For example,
Innocent smoothies always share humorous and fun facts on their
packaging labels (see Figure 6.6).
Figure 6.6: Innocent smoothies ă promoting the product

through interesting and innovative packaging
Source: http://www.freshyoungmillionaire.com/win-innocent-smoothies-for-a-month/
(iii) Provide Additional Value and Differentiation

Packaging can contribute to the value of products by offering consumer
safety, services the users as well as differentiating the product from its
competitors.

"
(b) Labelling
A label is a transporter of information about the product. A good label
provides customers with evidence to aid their purchase decision or help
advance the understanding of product usage. Labels can include several
information such as how to use the product with suggested recipes. For
example, on the packaging of a fried rice seasoning powder, you will always
see some suggested recipes. The manufacturer also needs to include the
ingredient and nutritional information about the product especially in food
and beverage products. Other than that, the manufacturer also needs to state
the product guarantees, calorie counts, nutrient percentages, expiration date,
warnings for consumption or usage especially if it is a childrenÊs product as
well as the manufacturerÊs name and address (see Figure 6.7).
Figure 6.7: Example of labelling and its relevant information
(c) Warranty and Guarantees

A warranty is a written statement issued by a company or manufacturer to
the purchaser, stating the promise of the product. Warranty also refers to the
terms and conditions of the product, for example, the repairs or replacements
that the company will provide free of charge for a certain period. There are
four types of warranty ă express warranty, implied warranty, implied
warranty of habitability and implied warranty of fitness.

"
On the other hand, guarantees are written assurances of conditions to be

fulfilled, for example, that the product will be repaired or replaced.
Guarantees are usually given with the product or service to the consumers
who purchased it. Guarantees are also given as security for the fulfilment of
an agreement or the payment of a liability and is liable to forfeiture in the
event of failure to perform another personÊs obligation in the case of a
default.
SELF-CHECK 6.3
1. State the purpose and benefits of:
(a) Packaging; and
(b) Labelling.
2. Define warranty and guarantees and explain their differences.
ACTIVITY 6.3

forum:
(a) Branding is the way to express the value and identity of a product.
Describe co-branding and ingredient branding.
(b) Packaging involves the designing and producing of the container

for a product. It is very important because customers can recognise
your product based on your packaging. Using your own words,
describe the functions of packaging.
(c) Customers are always confused between a product warranty

statement and a guarantee statement. How would you explain the
difference to a customer?
"
"

"
ACTIVITY 6.4
CASE STUDY ă SAMSUNG GALAXY S7 EDGE SMARTPHONE
Consumers always expect a good smartphone that has many unique

functions and better features compared to other brands. Samsung is a
famous smartphone brand and has a large market share in the global
market. This is because Samsung always develop and incorporate new
features into their new smartphone models. For example, let us take the
Samsung Galaxy S7 Edge. To be an outstanding smartphone, S7 Edge
model has been developed with a revolutionary screen design that
curved on both sides of the phone and new functions to attract new
customers.
The function of the curved screen allows consumers to easily view new
notifications such as time, weather, messages, measurements and other
information. This design is a significant feature of Samsung
smartphones. Nowadays, selfie or taking photograph of oneself is
become a very important trend among consumers. Samsung Galaxy S7
Edge has also added new features on its camera ă 12mp rear camera with
dual pixel function and 4 times faster in terms of focus speed under low
light condition. All these to fulfil consumersÊ wants or desires. The
display has been upgraded to Quad HD Super AMOLED display with
Dual Edge 5.5 inch and it is bigger than the previous model. Besides that,
it also has waterproof and dustproof functions. Samsung also improved
the battery lifetime whereby it has increased the capacity to 3,600mAh.
The company has also upgraded the android system to Android
Marshmallow OS. The Samsung team believes that these unique and
upgraded functions can fulfil consumer expectations with regard to high
performance and quality for their smartphones.
The use of smartphones are becoming a part of our everyday lives. They
play an important role in modern living. There are many competing
brands such as Apple, Oppo and many others. To compete against other
brands, Samsung has implemented marketing strategies to retain loyal
customers and attract new buyers in efforts to enlarge its market share.
Just like Apple, Samsung also uses price skimming as a strategy to gain
an upper hand over its competitors. When other competitors launched
similar features, Samsung will just lower its price to win the customersÊ
hearts and minds."
"
"
In addition, Galaxy S7 Edge smartphones are the latest product of Samsung

that carry the slogan, „Rethink what a phone can do.‰ In terms of
distribution, Samsung uses channel marketing through service dealers who
must include Samsung in their list so that Samsung can be the customersÊ
first choice of brand. An example of its dealers is SSK Distributors in
Mumbai city where Samsung sells its products.
Questions:
1. Consumers today looking for high performance and quality for their
main communication tools, namely their smartphones. Explain how
Samsung differentiates its new smartphone, Samsung Galaxy S7 Edge
from other brands in fulfilling consumer expectations as a way to
increase its sales and market share.
2. In this competitive industry, how do SamsungÊs marketing and

advertising strategies help to promote its newest product to its target
consumers?
Share and compare your answers with your coursemates in myINSPIRE

online forum.
 Products can be categorised according to three classifications ă durability and

tangibility, consumer goods and industrial goods.
 Under durability and tangibility, products can be categorised into non-durable

and durable goods and services.
 Consumer goods classifications include convenience goods, shopping goods,

specialty goods and unsought goods.
 In the industrial goods classification, there are the materials and parts (raw
materials and manufactured materials and parts), capital items (installations
and equipment), as well as supplies and business services (maintenance and
repair items, and operating supplies).

"
 Products are differentiated from other brands according to several dimensions

ă product form, feature, customisation, performance quality, conformance
quality, durability, reliability, reparability and style.
 Design and services are also important when it comes to product

differentiation. Product uniqueness and services such as ease of ordering,
delivery, installation, customer training, customer consulting, maintenance
and repair as well as returns are welcomed by consumers.
 Product hierarchy consists of five categories ă need family, product family,

product class, product line and product type.
 Product mix can be classified into four dimensions, which are width, length,
depth and consistency.
 Product line can be extended within a companyÊs product mix. Product line
can be extended in three ways ă line stretching (down-market, up-market or
both), line filling and line modernisation of its products, highlighting certain
products while divesting least profitable items.
 Product mix pricing is part of strategic planning for companies in pricing their
products. There are several elements in product mix pricing. They are product
line pricing, optional feature pricing, captive product pricing, by-product
pricing and product bundling pricing.
 Packaging involves the designing and producing of the container for a

product. It is very important because customers can recognise your product
based on your packaging. Packaging is used to inform, keep, handle, supply
raw materials and processed goods.
 Labelling is a carrier of information about the product. Warranty is a written

statement by the company to buyers of the product and guarantees refer to
written assurances with some conditions to the product customers.
 Physical products must be packaged and labelled. Well-designed packaging

can generate suitable value for customers and promotional value for
producers. In effect, they can function as „five-second commercials‰ for the
product.
 Brands are frequently sold or marketed cooperatively with other brands.

Ingredient branding and co-branding can enhance the value of the products if
they have complementary equity and are perceived as a good fit.

"
Branding Line filling

Co-branding Line stretching
Differentiation Product differentiation
Ingredient branding Product mix pricing
Avlonitis, G. J., & Papastathopoulou, P. (2006). Product and services management.

London, England: Sage.
Kotler, P., & Keller, K. (2016). Marketing management (Global ed.). Boston, MA:
Pearson.
"

Topic
""
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"  Pricing
"
Strategies
7
"
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"
LEARNING OUTCOMES
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" 1. Describe how consumers process pricing information;
"
2. Explain how a company sets the initial price for products or services;
"
" 3. Identify how a company adapts its prices to meet varying
" circumstances and opportunities;
" 4. Explain when a company should initiate a price change; and
"
" 5. Describe how a company should respond to its competitorÊs price
" change.
"
"
 INTRODUCTION
Price is one of the elements in the marketing mix that produces revenue while the
others incur costs. Price is perhaps one of the most flexible element in the
marketing mix. It can be changed quickly unlike product features, channel
commitment or promotions. This topic will start with an understanding on pricing
followed by ways in setting price as well as pricing strategies. It is also important
to know the strategies needed to initiate a price change as well as to respond to
competitorsÊ price changes.
"

TOPIC 7 PRICING STRATEGIES  149
7.1 UNDERSTANDING PRICING

To understand pricing, companies need to be sensitive to a number of issues
surrounding the environments in which they operate in, as we shall elaborate in
this subtopic.
7.1.1 A Changing Pricing Environment

Pricing is vital for both buyers and sellers. Different buyers have different
perspectives toward prices and the same goes for sellers. Price can be influenced
by many factors. World economics can influence pricing because consumers are
greatly affected by economic fluctuations. Consumers will consider how much
they are willing and able to spend within their budget. Consumers nowadays have
easy access to information on any items that capture their interest. Many successful
companies today create a unique product and market it in very attractive ways in
order to increase the number of consumers, some even increase the product range
to include a high price item.
7.1.2 Price Setting in Small and Large Companies

Small and large companies usually price their products using different approaches:
(a) For Small Companies

The decision is usually made by the manager since the company is small and
it is easier for one person to control everything. Pricing is mainly based on
the production cost and is supervised by the manager himself. The price is
usually fixed. At times, the consumers may not be happy with the price even
though the quality is top notch.
On the other hand, smaller companies tend to have lesser problems in quality
standardisation. This is due to the production being on a smaller scale and
product is checked thoroughly before being released to the market.
(b) For Large Companies

The price is set by various executives and filtered through multiple stages to
achieve the perfect price that can attract the consumers. Rather than being set
by a single person, setting the price is delegated to the marketing department
in the hope that they can bring profits to the company. The reason for this is
because in a larger company, it is inefficient for one man to control
everything. As such, tasks are divided into multiple categories and each
category has a team assigned so as to avoid human resource inefficiencies. In
other words, pricing is handled by the division and product line managers.
150  TOPIC 7 PRICING STRATEGIES
"
Quality differs for some products since a large company tends to be more
heterogeneous. A product that is manufactured at one branch may differ in
quality from another that is manufactured at headquarters.
7.1.3 Consumer Psychology and Pricing

Marketers have different perspectives from the economists with regard to pricing.
Information on pricing is always being processed and interpreted by consumers
according to various factors. Customers may have purchased the item in the past
and in this case, the information on the price has already been processed. They
may also obtain pricing information from formal as well as informal
communication, directly or indirectly. Consumer perceptions influence how
consumers make purchase decisions. Consumers make purchase decisions based
on their knowledge of the current actual price and not on the stated price by the
marketers.
There are three different types of prices that are formed through the consumersÊ
psychology:
(a) Reference Price

This is the observed price by the consumers which will be compared to the
internal reference price that they already knew. By internal price we mean
the price that the consumers remember after they have purchased the item
previously or any other possible references.
(b) Price-quality Reference

In price-quality reference, consumers perceive both the price and the quality
of the product. An item with a high price will be considered as high quality
product even though it may just be of average quality. An item with high
quality will always be considered as having high price even though it may
have a lower price. Thus, the price becomes less significant as a benchmark
to rate the itemÊs quality when information about its true quality is available.
Otherwise, price will be used as a signal to rate the itemÊs quality when
consumers do not obtain all the necessary pricing information.
(c) Price Ending

Sellers prefer to put the price tag at a level considered lower than the next
even though the difference may only be one dollar. For example, consumers
will perceive a RM399 price tag item as being a lot less expensive than the
one priced at RM400. Besides that, if the seller uses the 0 and 5 at the end of
price, this will enable consumers to remember the price and perform memory
recall more easily.

SELF-CHECK 7.1
1. Identify the respective pricing methods commonly used by

companies.
2. Explain in your own words, why a consumer would use price as an

indicator for quality.
7.2 PRICE SETTING

Marketers can follow a six-step procedure in order to set the product price. The six
steps are shown in Figure 7.1.
Figure 7.1: Six-step procedure in setting the price

"
Now let us discuss the steps one by one.
(a) Step 1: Setting the Pricing Objective

First of all, the company need to plan for and select the pricing objective. The
following are some pricing objectives:
(i) Survival
This objective is for companies, which are facing new and strong
competitors, overcapacity or changing consumer behaviour. It is clearly
a short-run goal to enable the company to overcome tough times.
(ii) Maximise Current Profits

Setting a price that will maximise current profits is a common goal
among the companies. It takes into account the revenues and costs.
Current profit maximisation may not be the best goal if it results in
lower long-term profits.
(iii) Maximise Value

Some companies wish to capitalise on market conditions. The following
situations are suitable for low price:
 In price sensitive markets, lower price will boost the growth of the
market; and
 Competitors will probably be discouraged by a low price.
(iv) Maximum Market Skimming

This is applied in occasions when the company benefits from increased
profits and sales or minimised costs. In such markets, there is less
intense rivalry. Market skimming can be described by:
 A high number of buyers resulting in high demand;
 Companies can produce few units because cost per unit is not high.
The market is able to bear the cost of production;
 Competitors in the market are not attracted by higher prices; and
 Superior products reflect the image of higher prices.
(v) Leadership in Product Quality

Many brands attempt to classify themselves as „affordable luxuries‰.
This is a high value strategy for high quality products and services in
which expensive components are used.

(b) Step 2: Detecting the Request of the Company

Different levels of demand will lead companies to pursue different business
goals.
(i) Price Sensitivity

Price sensitivity affects the demand of the product. The product is
considered to be price sensitive if the price of the product falls more
than the quantum of the demand increases and vice-versa. Before
making a price decision, the company needs to know the effects of price
sensitivity on its product. This is due to the demand curves that can
change as a result of the availability of substitute products.
(ii) Perceived Demand Curve

Many companies use statistical tools to determine the relationship
between demand and the pricing of a product. A company can also
know the demand curve and price fluctuation of its product by using
the following methods:
 Surveys can determine how many units of products that consumers

are willing to buy at different offered prices;
 Price experiments are used because it can show the different prices
used for different products; and
 Statistical analysis of quantities sold, previous prices and other

factors.
(iii) Price Elasticity of Demand

We apply the concept of elasticity changes in the price to show how
much of quantity is demanded. If there is hardly any change in demand
with a small change in price, then the demand is inelastic. The demand
is elastic if the demand changes significantly when there is a price
change. Under the following situations, demand is likely to be less
elastic when:
 There is few (or no) competitors or replacements;
 Buyers still do not notice a higher price; and
 There are slow changes in buyers buying habit.

"
If the demand for a product price is elastic, sellers stand to gain extra
revenue if they reduce their price. A lower price will produce more total
revenue if the costs of producing and selling more units do not increase
substantially. Price elasticity depends on the degree and direction of
the expected price change. Prices may change a little or a big change.
(c) Step 3: Estimating the Costs

Cost is an important element in pricing strategy. Estimating the cost of a
product involves the cost of production, distribution and sales that are
necessary to generate returns and to avoid any perceived risks. In other
words, all companies must take into account any costs involved to produce
the product right to the delivery of the product to the customer. Companies
with the lowest cost can set a low price and generate more sales and profits.
A low price can attract customers to buy the product and increase its demand
in the market. Meanwhile, companies with high costs have to place a high
price for their products in order to obtain revenues that will commensurate
with the costs of production. A higher price will result in the company
incurring a loss if the product is not well received by its consumers.
There are two types of costs, namely fixed costs and variable costs. Fixed
costs are costs that will not change no matter how much total production or
sales increases. Examples include the rental cost and salary of factory
manager. Payment of rent and salary of factory manager remains the same
and does not change regardless of the quantity of production or sales.
Meanwhile, variable costs are incurred at different production stages.
For example, the cost of raw materials required differs according to the
production quantity. If the company needs raw materials in large quantities,
the cost will be greater. Both types of costs will be calculated to provide the
total costs for all stages of production.
(d) Step 4: Analysing CompetitorsÊ Costs, Prices and Offers

CompetitorsÊ costs, prices and offers can influence the pricing decisions.
An analysis of competitorÊs costs, prices and offers will help companies
initiate a reduction of their own prices. For example, a parts supplier with
low prices (but quality of the product is not affected) will enable the company
to obtain cost savings and reduce its cost of production relative to the
competition. As a result, the company will be able to sell its product at a
lower price and attract more customers compared to its competitors.
A company should set their prices closer to the prices of its competitors
especially if such competitors are strong rivals to the company. Lower price
changes are made to attract the attention of customers, suppliers, competitors
and the government. For example, a company should set a price that is lower

than its main competitor using a discount so that it could attract the attention
of its consumers. In this way, the target consumers will be likely to switch
from its competitor and will buy the item that could save them some money.
In another instance, if the companyÊs offer is of higher quality than that of its
competitors, it can set a higher price than its competitors. This will attract
customers who are concerned about product quality rather than the price.
This might cause competitors to change their pricing. However, the
competitorsÊ will not be well received by quality-conscious consumers.
(e) Step 5: Choosing the Pricing Method

Major considerations in setting prices include determining the demand from
customers, the cost of production and the pricing set by competitors. In
setting prices, companies can choose from any of the following pricing
methods:
(i) Mark-up Pricing

One of the pricing method is adding the standard markup of the
product cost. Additionally, when companies submit job bids, an
estimation of the total cost of the project will be made and adding a
standard mark-up will also be ascertained.
(ii) Target-return Pricing

The company will set a target rate of return on investment to determine
the price. Some companies will ignore the price elasticity and
competitorsÊ pricing when adopting the target-return pricing method.
(iii) Perceived Value Pricing

In perceived value pricing, companies will have to deliver increasing
value as compared to other competitors. Some companies deliver more
value than others. This is because some prospective buyers consider the
following elements in the product that they wish to buy:
 BuyerÊs image of product performance;
 Channel of the deliverables;
 Quality of the warranty;
 Support from the company;
 Reputation of the suppliers;
 CompanyÊs honesty; and
 CompanyÊs appreciation of its loyal customers.

"
(iv) Value Pricing

Value pricing is a matter of re-engineering the companyÊs operations to
a low-cost producer without sacrificing quality. To influence the
consumersÊ price judgments, there are two different pricing strategies
that companies can adopt. They are as follows:
 To lower the perceived prices by consumers over time rather than

to offer frequent shallow discounts (high-low). Discounts are given
for everyday low pricing even if the actual averages are the same;
and
 Everyday low pricing is given because of the demands by some

retailers. This can result in an entire marketing strategy turnaround.
(v) Going-rate Pricing

This refers to the method when a companyÊs pricing is determined by
other competitorsÊ pricing.
(vi) Auction Pricing

This type of pricing has become more popular especially with the
growth of the Internet. There are three types of pricing for auctions:
 Public sale of English auction (ascending bids);
 Public sale of Dutch auction (descending bids); and
 Public sale of sealed-bid auction.
(f) Step 6: Finalising the Price

In selecting the price, the aspects that a company must consider include:
(i) Effects of Marketing Activities

Brand quality needs to be considered relative to advertising and the
competition.
(ii) Pricing Policy of the Company

The pricing policy must be consistent with the company. Many
companies set up a pricing department to develop policies and to
establish or approve pricing decisions. The aim is to ensure that
salespersons quote prices that are reasonable to customers and, at the
same time, profitable to the company.

(iii) Sharing Price Increases and Threats

Customers who have high-perceived level of risks and will not accept
a sellerÊs price proposal. If most customers do not buy in to the full
promised value, the company will have to absorb part of or all of the
risks.
(iv) Effect of Price on Other Parties

The companyÊs management have to reflect on the effects of the
contemplated price on other parties, for example:
 Will the dealers and distributors react adversely to the price?
 Will the sales force be willing to sell at that price?
 In what ways will the customers respond?
 Will suppliers raise their prices when they see the companyÊs price?
 In order to prevent the price from being charged to consumers, will

the government intervene?
"
ACTIVITY 7.1
Post the answers to the following questions on myINSPIRE. Compare

your answers with your coursematesÊ answers.
(a) Consumer perception of price is an essential marketing priority.

Elaborate three key topics in consumer psychology and pricing.
(b) Under what circumstances do companies use maximum market

skimming? Elaborate your answer with relevant examples.
(c) Point out seven values in terms of perceived value pricing.
"

"
7.3 ADAPTING THE PRICE

Companies usually do not set one single price but rather structure the pricing of
their goods and services according to price adaptation strategies, which we shall
discuss under the following subtopics.
7.3.1 Geographical Pricing (Cash and Countertrade)

Geographical pricing is used when companies decide on how to price their
products to various types of target consumers in different locations around the
world. When a product is marketed for consumption based on different locations
and geographical areas, a company should consider ways on how to price the
product. It can price it either similarly across all locations or adapt the price based
on marketing costs and the demands of its target consumers.
The cost of transportation and the actual physical distance from one location to
another and between the buyer and the seller will affect the changes in prices,
either to increase or to decrease. Table 7.1 presents an example of the difference
between standard pricing and geographical pricing.
Table 7.1: Example of Standard Pricing versus Geographical Pricing
Standard Pricing Geographical Pricing

(Uniform Delivered Pricing) (Set the Zone Pricing)
All prices are the same for all buyers versus Transportation to a location or
regardless of transportation expenses geographical zone is one of the ways
to determine the pricing zone
Countertrade is an agreement of payment which involves cash and products.

In addition, it is an agreement between companies and countries to buy the goods
and services from each other. The issue on countertrade is the payment mode. Most
companies will pay in cash. Types of countertrade are explained in Table 7.2.

Table 7.2: Types of Countertrade
Countertrade Description
Barter Barter can be classified as a system of exchange between goods from

the seller to the buyer. For example, a television station may offer a
barter trade agreement to advertisers who are reluctant to pay cash
to promote their goods and services. In return, the station obtains a
bungalow, a condominium or cellular phones from its advertisers
instead cash payments.
Compensation The payment received is both cash and products. For example, an
deal arms dealing nation may sign an agreement with a commodity
producer country to purchase fighter planes at a cost of $500
million. An amount of $95 million will be paid over five years with
in the form of commodity such as palm oil.
Arrangement for A country agrees to accept payment of the products manufactured

buyback in the form of seller supplied equipment, sales of plant or
technology.
Offset The seller will accept full payment in cash but the money will be
spent in the country within an agreed period of time. Technology
transfer, co-production investment, licensing and subcontracting
are examples of offsets.
Public-private This is a complex form of counter trade. It usually involves multiple

Partnership parties from the public (government) and private sectors for long-
term or mega projects.
7.3.2 Price Discounts and Allowances

Business buyers can enjoy advantages of sales just like the consumers. For
example, cash discounts, seasonal discounts, bulk discounts, trade allowances for
participation in advertising or even sales support programmes. These could lead
to cost savings that can be either used for business improvements or passed on to
the consumers in the form of price discounts. Price discounts makes a company
competitive. It reduces the price that consumers have to pay when discounts are
given to them. Price discounts also encourage customers to purchase in large
quantities.
"

"
7.3.3 Promotional Pricing

The following are some methods that companies can use to entice customers to
make early purchases:
(a) Coupon
A coupon is a price reduction certificate that is given to consumers when they
buy a product. Offering coupons to consumers is one good way to encourage
product trial and repurchase of the product. This promotional technique is
effective in speeding up consumer buying decision.
(b) Rebate
Manufacturers offer rebate promotions because they want to close the sale
quickly. The rebate also allows manufacturers to offer discounts to
consumers directly.
(c) Sampling
It refers to promotional programmes that allow consumers to try the product
free of charge.
(d) Contest
As an alternative to reducing its price, a company can also attract interested
consumers to join a contest held by the company in which applicants apply
their skills or abilities to compete for prizes.
7.3.4 Differentiated Pricing/Price Discrimination

Differentiated pricing is used by companies to distinguish its customers, products
and locations. It is also known as price discrimination, the strategy used by
companies where they offer two or more different prices to different customers for
the same product. The following are types of price discrimination:
(a) Customer-segment Pricing

The same product is charged with different prices for each group of
customers.
(b) Channel Pricing

Differences in prices of products or services are dependent on the purchaser.
(c) Location Pricing

Different prices are offered at different locations even for the same product.

(d) Time Pricing

Prices charged are based on different times when the product or services are
consumed.
(e) Product-form Pricing

Product prices vary but they do not affect the companyÊs costs.
(f) Image Pricing

The company charges different prices for the same product that have
different images.
7.4 RESPONDING TO AND SETTING UP PRICE

CHANGES
Companies need to raise or reduce their prices in response to changes in the
marketplace and their competitors. In this subtopic, we shall discuss the conditions
in which it becomes necessary for companies to respond.
7.4.1 Initiate Price Cuts

The following are some situations where companies need to initiate their price
cuts:
(a) Excess Manufacturing Capacity

The company needs more sales because it cannot achieve capitalise on its
manufacturing capacity. Through increased sales via price cuts, product
development or other measures, the company can use up its excess
manufacturing capacity.
(b) Gain Market Share

Sometimes a company may reduce the price to achieve additional market
share. This is achieved through offering a lower price. Companies can choose
to either reduce the price or lower the cost (thus, able to offer a lower price)
in order to gain the market share. This is because a lower price will attract
more consumers to purchase the product.

"
The possible traps in price-cutting strategy include:
(a) Low Quality Trap

Consumers may psychologically perceived the quality of the goods to be
lower based on the lower price.
(b) Fragile Market-share Trap

A company can lower its price but it cannot obtain the customersÊ loyalty
because the same customers will continue to find and buy lower priced
product regardless from the company or its competitors.
(c) Shallow Pocket Trap

Some competitors can lower the price without incurring any losses because
they have deeper pockets and can engage in a price war.
(d) Price War Trap

Competitors continuously lower their prices and this triggers a price war.
7.4.2 Initiate Price Increases

Figure 7.2 shows the various ways that a company can increase the price of its
product:
Figure 7.2: Price increase strategies

Now let us take a closer look at each of the strategies.
(a) Delayed Quotation Pricing

Companies cannot put a price on the product until the product has been
successfully made or manufactured. This type of pricing exist in industries
that take a long time to produce the product.
(b) Escalator Clauses

Companies may wish to attract customers with their latest price. However,
inflation may cause the price to increase before the product is delivered to
the customers. In such cases, the company can use a specialised price index
as the cause for the increase in the base price. This is called escalator clause.
This situation can be seen in major industrial projects such as construction of
aircrafts.
(c) Restructuring
Companies may increase the price or may not adjust the price but remove
certain benefits or value elements from the price such as installation and free
delivery.
(d) Decreased Price Cuts

Companies may want to increase its sales by decreasing the price cuts that
they intended to have earlier.
7.4.3 Responding to Competitors’ Price Changes

In non-standardised product markets, companies have more opportunity to
increase or decrease their prices. To do so, they will usually consider the following
matters:
(a) What is the reason for the change in the competitorsÊ pricing?
(b) Will the price remain the same in the short-term or will it be for the long-
term?
(c) If the company did not respond, what is the effect to the stakeholders and on
the companyÊs sales turnover?
(d) Will other stakeholders respond to the changes in price?
(e) What would be the possible reactions of the competitors and the company?

"
Some markets frequently face aggressive price changes by smaller companies and
this affects their ability to build their market share. In such instances, they can get
respond with the following:
(a) Fix their product price;
(b) Fix the rate and add value;
(c) Lower the rate, increase price and quality; and
(d) Introduce a lower price.
SELF-CHECK 7.2
1. Identify and explain the six-step procedure in setting prices.
2. Why do most companies follow the pricing setting procedure when

setting their productsÊ prices? Justify your answer.
3. List the strategies that a market leader can deploy to counter

aggressive price cutting by smaller companies in an attempt to
increase their market share.
"
ACTIVITY 7.2
Post the answers to the following questions on myINSPIRE. Compare

your answers with your coursematesÊ answers.
(a) Justify the advantages of price discrimination.
(b) In promotional pricing, describe three methods that can be used to

stimulate early purchase.
"

ACTIVITY 7.3
CASE STUDY ă PROCTER & GAMBLE
Procter & Gamble Corporation (P&G) was established by William Procter

and James Gamble on 31 October 1837. Both were born in the United
Kingdom but lived in Cincinnati after they met and married two sisters,
Olivia and Elizabeth Norris. Today, P&G is one of the largest consumer
products company in personal care products and cleaning agents in the
world. P&G comprises many individual brands and served its customers
in many different ways. Their customers know the quality of each brand.
P&GÊs vision is „to be recognised as the best consumer products and
services company in the world.‰ Its mission is to provide branded
products and services of superior quality and value that can improve the
lives of worldwide consumers now and for generations to come.
P&G has transformed into a fast growing, profitable and easy-to-reach

company. P&G prices its goods and services in a way that customers will
think that the prices are affordable. In the 1990s, P&G incorporated value
pricing strategy. In other words, the company adopted this strategy by
reducing its coupons and costs of production by effectively increasing
efficiency. However, it increased its advertising. Besides that, P&G also
offered discounts for its different products so that consumers can easily
recognise the price of P&G products. P&G has effective brand pricing and
good customer loyalty.
Although P&G is well known, they still face tough competition from
Unilever. Unilever has increased the discounts on their products. In
contrast, P&G has cut the discounts offered, which means that the prices
of Unilever products are cheaper than P&G products. This is because
P&G wants to maintain its products at premium price and increase
advertising on their products rather than offering discounts. On the other
hand, Unilever has reduced the advertising of their products but have
increased the discounts for the normal prices of its products.

"
Questions:
1. Why did the company incorporate the value pricing strategy in the
1990s?
2. What is the difference between the pricing strategy of P&G and its
competitor, Unilever?
3. Give suitable reasons why P&G wants to maintain its premium

pricing strategy.
Share your answers in myINSPIRE online forum.
 Price is the only marketing mix element that generated revenue while others
incur costs.
 The basic price of a company is determined through a six-step process. The six
steps are:
ă Setting the price objective;
ă Detecting the request of the company;
ă Estimating the costs;
ă Analysing competitorsÊ costs, prices and offers;
ă Choosing the pricing method; and
ă Finalising the price.
 Price adoption strategies include geographical pricing, price discounts and

allowances, promotional pricing as well as differentiated pricing.
 After the product price has been established, the company usually faces
situations whereby it has to change the price. A company can initiate a price
reduction when it has excess manufacturing capability, when it wants to gain
a bigger market share or when there is deflation in the economy. On the other
hand, a rising price can cause inflation or demand surplus.

 Companies must predict their competitorsÊ price changes and make contingent
responses.
 A company that encounters a competitorÊs price change must understand the

competitorÊs intent and estimate the period of the change.
Auction pricing Price discrimination

Differentiated pricing Price ending
Geographical pricing Price-quality reference
Going-rate pricing Promotional pricing
Mark-up pricing Reference price
Maximise market skimming Target costing
Perceived value pricing Target-return pricing
Price elasticity of demand Value pricing
Price sensitivity
Avlonitis, G. J., & Papastathopoulou, P. (2006). Product and services management.

London, England: Sage.
Kotler, P., & Keller, K. (2016). Marketing management (Global ed.). Boston, MA:
Pearson.
"

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Topic
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"  Designing and
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Managing
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Communication
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Efforts"
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LEARNING OUTCOMES
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" 1. Define communication in the context of marketing;
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2. Describe the communication process;
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" 3. Analyse the communication mix decisions; and
" 4. Discuss the communication mix tools.
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 INTRODUCTION
Communication is a two-way process whereby information is exchanged.
Communication skills and tools are applied in marketing, specifically in branding.
The communication process and the communication mix decisions are presented
in this topic. Communication applications in advertising, sales promotion, public
relations, direct marketing as well as personal selling are essential to marketing
the product and services to target consumers.
8.1 THE COMMUNICATION PROCESS

In this subtopic, we will discuss the definitions of communication, marketing and
the various elements and aspects in communication.

TOPIC 8 DESIGNING AND MANAGING COMMUNICATION EFFORTS  169
8.1.1 Defining Communication

Communication in simple words is the sending and receiving of messages. The
human aspect of communication is complex and this may be attributed to the
dynamic and constantly changing nature of communication. Various mediums
and channels are used in marketing communications. The mass media and
electronic media are two of the most common channels used in marketing
communications.
Figure 8.1 illustrates the process of communication which involves seven

elements. The seven elements of the communication process consists of the sender,
encoding, media, decoding, receiver, noise and feedback.
Figure 8.1: Communication process

"

170  TOPIC 8 DESIGNING AND MANAGING COMMUNICATION EFFORTS
8.1.2 Elements of Communication

The process of communication can be split into seven basic elements that
corresponds with the steps taken to exchange information, thus forming the basis
for communicating. Table 8.1 further explains the elements of communication.
Table 8.1: Elements of Communication
Element Description
Sender The sender is the source of the message and may be an individual or an
organisation. The sender will disseminate the message to the intended
receiver. A sender will transmit facts, ideas or opinions to the receiver.
Encoding Encoding is the process of transforming ideas, thoughts or the senderÊs

opinions in the form of words, symbols, pictures, signs or other aspects
so that it is easier for the receiver to understand. Encoding is the
converting of the main part of information from one system to another
in the form of codes. Codes are systems or symbols, signs or letters used
to represent the information.
Channel Information is transmitted to the receiver via a chosen channel. The

channel can be formal or informal, written or oral. The characteristics of
the communication will affect the effectiveness of the various channels.
Decoding The process where the receiver interprets or assigns meanings towards
certain messages, which the sender is trying to communicate, is called
decoding. The message received may consists of symbols and will be
interpreted by the receiver according to his or her understanding. To
ensure effective communication, the sender needs to understand the
receiver better in terms of the receiverÊs knowledge and character.
Receiver The receiver is the party that receives the message from the sender. Not
all receivers will be influenced by the message that is being
communicated by the sender. Receiving the message is dependent on
multiple factors such as knowledge, culture and the receiverÊs profile.
Noise/ Noise is also called interference. It can be internal or external. These

interference barriers affect the communication process. Noise can be anything that
gets in the way of the message from being accurately received,
interpreted and responded to.
Feedback Feedback is part of the receiverÊs reaction towards the message received.
Reactions may differ from one receiver to another. Feedback may be
positive or negative in nature.

8.1.3 Barriers and Channels of Communication

Barriers are reasons why some communications fail. Internal barrier to
communication refers to obstacles within the sender that prevents communication.
Examples of internal barrier include emotions and prejudice. Meanwhile, external
barrier comprises obstacles to communication that are not controlled by the
receiver.
Communication barriers can also be categorised into various forms as described

in the following:
(a) Physical barrier refers to a barrier in the physical form such as noise from the
surrounding environment. Information transmitted from the sender to the
receiver may not be heard clearly, resulting in the receiver not
understanding the message;
(b) Psychological barrier may occur when there are different perceptions
between the sender and the receiver due to differences in educational
background, culture and experience;
(c) Sociological barrier may arise from differences in culture, subculture and
socio-economic background among individuals; and
(d) Semantic barriers are caused by problems with the interpretation of word
meanings.
Communication channel refers to the physical medium that allows messages to be

transmitted to the audience. In marketing most of the messages are transmitted
through the print media and the electronic media. Information may flow forward,
backward or side ways. Inefficient flow of information will result in a
communication breakdown.
(a) Printed media provides wide opportunities for marketers since the receiver
will read the information or advertisement with the likelihood that he will
spread the information to others.
(b) Electronic media is a medium that allows information to be shared on any

electronic devices for audience viewing and engagement. It can be
broadcasted to the community. In marketing today, the electronic media is
one of the best communication channels to communicate product messages
from one consumer to another consumer.

SELF-CHECK 8.1
1. Describe the elements of the marketing communications.
2. Describe the barriers which can cause the communication process

to fail.
"
ACTIVITY 8.1
Post the answers to the following questions on myINSPIRE and compare

your answers with your coursematesÊ answers:
(a) How does communication work?
(b) Briefly explain the barriers to marketing communication.
8.2 COMMUNICATIONS MIX DECISIONS

Companies attempt to inform, persuade and remind consumers either directly or
indirectly through marketing communications. Marketing communications, in
one form or another, is essential to a companyÊs success (Chitty & Barker, 2011).
The various communciations mix, which is also known as promotional mix is
shown in Figure 8.2:

Figure 8.2: Promotion mix
The following are brief explanations of components in the promotional mix:
(a) Advertising
Advertising is „any rewards in the form of non-personal presentation and
promotion of ideas, goods or services by a well-known sponsor‰ (Kotler,
Ang, Leong, Tan & Keller, 2009). Advertising also provides factual
information with regard to the services provided and educates consumers
on product features and capabilities.
(b) Sales Promotion

Sales promotion is „a communication attached to an incentive‰ (Kotler et al.,
2009). Sales promotions are used at a specific time period, price, for a specific
customer group or a combination of the three elements. In addition, a variety
of short-term incentives is provided to encourage consumers to purchase the
goods or services.
(c) Public Relations

Public relations can be identified as one of the efforts to attract positive
interest to an organisation with a variety of designed programmes. It helps
the organisation communicate with its customers, suppliers, retailers,
stockholders, government officials and the community. In addition, some
organisations use public relations to increase their business opportunities

with foreign organisations. Public relations can be conducted through

mailings, faxes or telephone message. It is most likely to be successful when
marketers possess a detailed database of information about customers and
prospects (Lovelock, 2005).
(d) Direct Marketing

Direct marketing targets prospects and customers. The most common types
of direct marketing engaged by companies are social media marketing, email
marketing and Internet marketing. They have become important in the
promotional mix of late because people are using the Internet far more than
they used to. Companies employ direct marketing in order to engage with
their customers about product announcements, special promotions, order
confirmations as well as customer inquiries (Bhasin, 2015).
(e) Personal Selling

Personal selling occurs when two people communicate face-to-face to
promote the product or brand. Most companies include personal selling in
their marketing communications efforts to increase sales.
8.2.1 Fundamental Marketing Communications

Decisions
The fundamental marketing communications decisions can be described
according to the following tasks:
(a) Setting Objective

Determining the goals and the form of marketing communications needed
to achieve the goals is important in marketing communications. For instance,
if the objective is to attract consumers to try a new brand of product,
marketing communications must highlight the benefits of the brand or
product.
(b) Positioning
Positioning decision is a key feature that can bring many benefits to the
company by enhancing the company or brand in the eyes of the targeted
audience. Correct positioning builds brand loyalty among customers and
increases sales.

(c) Targeting
Targeting allows marketing communicators to deliver the messages more
precisely to consumers who fit the target audience profile. Positioning and
targeting are interdependent. Positioning refers to how the brand is
distinguished from the competitorÊs offerings in the eyes of the consumers,
which has been identified through segmentation, and targeted at.
(d) Budgeting
Determining the amount to spend on marketing communications is one of
the most difficult marketing communications decisions.
8.2.2 Marketing Communications Elements

Creating the message, selecting the media and establishing the momentum are the
elements in marketing communications.
(a) Creating the Message

The message needs to be creative, of quality and consistent with the design.
For instance, the content needs to be unique, attractive and in line with the
positioning strategy.
(b) Selecting the Media

Different forms of media channels such as magazine, television, radio or
electronic media are available. Decisions on the form of media to carry the
message will need to consider the target audience, objective of the message,
positioning and budget availability.
(c) Establishing the Momentum

The momentum in marketing communications is a relative issue. It refers to
the sufficient amount of marketing communications exposure to sustain an
effective marketing communications message.
ACTIVITY 8.2

(a) Does marketing communications play a role in the promotion mix?

If yes, briefly explain one example of how the communication
affects the promotion mix.
(b) Briefly explain how positioning and targeting is involved in the

marketing communications decision.

8.3 COMMUNICATIONS MIX TOOLS

In this subtopic, we will look into the various marketing communications mix
tools, namely advertisement, sales promotion, public relation, direct marketing
and personal selling.
8.3.1 Advertisement
Advertising is a very popular promotional mix tool and is frequently used.
A creatively designed advertisement may attract consumers to look at the product
or service. The following five Ms are usually adhered to when developing an
advertising campaign:
(a) Mission
The advertising objectives have to be determined. Is the objective to inform,
persuade, remind or is it to reinforce the advertising? A thorough analysis of
the current marketing situation needs to be conducted before the selection of
an appropriate objective.
(b) Money
The amount of money available and allocation given across the media types
have to be sorted out. Factors such as the stage in the product life cycle,
market share and consumer base have to be taken into account when
allocating the amount of available money.
(c) Message
How the message is communicated in advertising needs to be decided upon.
This is usually done through the process of message generation, message
evaluation, message selection and finally message execution.
(d) Media
The selected media for an advertising campaign is dependent on several
factors. The reach, frequency and impact as well as media timing and
geographical media locations need to be considered when choosing the
media.
(e) Measurement
The results of the advertising campaign need to be measured. An advertising
campaign is usually scrutinised to determine its success based on the
communication effect or the sales effect. A combination of that effects reflects
particularly the conspicuous quality or execution of the advertising
campaign.

8.3.2 Sales Promotion

Kotler, Stewart, Brown and Armstrong (2006) defined sales promotion as value-
adding tools that are used to prompt an immediate sale. Sales promotion can be
done through direct and online channels or traditional stores. Sales promotion is
a short-term incentive to encourage consumers to buy a product or service. Shimp
(2007) stated that sales promotion is the way retailers, manufacturers and not-for-
profit organisations change the brandÊs perceived price or value.
Consumer sales promotion and trade sales promotion are the two divisions of
sales promotion. Consumer sales promotion is targeted towards the consumer
market, whereas trade sales promotion is targeted towards members of the
marketing channels such as retailers and wholesalers.
The general objectives of sales promotion are as follows:
(a) Increase Sales

Companies can increase sales by using sales promotion. For example, Aeon
frequently conducts its Year End Sales promotion by selling products at
discounted prices to attract customers. Indirectly, the competitorsÊ customers
will also be attracted to shop at Aeon.
(b) Generate Publicity

Companies can attract new customers who are not even aware of the
products or services offered by them through sales promotion. The existence
of the products or services, which are offered at attractive prices or offers,
would most likely generate positive publicity through word-of-mouth
communication.
(c) Managing Demand

Sales promotion has the ability to induce consumers to purchase a particular
product or service earlier than they would normally do. With the ability of
sales promotion to influence purchases, companies can manage production
and inventory of their products better.
(d) Increase Market Share

Market share is the percentage of the market that the company has garnered
compared to their competitors. Sales promotion can ensure that the market
share of the company is retained, if not increased.

There are various sales promotional tools that are used by marketers. Listed in the
following are some of the more popular ones:
(a) Coupon
A coupon is a promotional tool that saves money for the consumers. It is a
form of promotional tool that is frequently used by producers. Normally,
coupons are given in the form of certificates and consumers can enjoy savings
when they purchase the specific product stated on the certificate. Coupons
are normally distributed through newspapers, magazines, direct mail or the
inside or outside printing of a package. Coupons can provide instant rewards
to consumers and encourage trial purchases as well as repeat purchases by
loyal customers.
(b) Sample
Giving samples is among the most popular promotional tools used to deliver
products to potential consumers. Normally, samples are products that are
packed in smaller sizes for consumers to try the product. They are distributed
through promoters in or out of stores and supermarkets. Samples are the
most effective method to introduce new products to consumers. However,
the cost is quite high because samples are normally given free to prospective
customers who will most probably miss it if the sample is sent through mail.
(c) Premium
Premiums are products that are offered free or at a low cost as an incentive
for consumers to purchase the intended product. Premiums can be packed
inside the product packaging, on the outer packaging or to be collected at
service counters in retail stores or supermarkets. An example of premium is
the offer of free sports bag to customers who buy racquets manufactured by
Jaguh Sports Company.
(d) Cash Refund

Cash refunds or rebates is a practice that gives back the cash or cash
discounts to customers who has purchased a particular product or service.
The offer is given after the customer has purchased the product. For example,
Astro gives rebates or cash refunds amounting to RM300 when its customers
subscribe to a programme or purchase its satellites.
"

(e) Price Pack

This promotional method offers price discounts to consumers through
messages or notices that are pasted on the labels or product packaging. Price
discounts are normally in the form of savings such as when two products are
packaged together and sold at a discounted price. For example, two pens that
would normally cost RM2.00 each, is packaged together and sold at the price
RM3.00. Products offered need not necessarily be the same product but may
include two different products such as a pen together with its refill.
(f) Advantage Specialty

Advantage specialties are sales promotional tools in the form of calendars,
pens, hats, T-shirts, umbrellas and others items that are given as souvenirs
to customers. The companyÊs name or logo is normally printed on the
souvenirs. Through the souvenirs, the company gets to promote its name and
image besides maintaining a long-term relationship with its customers. The
advantage of this promotional method is that the customer remembers the
company by its name or logo which appears on the souvenir.
(g) Trade Promotion

Besides sales promotional tools that are specific to consumers, there are also
sales promotional tools that are targeted at the trade. Trade promotional
tools are normally used by producers to persuade retailers to support their
products. For example, discounts on the productÊs normal price are offered
to retailers. Additionally, if the retailer buys in bulk, a larger discount will be
given (bulk discount).
Table 8.2 and Table 8.3 list the advantages and disadvantages of sales promotion.

Table 8.2: Advantages of Sales Promotion
Advantage Description
Creates With stiff competition, sales promotion differentiates the

differentiation product and acts as an incentive for purchase.
New communication Sales promotion provides new opportunities to promote the

opportunities product.
Provides feedback Feedback on the product or service is received from customers

and provides the organisation with useful information.
Word-of-mouth Sales promotion tools may generate positive word-of-mouth

promotion through the excitement of an event or samples given.
Training Opportunities for staff to communicate and practise their

opportunities marketing skills are increased with sales promotion.
Opportunities to Feedback, either positive or negative, provides useful

improve information for the company to improve on.
Table 8.3: Disadvantages of Sales Promotion
Disadvantage Description
Delayed purchase Customers may opt to delay their purchases and wait for the
next sales promotion.
Perception of Quality Customers may be sceptical towards the quality of the product.
Second only to advertising, sales promotion is the one of the most effective means
for products and services to reach out to the mass market. However, it is not
without its challenges, of which the following have more significant impacts:
(a) Competitor
Sales promotion is also used by rival companies, thus a company needs to be
creative in using sales promotion to achieve its objectives. Differentiation in
the form of sales promotion is of utmost importance when competing with
competitors.
(b) Extra Work for Employees

A particular challenge in implementing sales promotion is the fact that it will
increase the workload of employees. Companies need to consider the
training required, the scheduling of personnel and extra payments for the
extra work. Outsourcing may offer a solution but it will incur additional
costs.

8.3.3 Public Relations

Public relations include a variety of programmes to promote or protect the image
of the company or its individual products (Kotler et al., 2009). Managing successful
relationships with the public is essential to ensure survival and growth for the
company. A public is any group that has an actual or potential interest or impact
on a companyÊs ability to achieve its objectives. Public relations are influenced by
world view and what is trending in todayÊs society.
Programmes that involve product or company promotions are known as proactive

public relations. This is because the programmes are carried out according to
marketing objectives that have been decided by the company. The programmes
that are carried out will always seek opportunities to introduce the company and
its products to the public. Reactive public relations are activities carried out to
safeguard the companyÊs image.
All the efforts undertaken for public relations are for the purpose of building and
maintaining good relationship between the company and the public. Companies
perceive public relations as one of the effective methods to be used when
competing between opposite social groups.
The public relation department may play several roles as stated in the following:
(a) Expert Prescriber (An Authoritarian and Prescriptive Model)

Full authority on the identification of public relations problems and
providing solutions to management.
(b) Communication Technician (A Supportive Skills-oriented Model)

Public relations main role is to communicate in a manner that is warranted
by management. Good writing, editing, media placement and journalistic
skills required for this role.
(c) Communication Facilitator (A Liaison Model)

In the liaison model, the role of public relations is to maintain two-way
communications and facilitate exchange between management and the
public.
(d) Process Facilitator (A Confrontational Model)

Public relations department is part of the strategic planning team that
collaborates with other managers to identify the problem and to solve it. The
public relations department needs to guide the managers and the
organisation in this respect.

Public relations assist the organisation in communicating to the target market in

addition to managing the image and reputation of the company. Effective public
relations can create a positive image for the company, which will be helpful in the
future. Nevertheless, public relations require a huge amount of effort and time.
Moreover, the effects or reactions of the targeted audience can be rather difficult
to predict.
A public relations practitioner may follow a nine-step approach when strategising

a public relations campaign for his client.
(a) Step 1: Analysing the Situation

A particular situation needs to be analysed before implementing a good
public relations programme. A situational analysis will provide
opportunities and identify obstacles that needed to be overcome.
(b) Step 2: Analysing the Organisation

Three main aspects need to be examined when analysing the organisation.
They are the internal environment such as mission, performance and
resources of the company, its public perception or the reputation of the
organisation and the external environment such as competitors. The internal
and external environment analysis will help the organisation to identify its
strengths and weaknesses as well as its threats and opportunities.
(c) Step 3: Analysing the Public

The main focus in this step is in identifying and analysing key members of
the public. This is done by identifying the various groups of people who have
issues at hand and who interact with the organisation. An objective
technique is then provided to determine the priorities among the various
public groups.
(d) Step 4: Establishing Goals and Objectives

In this step, establishing distinct, specific and measurable objectives based
on the impact, acceptance and actions of the society is done.
(e) Step 5: Formulating Actions and Response Strategies

The action plan and contingency strategies are formulated in this step.
(f) Step 6: Designing Effective Communication

Suitable sources of information, message delivery and the execution method
need to be deliberated in order to design an effective communication
campaign.

(g) Step 7: Selecting Communicating Tactics

Several communications options need to be considered in order to select the
right tactics to employ. Decisions need to be made to decide whether to use
face-to-face communication, organisational media, news media or
promotional media. All tools can be used by the organisation but not every
tool is suitable for each issue.
(h) Step 8: Implementing the Strategic Plan

In this step, it is important to develop the budget and the schedule in order
to implement the various strategies and action plans. The various decisions
from the previous steps are taken into account so that a successful public
relations and marketing communications plan can be implemented.
(i) Step 9: Evaluating the Strategic Plan

The final step is to evaluate the specific tactics applied and to measure the
effectiveness of the strategic plan.
Public relations is different from advertising and sales promotion in the sense that
its activities are not always necessarily associated with helping the organisation to
sell a particular product or service. Public relations focuses on developing a
positive image of the organisation in the eyes of the public. As such, some
challenges are particularly difficult in public relations, as seen in the following:
(a) Measuring Success

Measuring the success of public relations especially with the advent of social
media proves to be a challenge. Social media is a convenient way to spread
information to the masses. The various forms of social media link to each
another. Message appearing on one form will appear on the other. The
challenge is in measuring the impact of social media.
(b) Interactive Nature and Instant Customer Feedback

In the 21st century, the new technology enables the target audience to
provide instant feedback. Therefore, an organisation may need to designate
an employee to monitor the social media to check on their positive as well as
responses. Public relations needs to be prepared to obtain the target
audienceÊs feedback and respond appropriately.
(c) Multiple Channels

The days of reaching the target audience through television, radio and
newspapers are gone. As such, public relations in the 21st century must
choose appropriate ways to reach the target audience. For example, a public
relations campaign for a product or service such as tertiary education may
focus on conveying the information through the social media but also opt to
communicate to the parents through the use of traditional media.

ACTIVITY 8.3

(a) What are the objectives of sales promotion? Provide relevant

examples to support your answer.
(b) What are the advantages of public relations with respect to the
image of the company?
8.3.4 Direct Marketing

Direct marketing has been defined as „the use of direct channels to deliver goods
and services including the email or online to the customers without using
marketing middlemen‰ (Kotler et al., 2009). Direct marketing is an interactive
marketing tool which uses one or more advertising media to obtain reactions that
can be measured and it enables transactions to be done anywhere. The following
are three of the most commonly used direct marketing channels:
(a) Direct Mail

Direct mail is one of the least expensive channels in direct marketing and
allows the sender to maintain good communication with the customers
because it uses one-to-one communication. Direct mail has proven to be
successful in promoting various kinds of products from books, insurance,
clothing and gift items to other consumer goods. Traditional direct mail is an
effective component of the broader integrated marketing communications
tool.
(b) Telemarketing
Telemarketing is the promotion and selling of products directly to customers
through the telephone. Telemarketing can attract more customers and
maintain contact with existing customers as well. When done properly,
telemarketing can reduce the cost of sales force. Telemarketing can help the
company to increase sales volume and customer base. The company should
provide the right telemarketer training and performance incentives to
achieve effective telemarketing.

(c) Direct Response Television Marketing

A more recent form of direct response television marketing is the interactive
television which allows customers to interact with or respond to television
advertising. Some TV channels are focused on selling goods and services.
A company can use television marketing to promote its products and
provide customers more information about the product prior to purchasing.
Some companies favour direct marketing due to certain inherent advantages, such
as the following:
(a) The Effectiveness of Direct Marketing can be Easily Measured and

Immediately Felt
Compared to advertising and other forms of promotion, the effectiveness of
direct marketing is easily measured and its effects can be immediately felt.
For example, if a salesperson sent out 50 leaflets and received 10 responses,
this indicates that the campaign achieved a 20 per cent response rate. The
salesperson can also monitor the open rates and click-throughs of an e-mail
campaign.
(b) Direct Marketing is Specifically Targeted to a Predetermined Group

Direct marketing communicates to a specific group. As a result, the response
can be seen immediately. In addition, with direct marketing the company
has the opportunity to personalise every single interaction such as through
e-mail with the name of the customer or individual.
(c) Direct Marketing Programme is Low Cost and Easy to Produce

With the advent of technology, the cost of direct marketing has greatly been
reduced. Furthermore, a direct marketing programme can be generated
within a short time. For example, e-mail campaigns cost little, do not take
much time to create and can be delivered to the target groupÊs email
instantaneously.
Nevertheless, direct marketing is not without its limitation, as explained in the

following:
(a) Difficulty in Obtaining Customer Database

Customer database is not easily available and not everyone is willing to be
promoted to. Although database may be obtained from dealers or
professional services, the cost is rather expensive. This is one of the
challenges in direct marketing.

(b) Consumers Opting Out

When consumers are bombarded with marketing materials, they may tune
out the message. When this happens, it will be a waste of money and it may
create a negative perception (of product and/or company) in the minds of
consumers.
(c) Limited Reach

Despite having a finite set of customer-defined target actions and a variety
of ways to focus its marketing efforts, it can also be a limiting factor for
marketers. Although database updates and the addition of new customers to
the list are frequently done, the range of direct marketing efforts is limited
and it is still not possible to reach the entire target market with direct
marketing methods.
8.3.5 Personal Selling

Personal selling is a process that „brings interaction between the salesperson and
the buyer on a face-to-face or one-to-one communication, for answering questions
and procuring orders‰ (Kotler & Keller, 2016). Meanwhile, Clemente (1992) said
that personal selling is „a selling approach characterised by personal product
descriptions and demonstrations, often at the userÊs home or the retailerÊs
establishment.‰ It is a relationship activity involving the salesperson and the
customer, and creates a two-way communication flow.
The following lists the common types of personal selling strategies:
(a) Order Getting

Order getting involves selling in a traditional way. It identifies the
prospective customers, provides the customer with relevant information to
persuade him to buy, closes the sale and follows up on the customerÊs usage
of the product or service. This process involves a high degree of creativity,
customer empathy and is very suitable for selling of technical products with
many options, therefore considerable product knowledge and sales training
are necessary. Selling computers or fancy clothes are some examples of order
getting.

(b) Order Taking

Order taking involves processing routine pre-orders or reorders for products
that were previously sold to the customer. The primary responsibility is to
ensure good relationship for the purpose of customer retention as well as to
maintain sales. A sales assistant in a supermarket is an example of an order
taker. Types of order takers include:
(i) Outside Order Taker

Outside order taker visits the customer in response to customer
request.
(ii) Inside Order Taker

A retail sales assistant is an example of an inside order taker.
Customers have the freedom to choose products without the influence
of the sales assistant. The order takerÊs task is solely transactional
although he may also be required to arrange the goods for display.
The process of personal selling generally follows the following sequence of events:
(a) Prospecting and Qualifying
(i) This step involves locating potential customers and finding out if the
customers are in a position to buy;
(ii) Prospecting is asking for names of acquaintances who may also be

interested or it may be as complex as using a database or mailing list;
(iii) Normally the company would provide the lead but some excellent
salespersons will also source his own lead;
(iv) Prospecting usually involves calling an unknown potential customer

and introducing oneself and the product;
(v) After a possible customer has been located through prospecting, the
salesperson must qualify the prospect by assessing his readiness and
ability to buy; and
(vi) Personal selling requires the salesperson to contact many different

prospects before he gets to close a sale.

(b) Pre-approach
(i) The salesperson needs to learn more about the prospectÊs company as
well as the customer;
(ii) The salesperson should set call objectives to qualify the prospect,
collect data and make an immediate sale;
(iii) A personal visit may be conducted, however, the best contact approach
has to be decided upon; and
(iv) Finally, the salesperson should plan an overall sales strategy for the
account.
(c) Approach
(i) The approach is important since it provides the opportunity for a

salesperson to make a positive first impression. An introduction of
oneself, the company and the product or service being offered is done
in this stage;
(ii) The salesperson should be aware of the best way to greet the customer
in order to have a good start to the relationship; and
(iii) The salesperson needs to listen attentively and respond appropriately

during the approach.
(d) Presentation
(i) Three types of presentation approaches are available based on the

company, the product and service being offered;
(ii) The first presentation approach is the prepared or „canned‰ approach.

It involves a well-scripted dialogue that can either be memorised or
read;
(iii) The second approach is the formula approach, which is less rigid;
(iv) The third and a last approach is the need-satisfaction approach. In this
approach, the seller tries to uncover the customerÊs needs, mostly by
listening; and
(v) Presentations may involve any number of visual tools such as the use
of flip charts or samples of the product.

(e) Handling Objections
(i) Logical resistance consists of objections to the price, delivery schedule

and certain product and/or company characteristics;
(ii) A good salesperson is not flustered by these objections and handles

them in a positive and confident manner; and
(iii) One way of handling objections, which is used frequently with canned
presentations, is simply to admit the objection and then continue with
the presentation.
(f) Closing
(i) The salesperson needs to know the way to recognise closing signals
from the customer. The signals include physical actions (body
language), reviews and questions;
(ii) There are several closing techniques such as asking for the order,
summing up the points of the agreement, offering to help the secretary
write up the order and asking the features that are desired by the
customer such as the colour or size. Finally, a common strategy is to
reveal what the customer will lose if the order is not placed
immediately; and
(iii) The salesperson might offer the customer specific incentives to close
the sale such as a special price discount, an offer of extra quantity or a
token gift.
(g) Follow Up
(i) Follow up is often left out in the personal selling process but it is
particularly important for many reasons;
(ii) Follow ups could be done in person or by telephone. It provides an

opportunity for the salesperson to ask questions, if any, and reinforce
the buying decision;
(iii) The salesperson can review the product usage, go over instructions and
payment arrangements or to make sure that the product has reached
the customer in proper working order; and
(iv) Follow ups can ensure that the business gets repeat customers. It is also
a good opportunity to obtain referrals and to increase the chances of
receiving subsequent payments.

The following points to the merits of personal selling:
(a) Two-way Communication

Salespersons can provide the necessary information about the company or
product to the customers and customer feedback can also be obtained during
the personal selling sessions with the customer. Customers can actively seek
answers to their doubts and while the salesperson can clarify any objections
brought up by the customer. This is not possible with other methods of
marketing communications.
(b) Flexibility and Adaptability

Since personal selling whereby the salesperson and the customer
communicate face-to-face, the companyÊs sales representative can provide
more flexibility and adapt to the customerÊs request. A salesperson can adjust
himself to buyers who have different needs, feelings, motives, attitudes and
behaviour in order to communicate effectively.
(c) Immediate Feedback

Personal selling is the only marketing communications tool that provides
immediate feedback. At the end of every call or visit, a salesperson can judge
the level of interest or buying intention of the buyer. It could be observed
from the attitude or behaviour of the customer, or what the consumer has
said.
There are, of course, limitations to what a company can achieve through personal
selling:
(a) Limited Reach

Personal selling limits the ability of the marketer to reach a large consumer
base due to time and cost constraints. For instance, a sales agent is only able
to communicate to a few potential buyers in one day. In addition,
geographical dispersion of the consumers may further hinder the ability to
reach them.
(b) Incur High Cost

Personal selling is expensive due to the time and cost involved. Personal
selling requires training in addition to the salary, bonus, commission and
travelling expenditure that has to be paid to the sales representative.

(c) Customer Loyalty at Stake

A close relationship between the sales representative and the customer is
very important in personal selling. However, this also puts the firm at risk.
For example, the company will stand to lose if the sales representative moves
out of the company and joins a competitor or set up a business of his own.
The customers who are loyal to the sales representative may decide to
purchase from the new company which the sales representative is now
working at. Customers may be more loyal to the sales representative than to
the company.
SELF-CHECK 8.2
1. List down the fundamental marketing communications decisions.
2. What are the challenges faced by companies when engaging in sales

promotion? Explain.
ACTIVITY 8.4

(a) Give one example of a direct marketing channel that influences you
the most. Elaborate.
(b) Does personal selling have any limitations? How do marketers

overcome the limitations?

ACTIVITY 8.5
CASE STUDY ă COCA-COLA
Coca-Cola is actively engaged with the English

and Scottish schoolsÊ football tournaments. It
includes over 2,000 schools from across England,
involving 30,000 young people. Coca-Coal is
giving them the opportunity to play football in a
safe, well-organised and fun environment. In
order to attract more families as well as children
to the game, Coca-Cola uses mascots which
support good practices and allows children to be
their club mascots when they enter the
competitions.
At the domestic level, in order to capture a large

number of football fans, Coca-Cola sponsored the
ITVÊs weekly football programme. It is the most
important programme for football followers. This
has given the company the opportunity to
support its objective of providing football fans
with access to football playing. Sponsorship
message takes place at the start, before and after
the advertising breaks in the form of indents or
bumper breaks.
At the international level, Coca-Cola is involved

with the European Championship and the FIFA
World Cup by engaging different types of
activities such as creating a unique Coca-Cola
perimeter advertising board, organising a run in
conjunction with SainsburyÊs in an effort to bring
fans to celebrate together.
Source:
http://businesscasestudies.co.uk/coca-cola-
great-britain/communicating-through-the-
world-game-for-brand-and-corporate-
reputation/coca-cola-and-its-levels-of-football-
communication.html#axzz41U0Byxy0

Questions:
1. What is the importance of communication?
2. In your opinion, is Coca-Cola a successful company in terms of its

public relations? If yes, please provide evidences to justify your
answer.
3. How can Coca-Cola improve its sale through the communication

strategy?
4. Is communication very important to an international marketer? Why?
Share your answers with your coursemates in myINSPIRE online forum.
 Communication in simple words is the sending and receiving of messages.

Marketing communications messages are delivered through one or more
channels such as personal selling, print, television, radio and direct mail.
 Elements of communication include sender, encoder, channel, decoder,

receiver, interference or noise and feedback.
 The two types of barriers to communication are internal barrier and external
barrier. Various forms of communication barriers include physical,
psychological, sociological and semantic barriers.
 Promotional mix includes advertising, sale promotion, public relations, direct

marketing and personal selling.
 Fundamental marketing communications decisions include determining the

objectives, targeting, positioning and budgeting.
 The marketing communications elements consist of creating the messages,

selecting the media and establishing the momentum.
 The five Ms of advertising when developing and managing an advertisement

campaign are mission, money, message, media and measurement.

 Sales promotions are value-adding tools which are used to induce an

immediate sale, whether through traditional stores or direct and online
channels. It adds a measure of urgency in the buying decision process. Sale
promotion is important to satisfy customersÊ needs and wants.
 The objectives of sales promotion include to increase sales, generate publicity,

create excitement and increase market share. The main tools of sales promotion
are rebates or redeemable coupons.
 Sales promotion is also able to create product differentiation, create new

content and communication opportunities, drive customer decision-making,
create word-of-mouth opportunities, create training opportunities for staff,
create testing opportunities and grow the revenue.
 Disadvantages of sales promotion include increased price sensitivity and the

possibility that the quality image of the product may be tarnished.
 Challenges in sales promotion include competition with competitors which

may lead to price wars and the need for more manpower to organise and
implement the campaign.
 Public relations include a variety of programmes to promote or protect the

image of a company or individual products. The public relations department
plays several roles.
 Public relations assist the organisation in communicating to the target market

in addition to managing the image and reputation of the company. Effective
public relations can create a positive image for the company, which will be
helpful in the future.
 Direct marketing is an interactive system that uses multi-mediums to

communicate directly to its customers from various locations. Direct mail is a
mail service to deliver information to the target audience. Telemarketing is
selling products directly to customers via the telephone. Direct response
television marketing uses the broadcast media to convey its product
information to the potential buyers.
 Personal selling involves direct relationships between the salesperson and the
customer. It is a two-way communication.
 The seven steps in the personal selling process are prospecting and qualifying,
pre-approach, approach, presentation, handling objections, closing and follow
up.

Advertisement Noise
Channel Personal selling
Decoding Process
Direct marketing Public relations
Encoding Receiver
Feedback Sales promotion
Integrated marketing communications Sender
Bhasin, H. (2015, November 1). Promotional mix ă What are the different types of
promotion? Retrieved from http://www.marketing91.com/promotional-
mix/
Chitty, W., & Barker, N. (2011). Integrated marketing communications (3rd ed.).
Boston, MA: Cengage Learning.
Clement, M. N. (1992). The marketing glossary. New York, NY: American

Management Association.
Kotler, P., Ang, S. H., Leong, S. M., Tan, C. T., & Keller, K. L. (2009). Marketing
management: An asian perspective. Singapore, Singapore: Prentice Hall.
Pearson.
Kotler, P., Stewart, A., Brown, L., & Armstrong, G. (2006). Principle of marketing.
Melbourne, Australia: Pearson.
Lovelock, C., & Wirtz, J. (2005). Service marketing people, technology, and
strategy (5th ed.). Upper Saddle River, NJ: Prentice Hall.
Shimp, T. A. (2007). Advertising promotion and other aspects of integrated

marketing communication. Mason, OH: South-Western Cengage Learning.

Topic
""
"
"  Designing and
"
Managing
9
"
"
"
"
"
"
Channels"
"
" "
"
"
LEARNING OUTCOMES
"
"
"
"
" 1. Explain marketing channel and value networks;
" 2. Analyse channel design and channel management decisions;
"
" 3. Describe channel integration and the various types of channel
" integration systems;
" 4. Discuss channel conflicts and the strategies to manage the conflicts;
"
" 5. Describe e-commerce marketing practices and e-commerce marketing
" success factors; and
" 6. Explain the advantages of B2B e-commerce and m-commerce.
"
"
 INTRODUCTION
Marketing channel is one of the important elements in the marketing mix.
Marketing channel decisions have direct effects on other marketing activities.
A marketer has to manage the members of the distribution channel. Distribution
channel intermediaries such as agents, brokers, wholesalers and retailers have to
be managed so that they are in line with the companyÊs objectives, especially from
the aspects of maximising customer satisfaction and increasing the companyÊs
competitiveness.

TOPIC 9 DESIGNING AND MANAGING CHANNELS  197
9.1 MARKETING CHANNEL

Marketing channels are sets of interdependent organisations which are involved
in the process of making a product or service available for use or consumption
(Coughlan, Anderson, Stern & El-Ansary, 2006).
9.1.1 Channels of Distribution

Figure 9.1 shows the role of a channel as an intermediary between the producer
and consumers. Intermediaries play an important role in the marketing of goods
and services. They have the ability to increase the level of loyalty and affect
customer relations. Intermediaries contribute to stabilising the demand and
supply. They can channel the needs of the customers to the producers and provide
valuable feedback. Intermediaries also perform the physical distribution of goods
at the time and place required. They also perform ownership transfers of goods
and services.
Figure 9.1: The role of distribution channels as an

intermediary between producer and consumers
The following lists the common types of marketing channels:
(a) Direct Selling

The producer sells the product directly to final users.
(b) Intermediaries
There is intermediation between two trading parties.

198  TOPIC 9 DESIGNING AND MANAGING CHANNELS
"
(c) Dual Distribution

The producer or wholesaler utilises more than one channel at the same time
to service the end users.
(d) Reverse Channels

The movement of goods is in the reverse order whereby the flow is from
consumers to intermediaries to producer.
Marketing channels can also be described according to the flow of goods or

information through the channels, as follows:
(a) Product Flow

Refers to the actual movement of the physical products from the producer to
end users.
(b) Negotiation Flow

Represents the negotiation function performed by the intermediaries.
(c) Ownership Flow

Shows the flow of ownership and title of the goods or services.
(d) Information Flow

Reflects the flow of information.
(e) Promotion Flow

Refers to the flow communications with regard to the promotional mix.
Figure 9.2 compares the various flows of goods from the beer manufacturer to
bottlers and beer distributors to the consumers through the marketing channels.
All the flows show the distribution stages right up to the consumers.

Figure 9.2: Comparison of the various flows of goods from the beer manufacturer
and bottlers to the consumers through various marketing channels
9.1.2 Role of Marketing Channels

Marketing channels play an important role in achieving successful placement of a
particular product or service. Marketing channels assist the organisation to
achieve its goals since:
(a) More information and distribution can be gathered;
(b) Product promotion will be more efficient and effective;
(c) It will be more convenient to arrange the contact with the buyers so that it
will be easy to meet the customersÊ needs;
(d) Negotiating the price and financing the cost are done by them; and
(e) Physical distribution or supply of the product through the channels are
easier.

"
9.2 MARKETING CHANNEL AND VALUE

NETWORKS
One of the challenges faced by organisations is in selecting the appropriate
marketing channel. The chosen channel will affect other areas in marketing. For
instance, the choice of marketing channel will determine pricing decisions and
incentives to be given to traders.
Some organisations such as Hewlett-Packard have opted to use hybrid channels

or multichannel marketing. For instance, personal selling is used to sell to large
accounts, while outbound telemarketing is the choice to sell to medium-sized
accounts, and the Internet is used to complement the channels or act as a channel
by itself. In this instance, consumers have the option of selecting their favoured
channels based on price, product variety and suitability as well as their economic,
social or experiential spending goals (Keller, 2009).
A push strategy uses the manufacturer's sales power and skills to persuade
intermediaries to carry and market their products. In a pull strategy, the
manufacturer promotes its products to consumers and subsequently the
consumers will demand the products from the intermediaries. Figure 9.3 shows an
example of multichannel marketing solutions.
Figure 9.3: Multichannel marketing solutions

"

9.3 CHANNEL DESIGN DECISIONS

Planning a channel framework requires advertisers to analyse its clientÊs needs, set
channel destinations, recognise real channel choices and assess channel options.
Customers may choose a particular channel based on the value provided. These
may include the value of the item, the variety of items offered and the particular
shopping objective or their needs such as financial conditions, social life and what
they have experienced.
Three elements are commonly looked upon when identifying and evaluating
major channel alternatives:
(a) Types of Intermediaries

Companies need to identify the types of available intermediaries.
(i) Companies should seek for innovative and successful channels; and
(ii) Dependability and credibility of the channel should be considered.
(b) Number of Intermediaries

Based on the number of intermediaries, there are three distribution
strategies, namely:
(i) Exclusive Distribution

It is a distribution strategy whereby the maker or manufacturer only
gave a limited number of merchants the right to sell its items within a
certain region. Products under exclusive distribution include luxury
cars and high-end clothing.
(ii) Selective Distribution

Selective distribution involves the use of more than a few, but not all,
of the intermediaries who are willing to carry a particular product.
The company does not have to worry about too many outlets because
it can gain adequate market coverage with more control and less cost
than intensive distribution (Keller, 2009).
(iii) Intensive Distribution

Intensive distribution involves the use of almost, if not, all outlets.

"
(c) Terms and Responsibilities of Channel Members

It is imperative that the terms and responsibilities (rights and obligations) are
clearly understood. The common factors agreed upon may include:
(i) Price Policy

Policies concerning price, discounts and rebates need to be agreed
upon.
(ii) Conditions of Sale

Terms of sale with the selected intermediaries have to be agreed upon,
for instance, the use of warranty, discounts, insurance and payment
terms.
(iii) DistributorÊs Territorial Rights

Territorial rights, if it is applicable, between intermediaries need to be
agreed upon.
(iv) Mutual Services and Responsibilities

Administrative and related obligations such as product maintenance,
quality standards and product display need to be clearly understood.
9.4 CHANNEL MANAGEMENT DECISIONS

Companies should choose, cultivate, inspire and assess individual intermediaries
after a channel system had been selected.
(a) Selecting Channel Members

Producers should determine few characteristics that may differentiate bona
fide intermediaries from others. The characteristics include duration in
business, service prestige, cooperation, financial strength, other lines carried,
growth and profit records. The characteristics should be evaluated properly
and carefully by producers when selecting the most suitable channel
members.
If producers opt for sales agent as its intermediary, it needs to evaluate the
quality and size of the sales force in addition to the number of other lines
carried by the sales agent.
If producers opt for department stores as its intermediary, three issues that
producers should assess are location, type of clientele and future growth
potential.

(b) Training and Motivating Channel Members

Companies need to communicate with channel members constantly to
stimulate performance and productivity. Market research programmes need
to be done and the skills and knowledge of the channel members need to be
constantly enhanced in order to improve performance and productivity.
The organisation should motivate channel members to act as one and also as
a team for the purpose of encouraging cooperation among them.
(c) Channel Power

In an effort to encourage cooperation among channel members, companies
may need to utilise certain types of power. Power is the ability to influence
other members throughout the channel in the area of decision-making or
regarding oneÊs behaviour. Examples are legitimate power, referent power,
expert power, coercive power and reward power.
(d) Channel Partnership

Efficient response to consumers will require close cooperation among
manufacturers, wholesalers as well as retailers. This cooperation is built on
three aspects, which are demand side management or collaborative practices,
supply side management and enablers and integrators. Demand side
management focuses on utilities while supply side management focuses on
renewable energy resource and methods of utilising it effectively. Enablers
and integrators act as a medium to reduce problems that might surface
during the operating process.
(e) Evaluating Channel Members

During channel membersÊ evaluation, there are some important points that
producers need to focus on such as average inventory levels, customer
delivery times, quantity attainment, treatment of damaged and lost goods as
well as cooperation in promotional and training programmes (Kotler &
Keller, 2016).
Two main approaches are used when evaluating channel members. Firstly,
the performance evaluation and secondly, the day-to-day monitoring.
Performance evaluation focuses on the wider aspects of the evaluation
process. It typically contains a number of criteria other than sales. On the
other hand, day-to-day monitoring is basically a routine assessment of how
channel members perform based on sales criteria only. Underperformers
need to be encouraged, to be motivated or retrained. If they still do not show
any improvements, a decision to terminate their services has to be
considered.

"
(f) Modifying Channel Design and Arrangement

External factors such as competitorsÊ actions and changes in consumer
buying pattern may force the channel design to be modified. In addition,
some channel members may be dropped while new channel members may
be adopted.
(g) Channel Evolution

Channel evolution looks at how the distribution channels have gone through
changes over time in the industry. For a company which has just started a
new business, it will normally start its distribution by utilising few existing
intermediaries. Effective companies will have many opportunities to enlarge
their businesses and opportunities to enter into new markets which will
require a different set of channels.
(h) Global Channel Consideration

Although venturing into the international market may be challenging with
varying customers shopping habits, however, the opportunities and rewards
obtained will make the effort worthwhile. When that happens, marketers
need to take into consideration the available and suitable global channels for
their international markets.
9.5 CHANNEL INTEGRATION

Channel integration and system are strategies aimed at consolidating customer
information, either physically or logically. New wholesaling and retailing
institutions emerge, and the channel system evolves into a new type of distribution
coordination. There are three types of channel integration, namely vertical
marketing system (VMS), horizontal marketing system (HMS) and multichannel
marketing system (see Figure 9.4).
Figure 9.4: Types of channel integration
The subsequent subtopics will focus the discussion on the first channel integration
but only briefly explain the last two systems.
9.5.1 Vertical Marketing System

A vertical marketing system (VMS) comprises all channel members acting as a
unified system. This system ensures that there is control over channel behaviour
and eliminates or minimises conflicts. The system can improve the efficiency of
distribution and incorporate the work of each individuals in the channel. This
system utilises the concept of economies of scale through mass production,
negotiation power and elimination of duplicated services.
There are three categories of VMS, namely corporate VMS, administered VMS and
contractual VMS (see Figure 9.5).
Figure 9.5: Categories of vertical marketing systems
Now, let us discuss the three categories in greater detail.
(a) Corporate Vertical Marketing System

Corporate VMS exists whenever a company owns and operates another
channel level. Corporate VMS also exists whenever a primary marketing
function is performed by a single organisation across two or more channel
levels.
(b) Administered Vertical Marketing System

Administered VMS is similar to conventional channels in that the
participating companies are owned and operated independently. The system
features highly effective inter-organisational management, usually
emanating from one dominant company (Justin, as cited in Kapoor, 2005).
In the conventional channels, managers often attempt to create an
administered VMS to compete more effectively against more vertically
integrated systems.
"

"
(c) Contractual Vertical Marketing System

Contractual VMS contains independent companies working at numerous
channel stages on a contractual basis. The formal contracts ensure that the
companies obtain economies of scale as compared to being on its own.
9.5.2 Horizontal Marketing System and Multichannel

Marketing System
A horizontal marketing system (HMS) is where two or more unrelated companies
combined their resources or programmes to exploit an emerging marketing
opportunity. On the other hand, a multichannel marketing system exists when a
single company uses two or more marketing channels to reach one or more
customer segments.
9.6 CONFLICTS, COOPERATION AND

COMPETITION
Conflicts between channel members do occur in reality. This may be due to
unsuitable objectives, unclear roles and rights, differences in opinions as well and
members may not have an open relationship.
9.6.1 Types of Conflicts and Competition

The following are the three types of conflicts and competition:
(a) Horizontal channel conflict happens among comparable companies on the

same level of the channel distribution chain. For instance, a retailer might be
in conflict with another retailer on issues relating to regional control;
(b) Vertical channel conflict occurs between different channel levels within the
same channel system. For instance, the conflict between the manufacturer
and the distributor as a result of pricing, service policies and advertising; and
(c) Multichannel conflict happens when a manufacturer established two or more

channels which sell to the same market and conflict occurs between these
two channels.
"

9.6.2 Causes of Channel Conflicts

There are many causes of channel conflicts. Among the more common ones are:
(a) Incompatibility of objectives among channel members may trigger a conflict;
(b) Roles played by various channel members differ and may change over time.
For instance, a wholesaler might anticipate that a supplier will convey the
shipments requested on the concurred time. However, in the event that this
does not happen, the wholesaler may believe that the supplier is not
performing its role; and
(c) Differences in expectations and perceptions by channel members.

Differences may arise on how one channel member anticipates how another
member will carry on its tasks. On the off chance that there are differences in
expectations and perceptions regarding the conduct of another channel
member, conflict is likely to emerge; and
(d) The lack of resources may trigger a conflict when channel members cannot
agree on how the resources ought to be shared amongst them.
9.6.3 Managing Channel Conflicts

Channel members must be able to manage their relationships well. Channel
conflicts that arise in the distribution channel may be resolved by applying
relevant conflict management strategies.
The following are several conflict management strategies:
(a) Persuasion may be used to manage channel conflicts;
(b) Negotiation between parties in conflict is another method to manage channel

conflicts;
(c) Problem solving as a conflict resolution strategy is used to identify and

rectify the main cause of the conflict and resolving it so that it does not occur
again; and
(d) Sensitivity training helps every channel members to learn or take note of any
sensitivities among channel members so that potential conflicts can be
avoided.

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9.7 E-COMMERCE MARKETING PRACTICES

Electronic commerce or e-commerce can be defined as buying and selling goods
and products over the Internet (Riggins, 1998). E-commerce includes business
activities for products and services (Rosen, 2000). It also pertains to „any form of
business transactions in which the parties interact electronically rather than by
physical exchanges or direct physical contact‰ (Wikibooks, n.d.). E-commerce is
usually associated with businesses and promotions over the Internet or its
transactions involve the transfer of ownership or rights to use goods or services
through a computer-mediated network (Mesenbourg, 2007).
The World Trade Organisation (WTO) defines e-commerce as „the production,

distribution, marketing, sales or delivery of goods and services by electronic
means‰ (Appleton & Plummer, 2007). Online retail sales have increasingly become
more popular due to its advantage in reaching to a bigger market. Online bazaars
such as Amazon and eBay allows anyone to set up a modest online shop and sell
goods and this can be done within minutes.
Businesses or corporations have to manage their e-commerce websites. The

following factors have been found to be contributing factors to e-commerce
success:
(a) Pleasurable Experience

Some customers find shopping online very enjoyable. However, most of
them do not share the same sentiment. The challenge is to ensure that when
a potential consumer visits a website or shops online, he will find it to be a
pleasurable experience.
(b) Social Interaction

Social interactions refer to particular forms of externalities in which the
actions of one group affects an individualÊs preferences. In an online
shopping case, some might find that it is not convenient or effective to shop
online because there is limited interactions between the buyer and the seller.
(c) Personal Consultation

Personal consultation is very important for the customers. If possible, all
online shopping platforms need to have a customer service that can allow
for personal consultation for customers who desire it.

9.8 BUSINESS-TO-BUSINESS (B2B)

E-COMMERCE AND M-COMMERCE
The business-to-business (B2B) model is essentially a business relationship
between a manufacturer and a wholesaler or between a wholesaler and a retailer.
The channel involves transactions between companies. Goods such as plastics,
grains or chemicals are not really demanded or used by end consumers per se but
are important in wholesale distribution.
9.8.1 B2B E-Commerce

B2B online buying is expected to increase with suppliers and customers adopting
the new technology since it also provides the convenience of doing transactions
anywhere and anytime. B2B companies can substantially reduce sales costs of up
to 90 per cent by guiding customers to an online self-service e-commerce
environment. 52 per cent of B2B ecommerce executives surveyed reported that
migrating formerly offline-only customers to online purchasing reduced their
customer support costs (Forrester, 2013). Variances still exist between B2B and
business-to-consumer (B2C) e-commerce because prices fluctuate frequently with
customer-specific pricing and volume-based price cut, and instinct buying does
not happen. However, characteristics of B2C e-commerce have made their way to
B2B websites. They are personalisation and customisation, cooperative catalogues,
customer reviews and real-time inventory accessibility. Many B2B buyers now
prefer to research products and conduct online shopping. In the future, strong
growth will continue over the next five years, especially purchases via mobile
devices.
B2B websites can be arranged into the following categories:
(a) Company Websites

The target viewers of many company sites are other businesses and their
employees. These sites can be viewed as round-the-clock mini trade exhibits.
Sometimes, a company website serves as the entrance to unlimited extranet,
available only to customers or registered site users. Some company sites sell
directly from the site, effectively retailing to other businesses.
(b) Product Supply and Procurement Exchanges

A companyÊs purchasing agent can shop for supplies from sellers, demand
proposals and in some cases, offer to make a purchase at a desired price.
E-procurement sites as they are sometimes referred to, some sites serve a
range of industries while others focus on niche markets

"
(c) Specialised or Vertical Industry Portals

These portals provide a „sub-web‰ of information, product listings,
discussion groups and other features. Vertical portal sites have a broader
purpose than procurement sites although they may also support buying and
selling.
(d) Brokering Sites

These sites act as an intermediaries between providers and potential
customers who need their specific services such as equipment leasing.
(e) Information Sites

These sites provide information about a particular industry to companies as
well as their employees. Information sites include specialised search sites
and organisations for trade and industry standards.
9.8.2 Benefits of E-Commerce

The influence of e-commerce on businesses can be massive. E-commerce can alter
the way products and services are designed, traded and distributed to customers.
It can also transform the way in which a corporation works with its business
partners. The following highlights some of the well-established benefits of
e-commerce:
(a) Increased Productivity

By adopting e-commerce, the time required to develop, transfer and process
a business transaction between trading partners is significantly reduced.
Furthermore, human errors and other problems such as duplication of
records are largely eliminated with the reduction of data entry during the
process. This improvement in speed and accuracy, plus easier access to
document and information will result in increased productivity.
(b) Cost Savings

According to a 1999 report by Giga Information Group, conducting business
online will save companies around the world an estimated USD1.25 trillion
by 2002. This compares to total savings of USD17.6 billion in 1998. The cost
savings stem from efficient communication, quicker turnaround time and
closer access to markets.
"

(c) Streamlined Business Processes

Cost savings are amplified when businesses go a step further and adapt their
internal processes and back-end legacy systems to take advantage of
e-commerce. Inventories can be reduced if businesses use the Internet to
share information such as promotional plans and point-of-sales forecasts.
Business processes can also be made more efficient with automation (Lallana,
1997).
9.8.3 M-Commerce Marketing

M-commerce or mobile commerce can be defined as any monetary transactions
which are conducted directly or indirectly via telecommunications network
(Barnes, 2002). M-commerce is really popular in business activities because of the
ease in usage.
According to William (2016), there are many advantages of advertising in m-

commerce. Among them are:
(a) Companies can know their markets;
(b) Companies can target the right customers;
(c) Companies can get their marketing mix right;
(d) It is easier to retain customers on the companyÊs app;
(e) Companies can get their customers to help them market their apps;
(f) Companies can retarget their customers; and
(g) Companies can add value to their user experience.

"
SELF-CHECK 9.1
1. Define marketing channel and value network.
2. List the functions of marketing channel.
3. What do you understand by channel level with respect to

marketing?
4. What is difference between vertical marketing system and

horizontal marketing system?
ACTIVITY 9.1
Post your answers to the following questions on myINSPIRE online

forum. Share and discuss with your coursemates.
(a) There are several aspects that channel members have to consider in
order to avoid conflicts. Give two examples that will cause conflicts
among channel members.
(b) What is e-commerce?
(c) How do companies convert e-commerce browsers into buyers?
(d) What do you think will happen in m-commerce over the next one
to three years?
(e) How can horizontal marketing system assist fast food businesses?
"

ACTIVITY 9.2
Source: http://www.axis-reit.com.my/property_details.php?id=33
CASE STUDY ă GIANT HYPERMARKET
Giant Hypermarket is MalaysiaÊs leading grocery retailer. This is

achieved through their selected lowest-priced product offerings and its
aggressive weekly promotions. This marketing channel has served its
customers for the past 60 years. Its customers have wandered through
this hypermarket, enjoying exclusive deals.
In 2015, Giant came the decisive point where it planned to refurbish its
28 existing stores nationwide whilst opening six new stores in 2016.
According to Giant merchandising director, Lee Siew Mei, the relaunch
would create a whole new shopping experience for its customers. The
new outlook and arrangement would involve more than 40 per cent of its
products. An example would be the baby products, where all its products
now are within reach and customers need not walk to various sections of
the hypermarket to look for the products. Additionally, Giant
Hypermarket has introduced several new ranges of products such as
OÊFresh, whereby the vegetables were brought in directly from Cameron
Highlands without going through any intermediaries.
Source: Lai, A. (2015, December 25). Giant hypermarket refurbishes 28 of

its outlet for RM2.5mil each. The Star. Retrieved from https://www.
thestar.com.my/business/business-news/2015/12/25/giant-
refurbishes-28-of-its-outlets/

"
Questions:
1. Do you think Giant HypermarketÊs channel design decision is

effective to create a competitive advantage? If so, why?
2. What other channel design options can Giant Hypermarket pursue

to accomplish its distribution objective?"
 Producers have to manage the distribution of products because producers do

not deliver the products directly to their customers. As such, producers use
one or more marketing channels to distribute the products to the final users.
 Marketing channels play an important role in making the products sustainable

in the market. Producers have to design appropriate marketing channels to
make sure that the products are accessible in the market.
 Marketing channels can distribute products well because they have a role to
play in delivering products to final users. Marketing channels also have levels
of channels that can be used by producers according to the types of products.
 Intermediaries are important in the marketing design because they act as

middlemen for producers to supply their products or merchandise to fulfil the
demands of customers.
 Intermediaries perform important functions such as giving information,

negotiating, ordering, payment and transferring the title of goods.
Intermediaries are very important in easing the distribution tasks.
 Companies have to be excellent in managing channel decisions such as to

select, train, motivate and evaluate individual intermediaries in order for each
channel to maintain its performance.
 Marketing channels may run into conflicts when performing the distribution
task. Therefore, producers must identify the cause of the conflict and solve the
conflict by changing the environment but not too much. Companies have to
use effective conflict management strategies to help minimise or eliminate the
conflicts when they arise.

 E-commerce has grown in importance as many companies have adopted the

brick-and-click channel system. Channel integration must recognise the
distinctive strengths of online and offline selling, and maximise their joint
contributions.
 M-commerce or marketing through cell phones makes it easier for users to buy
products via online. In this way, companies will get the opportunity to increase
their sales.
Consumer Marketing channels

Competition Producer
E-commerce Retailer
Flow Supply chain
Intermediaries Value networks
Appleton, A. E., & Plummer, M. G. (2007). World trade organization: Legal,

economic and political analysis. Washington, DC: International Trade Law
Center.
Barnes, M. V. (2002). Mobile electronic commerce, development, and applications.

London, England: CRC Press.
Coughlan, A., Anderson, E., Stern, L. W., & El-Ansary, A. (2006). Marketing
channels (7th ed.). Englewoods Cliffs, NJ: Prentice Hall.
Forrester. (2013, February 13). 2013 mobile trends for marketers. Retrieved from
https://www.forrester.com/report/2013+Mobile+Trends+For+Marketers/
-/E-RES91661
Kapoor, S. (2005). Basics of distribution management: A logistic approach. New

Delhi, India: Jay Print Pack.

"
Keller, P. T. (2009). A framework for marketing management. Upper Saddle River,

NJ: Prentice Hall.
Kotler, P. T., & Armstrong, G. (2013). Principles of marketing (15th ed.). Upper
Saddle River, NJ: Prentice Hall.
Kotler, P. T., & Keller, K. L. (2016). Marketing management (Global ed.). Boston,
MA: Pearson.
Lallana, Q. K. (1997). Electronic commerce: A manager's guide. Hoboken, NJ:

Longman.
Mesenbourg, T. L. (2007). Measuring electronic business: Definitions, underlying

concepts, and measurement plans. Suitland, MD: US Bureau Census.
Riggins, F. J. (1998). Electronic commerce. In Communication of the ACM. New

York, NY: ACM.
Rosen, A. (2000). The e-commerce question and answer book. New York, NY:
American Management Association.
"
Wikibooks (n.d.). E-commerce and e-business/concepts and definitions. Retrieved
from https://en.wikibooks.org/wiki/E-Commerce_and_E-Business/
Concepts_and_Definitions
William. (2016). Mobile commerce daily. New York, NY: Napean.

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Topic
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"  Managing a
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Holistic
10
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Marketing
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Organisation
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for the Long
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Run"
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LEARNING OUTCOMES
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" 1. Define the marketing organisation;
" 2. Discuss marketing implementation and control; and
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" 3. Evaluate the skills and competencies required for achieving marketing
" excellence in the future.
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 INTRODUCTION
Implementation and control are the essential closing stages of any strategic
management process. They serve to ensure proper management, success and
continuity of the marketing plan. Recent trends in marketing practices and internal
marketing such as corporate social responsibility and environmental sustainability
saw the emergence of a number of important concepts in implementation and
control that have helped organisations rebuild and change their businesses (see
Table 10.1). These concepts have also helped marketers to improve their marketing
practices and skills. We shall discuss these trends and concepts as well as the future
of marketing in this final topic of the module.
218  TOPIC 10 MANAGING A HOLISTIC MARKETING ORGANISATION FOR THE
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Table 10.1: Recent Trends and Concepts in Marketing Practices
Trend Description
Reengineering Starting over in a systematic manner and appointing teams to

manage customer-value-building process or a business process to
break down walls between departments.
Outsourcing An arrangement of handing over services for profit corporations.
Benchmarking A process of measuring and comparing the business against

successful organisations that have certain quality standards.
Supplier Partnering with fewer but better suppliers which have the same
partnering goal with the organisation.
Customer Having good, beneficial relationships with customers.

partnering
Merging Combining or unifying a single entity with another.
Globalising Expanding the organisation and its business to other places all over
the world.
Flattening A marketing characteristic that shows no movements in either

direction.
Focusing Process in which the mind listens to the bodyÊs psychology.
Justifying Expressing or explaining the right or reasonable opinion.
Accelerating Connecting between output and capital investment.
Empowering Sharing information, rewards and power with their employees in

the organisation.
Broadening Expanding the organisationÊs existing products according to the

needs or wants of the consumers.
Monitoring Studying customers, competitors and others through tracking in

order to improve business practices.

TOPIC 10 MANAGING A HOLISTIC MARKETING ORGANISATION FOR THE  219
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10.1 INTERNAL MARKETING

The functions of marketing in organisations have changed over the years. The
changes can be seen in the following:
(a) Organisations across the world treat employees as customers. In terms of

selling skill, organisations can develop all the components of the business
functions harmoniously and deliver a clear message to make the sales a
success. For example, CIMB Bank lets employees try the new service (life
insurance) in an effort to make the service a success in the targeted market
segment.
(b) An organisation can easily interact with its customers as a result of modern
technology. Network enterprises such as Facebook, Twitter and Instagram
enable marketers to communicate directly with its customers and at the same
time, provide the latest information to them. Network enterprises have made
internal marketing more interesting and more casual.
(c) Marketers need to incorporate the customers in the entire process. This helps
organisations strengthen their connections with their customers. This is done
so as to help them sell goods and services, and to make branding and
outreach as effective as possible. For example, if the organisation is interested
to enter a market segment with a new product, marketers need to have
connections with its customers.
Internal marketing is an extension of the trends mentioned above, which calls for
employees to be active in their department in choosing, providing and
communicating the clientÊs significant needs because:
(a) Some companies prioritise the process of producing a new product over
marketing the product. This means such a company will only focus on the
processes to produce the product or service and depend on the internal
marketing strategy to make the product succeed in the market;
(b) Some marketers only spend their time explaining procedures to their
colleagues. For example, marketers only alert their teams about the
processes related to the product and service but forgot about their main job
scope;
(c) Some companies can have superb marketers in their departments but still
fail when it comes to marketing the products or services. This is because
most of the marketers in their organisations only focus on the key process
rather than on their own job scope. This will result in marketers lacking in
knowledge and skills to market their products or services;

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(d) The company has not implemented efficient marketing. This is because it is
not applying its marketing skills and only focuses on the other aspects of
the company such as focusing more attention to the process of producing
the new product; and
(e) The sales department is unable to conduct the main functions in the
marketing department. This is because the sales department cannot handle
the marketing department and play its role in the organisation.
10.1.1 Characteristics of a Customer-driven Marketing

Department
The marketing department can be organised in a number of different ways,
especially with regard to the hierarchical levels.
(a) Functional Organisation

It has its own specialist who is responsible to report to the marketing vice
president regarding who should be included in their activities. For example,
lower level employees such as the officer or the general employees in the
Internet marketing department need to inform the Internet marketing
manager about their activities and who should be included so that the project
or activities can be a success. Hierarchical levels in the marketing department
is very important to ensure that all employees carry out their own work.
(i) The specialist in the functional organisation may comprise:
 Internet Marketing Manager

A manager who creates and carries out online marketing strategies
to increase sales and revenues for a organisation.
 Marketing Planner Manager

A manager who creates and oversees all planning and business
evaluation for the organisation in order that the marketing
department can make better decisions.
 Customer Service Manager

A manager who needs to make sure that the needs of customers are
being met.

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(ii) The advantage of functional organisation is its administrative

simplicity. It makes the organisation easy to handle because it
simplifies the hierarchical levels in one department. For example, this
structure enables employees to know who to report to or to ask about
their tasks or job.
(b) Geographic Organisation

Under this arrangement, the marketing function is organised into
geographical units such as regional, national or international units and they
report to central headquarters which administers the core functions of the
marketing department.
(i) The advantage of this organisation is that marketers can easily refer
their clients in different geographical areas to their respective
organisational employees once they have assessed the client.
(ii) The ability to employ specific management personnel gives the

organisation the benefit of having leaders who are concerned with the
environment, culture and legal business climate. This is like the
franchise business such as KFC. Even though the franchise is extended
to many different geographical locations, however, they adopt the
same marketing elements.
(iii) This arrangement links representatives from dissimilar business

functions. There may be many representatives from different countries
but each have the same goals, for example, Unilever.
(c) Product or Brand Management Organisation

There are many representatives from various nations yet they all have the
same objectives. There is a crucial contrast in the way product managers and
brand managers work. Brand management is about making a brain space for
the product whilst product management is concerned with product elements
and specifications.
(i) Brand Management
 Brand management depends on surveys to understand how the

brand will be perceived in the customer minds;
 It is frequently practised in consumer product companies that have

more products and product lines. The overall emphasis on the
brand image as opposed to different product attributes;

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 Brand management is associated with consumer product

organisation. What this means is that it has something to do with
the trademark design, colour and appearance which can attract
consumersÊ attention and promote the brandÊs characteristics;
 It is more about discernment and the apparent quality. There are

two elements of brand management, namely tangible elements and
intangible elements. Tangible elements refer to the product itself,
for example, the appearance, pricing and packaging. The intangible
elements of the product is basically associated with the brand; and
 Brand users of consumer products rate the brand as indicated by

the levels of fulfilment. For example, classic Coke is a brand, but
there are various types of Coca-cola beverages that make up the
brand (refer to Figure 10.1).
Figure 10.1: Various types of Coca-Cola beverages

Source: http://www.slideshare.net/DaoTran9/perception-54807836
(ii) Product Management
 Product management refers to the set of activities which are

required to develop a complete product, in other words, market
from concept development to ready product in the market;
 Product management also involves collecting feedback from

customers;

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 Product managers work in situations where they need to worry

about the product and presenting it to the market, thus they tend to
look at the comprehensive view. Fundamentally, product
management includes marketing, forecasting, and be responsible
for profit and loss;
 Product management also includes intangible and measureable

value prepositions. For instance, providing services directly to
consumersÊ needs such as getting a haircut from JJ Saloon or
ordering food which provides delivery service; and
 Evidence of product management can be inferred when product

users rate the product according to the specific and measureable
benefits that it brings to them.
(d) Market Management Organisation

Marketing management is defined as an organisational discipline which
focuses on a set of activities which involves the marketing department.
Marketing management also refers to activities and functions which are
involved in the distribution of goods and services.
When a company has different user groups with distinct buying preferences
and practices, it is useful to adopt the market management organisation.
Marketing managers develop long-term plans for their markets. The
performance depends on the marketÊs growth and profitability. Many
companies are also reorganising their structures and becoming market-
centered organisations. They are selling based on industry rather than
geography. Another structure is based on customers. The customer
management organisation deals with individual customers rather than mass
market or market segments.
It is important to direct statistical surveys and promotional research since

they guarantee the presentation of new items in the business sector.
Additionally, they also help to expand the creation of existing items. Next,
marketing research helps to reduce cost of sales and distribution as well as
encourages exports to other markets.
Ways to conduct market research include:
(i) Qualitative market research such as centre gathering and different

types of meetings;
(ii) Quantitative market research such as factual overviews;

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(iii) Experimental techniques such as test markets; and
(iv) Observational techniques such as ethnographic observations.
There are various types of marketing structures, which include the elastic
organisation, the tofu organisation, the inbound organisation, the funnel-
focused organisation, the culture organisation, the customer organisation
and the creative organisation.
(e) Matrix Management Organisation

Matrix management refers to the practice of managing individuals with more
than one reporting line. In other words, it means managing individuals who
are from different or cross-functional departments. It is a kind of association
structure in which individuals with similar skills are laden with a lot of work
assignments, bringing about more than one manager taking charge. On top
of that, subordinates in a matrix organisation report to their project manager
and to their chief of the department or the chief from other departments.
The matrix structure for project management is portrayed as solid, medium

or feeble depending on the level of force of the undertaking director.
Unfortunately, matrix management organisation for project management
has both advantages and disadvantages as shown in Table 10.2.
Table 10.2: Advantages and Disadvantages of

Matrix Management Organisation for Project Management
Advantage Disadvantage
Individuals are selected based on the There will be conflicts between line
skills that they possess, consistent with managers and project managers over the
the needs of the project. distribution of resources.
Working with people from different Projects can be difficult to supervise if the
cultures and departments create a team consists of many independent
dynamic workplace which helps in people.
analysing a problem in different ways.
They are obligated to complete their work Incur high cost as a result of more
within a specific deadline and budget. managers taking charge.

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10.1.2 Relations with Other Departments

All departments in the company need to put consumers as first priority.
Marketers need to work together with other departments in order to satisfy
consumer needs and wants. However, conflicts of interest and communication
problems are unavoidable since all departments perceive company problems and
objectives from their own viewpoints.
The chief marketing officer (CMO) or marketing vice president has two major
responsibilities:
(a) To organise the companyÊs internal marketing activities such as:
(i) Analytical tasks which include pricing and market research of the
products or services;
(ii) Creative tasks which include designing, advertising and promotions of

the products or services; and
(iii) Interpersonal tasks which include managing the diverse styles of

thinking in a single team.
(b) To ensure all the departments in the company can work well with the
marketing department in order to achieve customer satisfaction.
In the company, the CMO performs its duties through persuasion rather than
power even though he has influence in terms of authority over other departments.
This is due to the agreement made with other departments.
Since other departments see their objectives and issues from their own
perspectives, most of the time they will give a negative response to the marketing
department. For example, financial executives tend to suspect that marketing
forecasts are self-serving, marketers are too quick to slash prices in order to win
orders rather than evaluating the situation to make a profit and claim that
marketers know the benefit of everything and the cost of nothing (Rao, 2007).
This kind of mentality can decrease the effectiveness of the marketing

departmentÊs ability to fulfil customer satisfaction. Therefore, the company needs
to overcome this stereotyping by developing a teamwork mentality in the minds
of its employees. The company also needs to make sure that all the departmentsÊ
management is well adjusted, which means that marketing and all the other
departments clearly understand what is in the best interest of the company.

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In order to achieve that, the company can implement a programme that can help
all departments understand each othersÊ functions and goals in the company. The
programme or activities can also improve teamwork with other departments such
as joint seminars, exchange programmes amongst employees from all
departments, occasionally conduct a function-to-function conference with all
departments and others.
Most companies view departmental organisations as an obstacle to performance

rather than as a way to become more effective. By giving full attention on key
processes, most companies will become more relevant rather than divisions.
Therefore, marketers should place the responsibility to their teams as their first
priority as well as the responsibility to the marketing department.
10.1.3 Building a Creative Marketing Organisation

It is important for a organisations to transform into a truly market-driven
organisation. Many organisations realise that they are not yet ready for the market.
Hence, most organisations are product and sales driven instead of customer
driven. In order to change into a true market and customer-driven organisation, it
needs to:
(a) Evolve into an organisaton that fulfils customer satisfaction;
(b) Expand its management not just around products but also around customer
segments; and
(c) Truly understand customer needs through qualitative and quantitative

research.
Organisations need to be creative and customer-oriented. Today, many

organisations duplicate each othersÊ advantages and strategies. As organisations
become more identical, profit margins will be reduced. Solutions to this problem
include to instil competency in organisationÊs strategies, incorporate innovation to
new products and enhance the innovation of existing products. These solutions
come from the collection of information, processes, aptitudes and measures that
allow the organisation to create more and preferred new ideas over its rivals.
In addition, companies must be aware of opportunities, trends and risks in the
market and be prepared to take advantage of them as a way to enhance its
competency.

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10.1.4 Marketing Insight: The Marketing CEO

A successful marketing CEO should have a flexible vision and plan to ensure
that the company can make the necessary course correction whenever needed.
A successful marketing CEO also needs to be humble. In other words, when a
marketing investment is not a good fit, he should cut his losses and move on to
the next opportunity. Here are 10 necessary steps which a companyÊs marketing
CEO needs to be do in order to create a customer-focused company:
(a) Create a Great Experience for Customers

Create the service vision or service personality that can capture the attention
of customers. This recognisable set of service characteristics can
demonstrate to the customers how the companyÊs service intention is
different from its competitors. This can also create a great experience for the
customers. It would make good sense to have an ongoing relationship with
them.
(b) Establish Customer Market Strategy

Establish the customer market strategy. This strategy describes the overall
direction of the company and the marketing plan of the company. This
strategy also defines specifically how the company will go about delivering
excellent service to its customers.
(c) Get Feedback from Customers

A company should get help from customers by conducting a customer
research so that when the product or service is delivered, it is able to meet
customersÊ satisfaction.
(d) Change Rewards and Measures

When rewards are linked with customer satisfaction, it makes a huge impact
on customer preferences.
(e) Hire Strong Talents

A company should recruit high-performance, high-intelligence and well-
motivated people with a customer-focused mindset as its employees.
(f) Develop Training Programmes

Develop employee understanding and ability in order to convey incredible
customer administration and skills which are centred around customers.

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(g) Install Marketing Planning System

Professionals who work with customers should assist in the design,
implementation and management of activities based on customersÊ specific
needs.
(h) Acknowledge Excellence

Celebrating accomplishments will imperatively motivate employees in the
organisation. Through annual excellence recognition programmes,
customer service performance will be advanced. This level of recognition
will enhance the level of representative fulfilment which will transform into
better customer administration for the organisationÊs customers.
(i) Process Outcomes

Develop procedures that will make purchasing easy for customers. The
procedures should be consistent, well planned from the perspective of the
customers and be audited regularly to ensure that the exchanges are simple,
yet not too flexible.
(j) Empower Employees

Relationships with customers are not only built up through products and
services. The company needs to provide something valuable to make sure
customer loyalty is maintained. Loyalty exists when the service provided
exceeds expectations and delights the customers.
10.2 SOCIALLY RESPONSIBLE MARKETING

Socially responsible marketing is an ethical or ideological theory that an entity (an
individual, organisation, corporation or government) holds and is responsible
towards society. With respect to business and administrative practices, dissident
gatherings and local communities can likewise be associated with social
responsibility, not just concentrate on business or governmental entities (Rao,
2007).
(a) Six Steps of Socially Responsible Marketing

The following are the steps of socially responsible marketing according to
Clark, (2013):
(i) Step 1: Choose the Right Message

Customers have different and varied wants and needs. A company
needs to take full responsibility to make sure it understands its
customers clearly. One of the ways is to collect data so that the company
can understand and give top priority to its customers.

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(ii) Step 2: Be Transparent

Nowadays, customers like to know more about the company and will
try ways and means to obtain the information. Therefore, companies
need to make sure that they are totally open in terms of providing
information. Furthermore, companies need to adopt an eco-friendly
approach when dealing with their customers.
(iii) Step 3: Ensure the Whole Company Understands the Value of the
Message
Customers will realise whether a company is good with social
responsibility or otherwise. Thereore, companies need to make sure
that all aspects of the business must contain correct messages.
(iv) Step 4: Institute a Cultural Change

Companies must practice what they preach. They need to be clear and
give full commitment to do it right, and they must be serious about it.
(v) Step 5: Let the Message Transcend the Channels

A companyÊs social responsible messages must be the same at all
channels because it does not want the customers to receive different
and wrong messages all any time. The company must be careful to
avoid any conflicts.
(vi) Step 6: Embed Socially Responsible Ideas within the CompanyÊs

Strategy
Companies should never look at socially responsible policies as a way
to earn profits. They need to transform the practices into a lively
company so that the company is not easily forgotten in the future, even
when it is no longer in business.
(b) Social Responsibility Strategies

There are four categories that relate to business social responsibility:
(i) Social Opposition

A company does not have any commitment to the general public in
which they work.
(ii) Social Obligation

A company has an obligation to follow the rule or law.

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(iii) Social Response

A company believes that the social responsibility required is dictated
by rule and law, and a certain basic selection will go beyond lawful
necessities. The company might volunteer to include restricted socially
responsible efforts until they are convinced that the advantages exceed
the expenses.
(iv) Social Contribution

A company believes that it has a big responsibility to serve the society.
10.2.1 Corporate Social Responsibility

Corporate social responsibility (CSR) refers to a companyÊs belief and actions to
give back to the customers, employees, suppliers, shareholders, stakeholders,
community and the environment in accordance with the law. CSR is also known
as corporate citizenship, corporate responsibility, sustainability of the triple
bottom line (people, planet and revenue) as well as environment, social and
governance (Caramela, 2018).
(a) Raising CSR Marketing Profile

The following are the three pronged attacks that could raise a companyÊs
level of socially responsible marketing:
(i) Legal Behaviour

Society must be knowledgeable about the laws and impose laws on
those illegal, anti-competitive and anti-social activities. The
organisation plays an important role to make sure all employees know
the laws and adhered to them.
(ii) Ethical Behaviour

The company must embrace and distribute information about ethical
behaviour to employees. It must understand the code of ethics and try
to build the best company tradition with the right ethical behaviour.
(iii) Social Responsibility Behaviour

The marketers must practise how to deal with customers, shareholders
and other stakeholders in a specific way. Most of the time, they just
want to know relevant information with regard to the companyÊs
records on social and ecological obligations so that they can make
decisions as to which company to buy their products and services from.

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(b) Types of CSR

There are few broad categories of CSR that are practised by companies
(Kotler & Armstrong, 2008):
(i) Environment
Whether a company is big or small, it still can leave a large carbon
footprint. If steps are taken to reduce the carbon footprints, it will be
good for the company as well as the society.
(ii) Philanthropy
A philanthropic company is donates to local and national charities.
The company has a lot of resources and can contribute to charities and
local community programmes.
(iii) Ethical Labour Practices

The company can demonstrate this by treating its employees fairly and
ethically.
(c) Communication Tools for CSR

Among the common tools used for CSR communications are:
(i) Annual CSR reports which are accessible in printed and electronic
version;
(ii) Corporate websites such as a dedicated email address, information

about their CSR activities and avenues for the public to communicate
with them;
(iii) Free telephone hotlines;
(iv) Notifications by electronic or conventional mail; and
(v) Media such as public relations activities and advertising.
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10.2.2 Social Marketing

Social marketing varies from other types of marketing with respect to the goals of
the marketer and his organisation. Social marketing tries to impact its social
practices, not to the advantage the marketer, but rather to benefit the intended
interest group and the society in general.
Social marketing is neither conducted for profit nor is it implemented by

government organisations. It is mainly practised by the private sector. It began in
the US in the 1980s and has now become a global phenomenon. The right goal and
objective is important for a social marketing programme. Social marketing is a
deliberate and planned procedure. It incorporates six stages as shown in
Figure 10.2.
Figure 10.2: Six stages of social marketing approach
Let us look at a recent example of social marketing ă Nike PHOTOiD enables users
to design their own Nike sneakers based on their preferences. Users only need to
submit an Instagram photograph and NikeÊs software will outline the sneaker
design based on the consumerÊs design. After the visual is ready, the consumer can
choose to either buy the sneakers or share his innovative work to his companions.
Figure 10.3 shows the Nike PHOTOiD advertisement.

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Figure 10.3: The Nike PHOTOiD

Source: http://news.nike.com/news/nike-photoid-the-power-of-an-image-takes-on-
new-meaning
10.2.3 Green Marketing

Green marketing is more than just presenting an environmentally friendly
product. It is a business practice that takes into account consumersÊ concerns about
the conservation of indigenous habitat. Green marketing can also alleviate
biological issues since it reduces waste through bundling, expanding energy
effectiveness of products and decreasing harmful substances in the cultivation of
edible foods. Green marketing is almost similar to social marketing. However,
there are differences, for example, physical sustainability, green premium and at
times can be viewed cynically because the practice is not really efficient or
sufficient. For example, McDonaldÊs packs its products using paper bags instead
of polythene bags. Some may argue that this practice kills more trees instead!
10.2.4 Social Audit

Social audit is a way to evaluate how satisfactorily a company has taken its social
responsibilities. Social audit empowers the public and the organisation to assess
the social execution of the organisation. Social audit includes:
(a) Assessment and evaluation of the social expenses and social advantages of
such activities;
(b) Identification of the organisationÊs activities;

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(c) Measurement of the social expenses and advantages; and
(d) Reporting the results of the audit.
Objectives and benefits of social audit include:
(a) Evaluating the social measurement of the organisationÊs execution;
(b) Enhancing peopleÊs general perceivability of the organisation;
(c) Taking measures to enhance the social execution of the organisation on the
premise of feedback provided by the social audit; and
(d) Helping the public to have a generally good image of the organisation in
cases when the social audit revealed a socially excellent execution.
10.3 MARKETING IMPLEMENTATION AND

CONTROL
To have a successful company, we need to have a successful marketing plan.
The implementation and control proceed from the marketing plan. The outcome
of the marketing plan depends on the effectiveness of the implementation as well
as the control strategy.
10.3.1 Marketing Implementation

Marketing implementation is the process that accomplishes the marketing plan or
strategy by taking specific actions to ensure that the marketing objectives are
achieved.
Good implementation is important for the overall success of the organisation.

A good implementation process will detail the actions needed such as what needs
to be done, where and when. For an effective implementation, four skills are
needed:
(a) Recognising and diagnosing an issue;
(b) Assessing the organisational level where the issue exists;
(c) Implementing the necessary arrangements; and
(d) Evaluating the implementation actions and its results.

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Consideration and implementation are interdependent processes, constantly

changing yet separated within the organisation. Members of the organisation need
to comprehend and acknowledge their roles in implementing the marketing
process that alludes to internal marketing. All levels of employees have two sets
of customers, which is internal and external customers. The larger organisations
which have more bureaucratic layers usually face major problems or challenges
when implementing their marketing plan.
10.3.2 Marketing Control

Marketing control is the process in which organisations examine the consequences
of the marketing activities and programmes by making appropriate changes and
adjustments.
There are four types of marketing controls:
(a) Annual Control
(i) Annual control is identified with sales, profits and different objectives
set up in its annual plan. Annual plans are prepared for different
activities including setting goals, designating assets, characterising
time constraints and defining standards, approaches and
methodologies.
(ii) Evaluation tools of annual control:
 Analysis of Sales
It contains measuring and evaluating different types of sales, for
example, total sales, appropriation insightful channels, effective
product sales, savvy customer sales and others against annual sales
objectives. Targets will be set to contrast the various types of sales.
 Analysis of Market Share

Market share is utilised as an instrument for surveying, comparing
and amending the business outcome. Market share is part of the
organisationÊs total business sale. Additionally, it helps the
organisation figure out if it is performing well in comparison to its
competitors.

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 Analysis of Market Expenses-to-sales

This control checks marketing spending as it aims to maintain a
strategic level from overspending in its efforts to fulfil yearly sales
targets.
 Financial Analysis
Financial control includes surveying sales and sales-to-expense
proportion in relation to general financial framework.
 Analysis of Customer and Stakeholder Attitudes

Managers can begin to take preliminary actions to minimise the
impact of its strength in this aspect for better future results.
(b) Profitability Control
(i) Profitability control deals with measuring the benefits of various

products, customer groups, order sizes and other aspects.
(ii) A systematic and logical procedure is utilised to examine productivity.
 Identify Functional Expenses

It identifies the expenses for marketing activities such as paying
rates and rent, promoting, selling and distributing, packing and
delivering, billing and others.
 Assign Functional Expenses to Marketing Entities

Major costs such as salaries or promotions are associated with
different entities such as products, channels, regions or customer
groups.
 Prepare Profit and Loss Statement

Profit and loss statement is prepared for every product, channel
and territory.
 Take Actions
Example include expanding the product line, disposing products,
reducing expenses or increasing sales.

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(c) Efficiency Control
(i) Efficiency control can upgrade the capability of marketing department

in two ways:
 Improving the capability of various marketing activities to achieve

the objective; and
 Reducing costs or wastages.
(ii) Types of efficiency control include:
 Sales Force Efficiency Control

This technique is used to identify mistakes. Furthermore, vital
activities can be are safeguarded.
 Advertising Efficiency Control

Promoting is the most costly among other marketing activities. An
organisation will emphasise and focus on its advertising objectives
to make sure that the advertising can fulfil the organisation's goals
and expectations.
 Sales Promotion Efficiency Control

Sales managers will make use of this control. Efforts on sales,
profits, effectiveness and consumer satisfaction will be measured.
 Distribution Efficiency Control

An organisation can improve and increase its profitability as well
as its consumer satisfaction at the same time through suitable
distribution channels.
 Marketing Research Efficiency Control

Marketing research is a procedure which associates with social
affairs. It investigates and interprets information that identifies
with any marketing issues.

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(d) Strategic Control
(i) Strategic control shows a basic review of general marketing

effectiveness in relation to wide and long-term goals as well as the
organisationÊs reactions to marketing circumstances.
(ii) Methods or tools of strategic control are:
 Marketing Effectiveness Review

This review involves general marketing performance. It seeks to
determine the effectiveness of business plans such as sales
development, market share and profitability.
 Marketing Audit
A marketing audit is an exhaustive, systematic, independent and
periodical examination of an organisationÊs marketing
environment, goals, methodologies and activities with a view to
determining issues and opportunities, and prescribing a set of
actions to enhance the organisationÊs marketing performance.
 Marketing Excellence Review

Some marketers will focus on business units as the base for valuing
the organisationÊs performance.
 Ethical and Social Responsibility Review

This review will test whether the organisationÊs marketing policies
and practices are morally and socially genuine or otherwise.
The following are steps in the marketing control process (Patidar, 2013):
(a) Define Marketing Objectives

Marketing objectives are really important to make sure what the company
wants to achieve. So, defining the marketing objectives will be a good start
to marketing control process.
(b) Set Performance Standards

After the marketing objective had been defined, performance standard can
be set. Performance standard will provide the benchmark to enable the
manager and employees to decide how to achieve the marketing objectives.

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(c) Compare Results Against Standards

The results will be compared with the standards. If the actual result is in line
with the expected result, there is no problem with the marketing plan. So
they can stick and continue with their plans.
(d) Take Corrective Actions and Alter Accordingly

Marketeers need to take corrective actions or change their original marketing
plan if the actual results strayed from the expected results in order to make
the marketing objective achievable.
10.4 FUTURE OF MARKETING

Marketing will have more accountability when top management in the
organisation recognises it. There are several ways to help an organisation if its
marketing programme is in trouble. The following are some solutions:
(a) The Organisation Needs to Set Objectives and Goals

The organisation must have its own objectives and goals in order to achieve
the target through selling the products to the market.
(b) Marketers Need to Create Value so as to Target Customers in the Business

Sector
Firstly, the organisation should constantly consider the customerÊs point of
view. This is important because the organisation needs to know how the
product or service will benefit them. Secondly, the organisation should adopt
marketing models into the strategy. It can use SWOT analysis tool to help
develop brand value and even forecast customer demands based on market
trends.
(c) Marketers Need to Build Strong Brands through Promotion

The brand image is important to the organisation and tends to be included
in the identity and business strategy.
(d) Marketers Must Integrate Marketing Communications to Build Strong

Relationships through Dealings with Customers
Relationship between the organisation and its customers can be created
through public relations, sales promotions, individual offerings, direct
selling and public relations.

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To accomplish successful marketing, marketers need to set new skills and

competencies, which include the following:
(a) Marketers must be good in marketing strategy especially in partnering to

build customer relationship. Marketing strategy must be good enough in
order to build customer relationship to attract customers to buy the product.
(b) Managing marketing information to gain customer insights. The

organisation must have good knowledge about the products in the market in
order to help customers understand what the organisationÊs product is all
about.
(c) Building customer value through products, services and brands. Products,
services and brands can be influenced by how the product idea is not the
same with their worth and behavioural patterns.
(d) Managing marketing channels. Marketing channels refer to the variety of

channels in a distribution network.
(e) Incorporating integrated marketing communications methodology which

includes the coordination of public relations, sales management, advertising,
sales promotions and direct marketing.
(f) Managing the role of public relations. Public relations maintains strong
relationship with the press and other media in order to assist organisations
to communicate its product and service messages to the public in the
consumer as well as the business sectors (Cateora, 2013).
(g) Creating and capturing customer value. Organisations must create and
capture customer value through feedback and response from customers
regarding their products or services.
SELF-CHECK 10.1
1. List and explain the trends in marketing practices.
2. Explain the concepts in internal marketing.
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ACTIVITY 10.1
Post your answers to the following on myINSPIRE online forum for

sharing and discussing with your coursemates:
1. Explain in your own words the following types of organisations:
(a) Functional organisation
(b) Geographic organisation
(c) Product or brand management organisation
(d) Market management organisation
(e) Matrix management organisation
2. How do marketers conduct market research?
3. Briefly explain the four steps of creating a customer-driven

organisation.
4. Define and differentiate the following terms:
(a) Legal behaviour
(b) Ethical behaviour
(c) Social responsibility behaviour
5. What are the communication tools for CSR activities?
6. Explain the steps in the marketing control process.
7. What is the difference between marketing implementation and

marketing control?
8. List the new skills and competencies that a marketer should

develop and have as he faces the challenges takes advantage of the
trends in future marketing.

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ACTIVITY 10.2
CASE STUDY ă BERJAYA CORPORATION
Berjaya Corporation Berhad, otherwise known as The Berjaya Group,

was first established in 1984. Tan Sri Vincent Tan Chee Yioun is the
founder of Berjaya Corporation Berhad (Berjaya) and has a noteworthy
controlling stake in the organisation. The position of Chief Executive
Officer (CEO) is held by DatoÊ Robin Tan Yeong Chin. BerjayaÊs strength
is that it has many workers to ensure that the business is running well.
Its core businesses include:
 Consumer marketing (direct selling and retail);
 Financial services;
 Hotels, resorts, vacation timeshare and recreation development;
 Property investment and development;
 Gaming and lottery management;
 Environment services and clean technology investment;
 Motor trading and distribution;
 Food and beverage; and
 Investment.
Other companies of Berjaya include Berjaya Land Berhad, Berjaya Food

Berhad, REDtone International Berhad, Berjaya Sports Toto Berhad and
Berjaya Auto Berhad. Examples of companies under its subsidiaries are
Kenny Rogers Roasters, Starbucks and Mazda vehicles. Other related
companies include Berjaya Media Berhad, 7-Eleven Malaysia Holdings
Berhad, Berjaya Assets Berhad and MOL Global Inc."

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The success of the businesses by Berjaya has brought about its social
responsibility and profitability to the communities that it serves. Berjaya
interacts with communities on a daily basis. This provided BerjayaÊs many
businesses a chance to demonstrate their skills and abilities in contributing
their time and energy to BerjayaÊs activities which include business
activities, charitable activities, fundraising events and donations to the
needy. Figure 10.4 lists the subsidiaries under Berjaya Corporation Berhad.
Source: Berjaya Corporation Berhad, 1987 Annual Report
Figure 10.4: Companies under Berjaya Corporation Berhad
Questions:
1. What effective internal marketing has Berjaya Corporation Berhad

practised to arrive at where it is today?
2. How can the marketing sills in the company benefit its business?
3. What basic tools can help Berjaya Corporation Berhad monitor its
business and improve its marketing activities?
4. Discuss how product, promotion, price and place can help Berjaya
Corporation Berhad to continue growing into the future.
Share your answers in the myINSPIRE online forum.

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 The role of marketing has changed through the years, from a solitary deals
department to an authoritative structure.
 Internal marketing requires that everyone in the organisation takes in and

assimilates ideas and objectives of marketing.
 The marketing department can be organised in many ways, for example,

functional organisation, geographic organisation, product or brand
management organisation, market management organisation and matrix
management organisation.
 Companies must practise social responsibility through their legal, ethical and
social responsibility behaviour. It is essential for organisations to beneficially
integrate its social obligations with consumer advertising programmes.
 Marketing implementation and control are essential to ensure that the

marketing plan achieve its coveted results, year after year. There are four types
of marketing controls, namely annual plan control, profitability control,
efficiency control and strategic control.
 Achieving marketing excellence in the future will require a new set of skills
and competencies.
Corporate social responsibility (CSR) Marketing implementation

Functional organisation Marketing practices
Geographic organisation Marketing review
Internal marketing Marketing weaknesses
Marketing audit Social marketing
Marketing control Social responsibility behaviour

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Caramela, S. (2018, June 8). What is corporate social responsibility? Business News
Daily. Retrieved from https://www.businessnewsdaily.com/4679-corporate-
social-responsibility.html
Cateora, P. (2013). International marketing. Singapore: McGraw-Hill.
Clark, C. (2013, November 4). 6 key considerations for socially responsible

marketing. 1to1 media. Retrieved from http://www.1to1media.com/
customer-engagement/6-key-considerations-socially-responsible-
marketing
Kotler, P., & Armstrong, G. (2008). Principles of marketing. Upper Saddle River,
NJ: Prentice Hall.
Patidar, M. (2013, May 11). Marketing control process. Retrieved from http://
www.enotesmba.com/2013/05/mba-notes-marketing-control-process.html
Rao, S. R. (2007, November 3). Relations of marketing and other department.

Retrieved from http://www.citeman.com/2341-relations-of-marketing-
other-departments.html
"

MODULE FEEDBACK
MAKLUM BALAS MODUL
If you have any comment or feedback, you are welcome to:
1. E-mail your comment or feedback to modulefeedback@oum.edu.my
OR
2. Fill in the Print Module online evaluation form available on myINSPIRE.
Thank you.
Centre for Instructional Design and Technology

(Pusat Reka Bentuk Pengajaran dan Teknologi )
Tel No.: 03-27732578
Fax No.: 03-26978702


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Copyright © Open University Malaysia (OUM)

Topic 1 Understanding Marketing 1

Topic 2 Developing Marketing Strategies and Plans 22

Copyright © Open University Malaysia (OUM)

Topic 3 Analysing the Market 44

Topic 4 Segmenting Markets 70

Copyright © Open University Malaysia (OUM)

Topic 6 Developing and Managing Products 122

Copyright © Open University Malaysia (OUM)

Topic 7 Pricing Strategies 148

Topic 8 Designing and Managing Communication Efforts 168

Copyright © Open University Malaysia (OUM)

Topic 9 Designing and Managing Channels 196

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

" Copyright © Open University Malaysia (OUM)

COURSE GUIDE DESCRIPTION

As an open and distance learner, you should be acquainted with learning

Copyright © Open University Malaysia (OUM)

Table 1: Estimation of Time Accumulation of Study Hours

Briefly go through the course content and participate in initial discussions 5

Study the module 60

Attend 4 tutorial sessions 8

Assignment(s) and Examination(s) 20

TOTAL STUDY HOURS ACCUMULATED 120

COURSE LEARNING OUTCOMES

1. Analyse marketing concepts, analytical tools and techniques, marketing

2. Distinguish among contrasting marketing strategies and markets and justify

3. Develop the skills needed to solve complex marketing problems, and

4. Formulate a product marketing plan to achieve certain marketing goals and

Copyright © Open University Malaysia (OUM)

Topic 1 focuses on three central subjects, namely the definitions of marketing,

Topic 2 examines marketing opportunities and strategies as well as the planning

Topic 3 explains the ways marketers analyse marketing opportunities, markets,

Topic 4 looks at issues related to identifying and targeting market segments.

Topic 5 focuses on the market positioning process. It highlights three important

Topic 7 brings attention to the importance of pricing as an element in the

Copyright © Open University Malaysia (OUM)

Topic 9 relates to marketing channels and value networks. Aspects covered

Topic 10 concludes this module by discussing the evaluation, management and

TEXT ARRANGEMENT GUIDE

Self-Check: This component of the module is inserted at strategic locations

Activity: Like Self-Check, the Activity component is also placed at various

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

TAN SRI DR ABDULLAH SANUSI (TSDAS) DIGITAL

Copyright © Open University Malaysia (OUM)

Copyright © Open University Malaysia (OUM)

1.1 DEFINING MARKETING

1.1.1 Definitions of Marketing

Table 1.1: Definitions of Marketing

Grönroos The American Marketing Association defines marketing

Kotler Marketing is the process of determining the product or services

Copyright © Open University Malaysia (OUM)

1.1.2 Marketing Entities

Table 1.2: Types of Marketing Entities

Goods Products that can be presented to customers in physical and tangible

Events Something that happens at a given place and time, such as a

Experiences The understanding or skill that results from direct participation in

Persons Someone who is involved in the purchasing of a product such as a

Properties Intangible rights of owners for their real or financial properties.