INTRODUCTION

TO
MARKETING

MGT 1200

Centre for Professional Development and Lifelong Learning

UNIVERSITY OF MAURITIUS
 INTRODUCTION
TO
MARKETING

MGT 1200

SUPPORT MATERIALS

Centre for Professional Development and Lifelong Learning

UNIVERSITY OF MAURITIUS

ii
CONTRIBUTORS

Introduction to Marketing -MGT 1200 - was prepared for the Centre for Professional
Development & Lifelong Learning, University of Mauritius.

The Pro-Vice Chancellor- Teaching and Learning - acknowledges the contribution of the
following course authors:

Associate Professor M. Boolaky

Associate Professor D. Gokhool
Ms M. Gungaphul: Faculty of Law and Management

The course authors are also grateful to Ms R Baichoo for her very useful suggestions as a
content reviewer.

2001-2008

All rights reserved. No part of the work may be reproduced in any form, without
the written permission from the University of Mauritius, Réduit, Mauritius.

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 TABLE OF CONTENTS

About the Course

Unit 1 Understanding Marketing

Unit 2 The Marketing Environment
Unit 3 Information Systems and Marketing Research
Unit 4 Customer Buying Behaviour
Unit 5 Segmentation, Target Marketing and Positioning
Unit 6 Marketing Mix: Product
Unit 7 Marketing Mix: Price
Unit 8 Marketing Mix: Place
Unit 9 Marketing Mix: Promotion
Unit 10 Strategic Marketing Planning
Sample Assignment

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 ABOUT THE COURSE

INTRODUCTION TO MARKETING- MGT 1200- is a one semester module that cuts

across almost all Faculties.

The aims of this module are to help you

♦ learn about and apply the basic concepts and practices of modern marketing as
they are used in a wide variety of organisational settings.

♦ understand the relevance and importance of marketing in the world today.

♦ recognise the implications of marketing to both consumers and marketers.

LEARNING OBJECTIVES FOR THE COURSE

When you complete the course, you will be able to do the following:

Unit 1 Differentiate among the five major concepts: Production concept, Product
concept, Selling concept, Marketing concept and Societal Marketing
Concept.

Unit 2 Illustrate the potential impact of forces in the macro-environment and the
micro-environment on organisations.

Unit 3 Describe the key stages in the Marketing Research process.

Unit 4 Identify the factors that influence the consumer buying behaviour.
Unit 5 Identify ways in which different markets could be segmented.
Explain the process of target marketing and positioning.
Unit 6 Evaluate the importance of product as a marketing mix variable.
Unit 7 Identify the processes involved in setting and deciding price.
Unit 8 Explain the importance of intermediaries and recommend appropriate
distribution channels in distributing different types of products.
Unit 9 Select the appropriate promotion tools to promote a particular product.
Unit 10 Identify the various steps involved in drawing a marketing plan.

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HOW TO PROCEED

SUPPORT MATERIALS
This document can be used as support materials.

The following list is provided if you want to deepen your understanding of Marketing.
The materials may also be useful when you will have to prepare for your assignments.

Reference List:

1. Kotler, P. and Armstrong, G. (1997) Principles of Marketing, Prentice Hall.

2. Hill, E. and O’Sullivan, T (1996) Marketing, Longman.
3. Stokes, D. (1997), Marketing: A Case Study Approach, Letts.
4. Boyd, H.W; Westfall, R; Stasch, S.F. (1999). Marketing Research: Text and
Cases. 7th Edition. All India Traveller Bookseller, India.

The textbooks are available in the UOM Library.

HOW DO I USE THE SUPPORT MATERIALS?

Take a few minutes now to glance through the entire document to get an idea of its
structure. Notice that the format of the different units is fairly consistent. For example,
each unit begins with an OVERVIEW, and LEARNING OBJECTIVES sections.

The OVERVIEW provides a brief introduction to the unit and highlights the skills and
knowledge you will develop as you proceed with the unit.

You should then read the LEARNING OBJECTIVES. These objectives identify the
knowledge and skills you will have acquired once you have successfully completed the
study of a particular unit. They also show the steps that will eventually lead to the
successful completion of the course. The learning objectives also provide a useful guide
for review.

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WHERE DO I BEGIN?

You should begin by taking a look at the TABLE OF CONTENTS. The table provides
you with a framework for the entire course and outlines the organisation and structure of
the material you will be covering. The Suggested Course Map indicates how you should
allocate your workload and what you should be working on in each week to be ready for
the respective tutorial. You should stick to the Suggested Course Map to ensure that you
are working at a steady space and that your workload does not pile up.

SUGGESTED COURSE MAP

Week Unit Topic Submission of

Assignment
1 Overview of Module

2 1 Understanding Marketing
3 2 The Marketing Environment

4 3 Marketing Research

5 4 Customer Buying Behaviour

6 Revision
7 *CLASS TEST
8 5 Segmentation, Target Marketing and
Positioning
9 6 Marketing Mix: Product
10 7 Marketing Mix: Price
11 Working on Assignment
12 8 Marketing Mix: Place *To submit
assignment
13 9 Marketing Mix: Promotion
14 10 Strategic Marketing Planning
15 Revision

* Exact date to be confirmed during the Semester.

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SUGGESTED ASSESSMENT CRITERIA

COURSE GRADING SCHEME:

Continuous Assessment: 30 marks

(15 marks for Class Test and 15 marks for Assignment)

Examinations: 70 marks

→ CONTINUOUS ASSESSMENT:

Class Test – Scheduled in Week 8

Assignment – Due in Week 12
Assignment questions will be distributed in class

→ FINAL EXAMINATIONS:
♦ Scheduled and administered by the Registrar’s Office
♦ A two-hour paper at the end of the Semester.

STUDY TIPS

1. Organise your time. It is best to complete each assigned reading in one sitting.
The logical progression of thought in a chapter/unit can be lost if it is interrupted.

2. Be an active reader. Use question marks to flag difficult or confusing passages.

Put exclamation marks beside passages you find particularly important. Write
short comments in the margins as you go. For example, if you disagree with an
author’s argument or if you think of examples which counter the position
presented, note your opinions in the margin.

If you prefer to leave your book pages unmarked, you can make your notations on
“post-it-notes”.

3. Read critically. You must evaluate, as well as appreciate and understand, what
you read. Ask questions. Is the author’s argument logical? Are there alternatives
to the author’s explanations or to the conclusions drawn? Does the information fit
with your experience?

4. Take notes. If you make notes on an article or chapter right after finishing it, you
reap a number of benefits. First, note-taking allows you an immediate review of

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 what you have just read. (You will find that this review helps you recall
information). Second, it gives you an opportunity to reassess your flagged or
margin comments. Finally, it gives you a second shot at deciphering any
confusing passages.

5. Review your scribbling! Whether or not you make separate notes on your
readings, review your flags, underlining and marginalia. Study closely those
passages you considered significant or difficult.

6. Write down your ideas in a course journal. As you progress through the
course, the new information you absorb will stimulate new thoughts, questions,
ideas, and insights. These may not be directly related to the subject matter, but
may be of great interest to you. Use these ideas to focus your personal
involvement in this and other courses.

7. Your ability to explain the subject matter to others is a good test of your true
comprehension of the material. Try explaining the material you are learning to
others, classmates or friends, without resorting to jargon. Even if some of them
are not directly involved with the techniques discussed in this course, many of the
concepts may be of interest to them.

8. Activities found in units will not be marked. We strongly recommend that you
do not skip any of them. They will help you prepare for the graded assignments.

Now, it’s time to get to work. Good luck and enjoy the course!

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UNIT 1 UNDERSTANDING MARKETING

Unit Structure

1.0 Overview
1.1 Learning Objectives
1.2 Definition of Marketing
1.3 Marketing Terms
1.4 History of Marketing
1.5 Implementing the Marketing Concept
1.6 The Marketing Mix
1.6.1 Product
1.6.2 Place
1.6.3 Promotion
1.6.4 Price
1.7 Why Study Marketing?
1.7.1 Marketing is Important to Businesses and the Economy
1.7.2 Marketing Knowledge Enhances Consumer Awareness
1.7.3 Marketing Costs Consume a Sizable Portion of Buyers’ Money
1.7.4 Marketing is Used in Most Organisations
1.8 Summary

1.0 OVERVIEW

In this Unit, we are going to introduce several terms and concepts that you will come
across as your study of marketing progresses. You will be able to appreciate how
Marketing as an organisational function has evolved over the years and why relationship
marketing is gathering importance and momentum.

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1.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Define Marketing.
2. Explain the following concepts: Production, Product, Selling, Marketing and Societal
marketing concepts.
3. Differentiate the following terms: Needs, Wants, Desires, Products and Services.
4. Define Markets, Marketplace and Exchange.
5. Explain 4Ps of marketing: product, price, place, and promotion.
6. Define target marketing, segmentation, and positioning.
7. Explain the importance of marketing.

Warm-Up Activity

(i) Jot down five to ten words or terms that come to your mind when you think about
marketing.

(ii) Compare these with what your friends have listed. What immediate conclusion
can you draw?

(You are encouraged to complete this activity: Come back to this activity after you have
completed Unit 1, to see how your conception/misconception about marketing has
changed).

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1.2 DEFINITION OF MARKETING

We all have some idea about what a market is and what marketing is all about. However,
as the following definitions from expert bodies tend to show, marketing may have
specific though various meaning.

For instance, the Chartered Institute of Marketing, (UK) defines marketing:

• As business philosophy…
Marketing is a business philosophy, which regards customer satisfaction as the
key to successful trading.

• As a business function…
Marketing is the management process responsible for identifying, anticipating
and satisfying customer requirements profitably.

The American Marketing Association defines marketing in the following terms:

Marketing is the process of planning and executing the conception, pricing,

promotion and distribution of ideas, goods and services to create exchanges that
satisfy individual and organisational objective.

Expressed in simpler terms:

Marketing is about identifying and satisfying needs and wants of customers while
making a profit.

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1.3 MARKETING TERMS

You may wish to refer to the Glossary to understand some common terms in the
marketing jargon that you will often come across and with which you will be expected to
be familiar. As we go along, these terms will be used repeatedly and you should not
worry about trying to remember all of them now.

Some of the terms you will commonly come across are:

Needs, wants, benefits and demands

Products
Market
Target Markets
Value and satisfaction
Marketing mix – Product, Price, Place, Promotion

Let us now look at these in more details.

Needs, Wants, Benefits and Demands

- Needs
A need represents a basic state of felt deprivation to a person of a basic
satisfaction. For example, each of us has a need for food, clothing, shelter etc.
Basically, needs represent the difference between a consumer’s actual state
and some ideal or desired state. In this case, the person tries to satisfy the
needs in the simplest or easiest manner.
For example, if a person

feels: s/he needs:

hungry bread
thirsty water
cold a sweater

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 u Wants
Wants represent desires for specific satisfiers of basic needs. For example, a
person wants a Cheese Rounder from KFC but needs foods. Similarly he/she
wants a pair of Levis jeans but he/she needs clothing.

Wants represent the desire to satisfy needs in ways that are culturally and
socially influenced. Here the person looks for something more than the basic
needs to satisfy the wants.

To summarise, if a person

feels: s/he wants:

hungry a hamburger or cheese rounder

thirsty Coke or fresh fruit juice
cold a Cashmere sweater or padded jacket

u Benefits
Benefits in marketing represent an outcome sought by a person that motivates
buying behaviour. For example, now that I have satisfied my thirst with water
or a Coke, I feel better.

u Demands
Demands represent wants for products that are backed up by willingness and
ability to buy.

Products

A product, in the marketing jargon,

• Represents anything offered to satisfy a need or want,

• Includes physical goods, services and ideas,

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A product must not be subjected to "marketing myopia". This means that a
product must be defined in its right perspective. According to Levitt (1960), the
railroads must see themselves as being in the transportation business and movies
in the entertainment business. For example, the railroads should have taken the
initiatives of providing the other modes of transportation that people required.
The same applies to movies- they should have come forward with other forms of
entertainment such as video, serials for television, etc.

Market

A market consists of all the potential customers sharing a particular need or want
who might be willing or able to engage in an exchange to satisfy that need or
want. In other words:

A market represents a group of customers who share a

common need that can be satisfied by a specific product and
who are willing, able, and have the authority to make the
exchange.

A market also represents a physical space where buyers and sellers meet to
facilitate the exchange process that takes place between them.

Target Markets

The idea of a target market arises from the fact that it is physically and practically
impossible to satisfy every need or want in a given market. Marketing managers
have no choice under such circumstances but to concentrate their attention on a
particular segment or target market and focus on the needs and wants of
consumers in the particular market.

For example, the Mauritius Cosmetics Ltd, recognising that there is a separate
market for toothpaste users, produces a toothpaste for each target market:

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 Blendax Anti plaque - for health conscious people.
Blendi - for children, etc.

Value and Satisfaction

u Value
In marketing, value represents the trade off between cost and benefit of
purchasing or using a particular product; that is, it reflects the overall capacity
of a product or service to satisfy needs and wants.

u Satisfaction
People or consumers derive satisfaction when they have been able to meet or
exceed their needs or wants. Expressed differently, if a product meets or
exceeds needs and expectations, satisfaction and even delight may result.
Otherwise dissatisfaction results.

Activity 1

Think of some more examples of needs and wants to enhance your understanding of these
concepts. Discuss your answer with your friends. What conclusions can you draw?

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1.4 HISTORY OF MARKETING

Originally, marketing was based on the production concept. Organisations were then
producing what they could produce and selling these products for a profit. Needs and
wants of customers were not identified per se. Mostly, plans regarding products were
made for the short term. Gradually there was a shift towards the seller’s orientation
where the emphasis was on selling goods that were produced, either on a barter system or
for cash. Marketing, under these circumstances, was a sales function. More recently,
marketing has essentially shifted to a customer orientation, with the focus on the
customers’ needs and wants and the satisfaction of the customers. Today, this orientation
has been extended to total quality, benefits to customers, plus firm’s employees,
shareholders, and communities. This evolution is briefly explained here.

1. The Production Era

During the second half of the nineteenth century, the USA experienced its
Industrial Revolution. As a result of new technology and new ways of using
labour, products poured into the marketplace, where consumer demand for the
new manufactured goods was strong. The underlying principle in the production
concept is:
Produce as much as possible, as efficiently as possible,
distribute the products as widely as possible for as low a cost
as possible.

2. The Product Era

The product concept believes in producing superior products, high in quality and
performance with innovative features and improving them over time. Many
manufacturers suffered from marketing myopia and produced sometimes highly
priced, innovative products that did not necessarily satisfy needs and wants of
customers.

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3. The Sales Era
Between the mid-1920s and the early 1950s, businesspeople viewed sales as the
major means of increasing profits. During this era, businesspeople believed that
the major marketing activities were personal selling, advertising, and distribution.
The selling concept emphasises the following:

1. Persuade customers to buy existing product and buy more of it.

2. Focus on aggressive selling and promotion.
3. Almost lure customers into buying the products.

4. The Marketing Era

By the early 1950s, some businesspeople recognised that they must first
determine what customers want and then produce it, rather than make products
and try to persuade customers to purchase them. Today, businesses want to
satisfy customers and build meaningful, long-term buyer-seller relationships
through what is termed as the Marketing Concept.

It must be appreciated that a consumer is the ultimate user of a product or

service. The marketing process seeks to identify what the consumer is requiring
from a product or service and ensures that the customer is satisfied with the
product or service that the organisation is offering, and that too, over the long-
term. For marketing to be effective, all departments/units of the organisation
should be involved in the process. The result is an integrated marketing approach.
The marketing concept aims particularly over long-term satisfaction rather than
the short-term one and rests on the premise that a satisfied or happy customer
comes back to purchase the product again and again. When this relationship is
created, the immediate benefit to the organisation is the creation of a core group
of loyal customers on whom the organisation can rely for the long-term. This in
turn enables the organisation to make better forecast for its long-term planning
and strategy. The Marketing Concept views profit as being equivalent to

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 customer satisfaction. Today the concept of marketing is extended to include the
societal marketing concept and relationship marketing.

5. The Societal Marketing Era

This concept focusses on satisfying consumers’ needs as well as the needs of
society.

Activity 2

(i) Identify some examples to illustrate the application of the societal marketing
concept.

(ii) What potential benefits can organisations derive if they adopt the societal
marketing concept? Jot down your answer.

6. Relationship Marketing Era

Marketing has now moved into an era where activities are coordinated and
integrated through networking and relationship. Departments, functions and
operations are integrated in such a manner that the organisation is viewed as a
whole, including stakeholders.

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 Relationship marketing refers to long-term, mutually beneficial arrangements in
which the buyer and seller focus on value enhancement through the creation of
more satisfying exchanges. In other words, relationship marketing is about
creating, maintaining and enhancing strong relationships with customers and other
stakeholders, such as suppliers, intermediaries, government, etc. for mutual
benefits and satisfactions.

The following are the main characteristics of Relationship Marketing:

Focus moves from individual transactions to value-laden relationships

and value delivery networks

Long-term and customer retention focus

Marketing taken out of the marketing department and moved through the
whole organisation including stakeholders

Aiming for higher customer loyalty and satisfaction

Activity 3

(i) Discuss with suitable illustrations, how relationship marketing can be beneficial
to an organisation. Record your conclusions.
(ii) Suggest some specific steps that you would recommend to a restaurant in its
attempt to develop a relationship marketing approach.

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1.5 IMPLEMENTING THE MARKETING CONCEPT

To implement the marketing concept, an organisation must accept some general

conditions and address several problems. Management must first establish an information
system that will enable the firm to learn about customers' needs and wants and use the
information to create satisfying products and services. Without an adequate information
system, an organisation cannot be customer-oriented.

Management's second major task for implementing the marketing concept is to

coordinate all activities. Coordination may require reviewing objectives and restructuring
operations and objectives. Effective implementation of the marketing concept also
requires a market orientation - the organisation wide generation of market intelligence
pertaining to current and future customer needs, dissemination of the intelligence across
departments, and organisation-wide responsiveness to it. Every marketing strategy must
aim to achieve the full profit potential of each customer relationship.

At the most basic level, profits can be obtained through relationships in the
following ways:

a. Acquiring new customers: enlarging the customer base

and benefiting, for example,4
from lower cost of production
per Unit.

b. Enhancing the profitability of existing customers: getting customers to buy

more/make more frequent use
of the products, spending
lesser on promotional
activities.

c. Extending the duration of customer relationship: it costs more to recruit new

customers and less to deal
with existing customers.

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Activity 4

Explain briefly how an organisation can enhance profit by:

(i) Acquiring new customers
(ii) Extending the duration of customer relationship

1.6 THE MARKETING MIX

The marketing mix represents tools that are used together to create a desired response
among a group of defined customers. As discussed earlier it consists of product, place
(distribution), promotion, and pricing, (the 4Ps) that the organisation can vary by type
and amount in order to meet the needs and wants of customers within its target market.
Marketing mix variables are often viewed as controllable variables because they can be
changed; however, there are limits to how much they can be altered.

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Each of the four tools aims at providing specific benefits to customers. What customers
look for has been classified as the 4C’s by Robert Lanterbor:

4C’s (What customers look for?)

• Customer needs and wants

• Cost (affordable prices)
• Convenience (ease of access)
• Communication (information)

Marketing managers must develop a marketing mix that closely matches the needs and
wants of people in the target market. This requires the collection of in-depth, up-to-date
information about those needs and wants. Marketing research provides such information.

The marketing mix decision variables are briefly introduced to you in this Section. They
are fully explained in Units 6, 7, 8 and 9.

1.6.1 Product

The product variable is the aspect of the marketing mix that deals with researching
consumers' needs and wants and designing a product or service that satisfies those needs
and wants.

Product variable decisions include creating and modifying packaging and brand names
and decisions regarding warranty and after sales services, etc.

Product variable decisions are important because they are directly involved with creating
products that satisfy consumers.

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1.6.2 Place

In dealing with the place (distribution) variable, marketing managers seek to make
products available in the quantities desired to as many customers as possible (or to the
optimum number of customers) and to hold total inventory, transportation, and storage
costs optimally.

Essentially, place deals with marketing intermediaries whose role is to take possession of
products and distribute them, negotiate with existing and potential customers, provide
feedback to suppliers, help in merchandising and promotional campaigns, etc.

1.6.3 Promotion

The promotion variable relates to activities intended to communicate to individuals or

groups information about an organisation and its products and services.

Promotion can be used to:

(1) Increase public awareness of the organisation and of new or existing products.
(2) Educate consumers about a product's features, benefits, and attributes.
(3) Urge people to take a particular stance on a political or social issue.
(4) Maintain interest in an established product.
(5) Associate the firm or its products with things that make consumers feel good.

1.6.4 Price
The price variable relates to decisions and actions associated with establishing pricing
objectives and policies and determining product prices.

Price is a critical component of the marketing mix because it is the only element of the
marketing mix that brings revenue to the organisation.

Price is often used as a competitive tool.

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Activity 5

(i) Identify two products that you know very well. Describe the marketing ‘mix’ of
these products and compare it to competitors’ brands.

(ii) Think of
(a) A soft drink manufacturing Company
(b) An IT Company

How can these companies segment their respective markets?

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1.7 WHY STUDY MARKETING?

The study of marketing is carrying with it a momentum of no precedence. This is due to

the fact that marketing has been recognised to be among the most important functions in
an organisation. This section provides some justifications regarding the importance of
marketing.

1.7.1 Marketing is Important to Businesses and the Economy

Businesses have to sell products to survive and grow, and marketing helps them to
sell their products. Marketing knowledge and skills are valuable assets towards
business decision-making.

Marketing activities help to produce the profits essential not only to the survival
of individual businesses but also to the health and ultimate survival of the whole
economy.

1.7.2 Marketing Knowledge Enhances Consumer Awareness

Marketing activities help improve the quality of our lives in facilitating purchase
decisions.

Studying marketing activities allows us to weigh their costs, benefits, and flaws
more effectively and to evaluate corrective measures that could stop unfair,
damaging, or unethical marketing practices.

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1.7.3 Marketing Costs Consume a Sizable Portion of Buyers’ Money

About forty to fifty per cent of a buyer's rupee is spent in paying the costs of
marketing.

Because marketing expenses consume such a significant portion of our rupee, we

should know how this money is used.

1.7.4 Marketing is Used in Most Organisations

Increasingly, apart from business organisations, non-profit organisations like hospitals,

charities, theatres, and educational establishments are having recourse to marketing to
understand the needs and wants of those whom they serve. Even professional societies
like Medical Associations, Institution of Engineers, Accountants, Architects and Lawyers
are adopting marketing to promote their objectives. Within and outside business
organisations, within and outside national boundaries, the concept of marketing has
spread throughout the world. Marketing is now an acknowledged concept with
tremendous potentials, for organisational success and survival.

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Activity 6 Discussion Questions

Identify an organisation of your choice.

Find answers to the following questions pertaining to the operations of the organisation
you have chosen.

(i) What business is the organisation in?

(ii) Who are the organisation’s main competitors?

(iii) Suggest at least two marketing initiatives that the organisation can take to achieve
some competitive advantage.

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1.8 SUMMARY

This Unit has introduced to you several concepts and terms that your marketing course
will require you to be conversant with. The term Marketing and concepts related to the
study of marketing have been explained with relevant illustrations.

You will have learnt that marketing is about:

Focusing on the customer, not the product.

Identifying needs and wants and fulfilling them.
Making selling superfluous.
Aiming for long-term profitability and satisfaction.

For success and survival, organisations have no choice but to adopt the marketing
concept.

The marketing concept involves all of the following:

• Customer orientation
• Continuous market research
• All activities and functions are efficiently and effectively coordinated and integrated
• The net outcome is customer satisfaction, repeat business (through loyal
customers), profit, and success

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UNIT 2 THE MARKETING ENVIRONMENT

Unit Structure

2.0 Overview
2.1 Learning Objectives
2.2 Introduction
2.3 Definition of the Marketing Environment
2.3.1 Environmental Monitoring
2.3.2 Responding to Environmental Forces
2.4 Macroenvironment
2.4.1 Economic Forces
2.4.2 Political Forces
2.4.3 Legal and Regulatory Forces
2.4.4 Technological Forces
2.4.5 Socio-Cultural Factors
2.4.6 Natural/Physical Factors
2.5 Microenvironment
2.5.1 Direct and Indirect Competition
2.6 Influence of the Marketing Environment
2.7 The Dynamics of the Past 20 Years
2.8 Other Changes
2.9 Summary

2.0 OVERVIEW

In this Unit, you will have an opportunity to understand the Marketing Environment of an
organisation. You will learn that the marketing environment consists of forces external to
the organisation that directly or indirectly influence an organisation’s acquisition of
inputs and marketing of its outputs. You will appreciate why marketing managers need to
monitor the environment. You will also learn that the microenvironment constitutes of

21
forces that are relatively within the control of the organisation and consists of forces from
competition, suppliers, customers and resources of the organisation.

2.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Define the Marketing Environment.

2. Appreciate why it is important to continuously analyse the Marketing
Environment.
3. Identify the potential impact of forces in the macro-environment and the micro-
environment.
4. Analyse the influence of the Marketing Environment.

2.2 INTRODUCTION

Globalisation, competition, technological innovation and rapid changes are some of the
dominant features of the world in which we live and work today. Business organisations
are also directly exposed to these developments. How are marketers of consumer and
industrial products responding to the challenges and opportunities of their new
environment? You will agree that anticipating, recognising and addressing changes in
the business environment is crucial to survival, success and growth. This Unit provides a
framework for identifying and analysing the changes in the marketing environment.

2.3 DEFINITION OF THE MARKETING ENVIRONMENT

All organisations exist and carry out their activities within a given environment. The
environment is made up of all the forces and/or institutions that have the potential of
influencing and affecting the activities and performance of organisations.

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The marketing environment consists of forces external and internal to the organisation
that directly or indirectly influence an organisation’s acquisition of inputs and marketing
of its outputs.

In other words, the marketing environment represents aspects of the business

environment over which organisations have some or no direct control but which can
impact on performance. Changes in the external environment create uncertainty and
therefore risks changes in the environment also create threats as well as opportunities for
marketing managers.

Activity 1

Explain some of the effects of the following on the marketing environment:

(a) Use of computers at home and in business

(b) Increasing demand for leisure activities
(c) Health concerns on clothing and food
(d) Growing number of senior citizens

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An infinite number of examples can be cited as illustrations of the way that organisations
have to gear or re-gear their marketing strategies in order to remain competitive. This
means that marketing managers have to monitor and analyse the marketing environment
continuously in order to keep track of changes and address them in the most efficient and
effective way.

The phases that are involved in the process are:

1. Environmental Monitoring.
2. Responding to environmental forces.

2.3.1 Environmental Monitoring

Environmental Monitoring involves the processes described as environmental scanning

and analysis.

1. Environmental scanning: refers to the process of collecting information about

forces in the marketing environment through
secondary sources and primary sources such as
observations, surveys, experiments, etc.

2. Environmental analysis: refers to the process of assessing and interpreting

the information obtained through environmental
scanning.

Environmental monitoring provides organisations with the possibility of identifying both

opportunities and threats related to their operations and products.

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2.3.2 Responding to Environmental Forces

In addressing changes that are envisaged to occur (proactive) or that have occurred
(reactive) in the marketing environment, organisations must appreciate that
environmental forces may be relatively beyond their control. Consequently, they have to
adjust their current marketing strategies to match the changing or changed environment to
ensure competitiveness and growth. Successful organisations strive to include in their
agenda how they can influence and shape environmental forces in their favour. This
enables them to adopt a proactive approach to overcome the obstructing forces.

The marketing environment consists of the Macroenvironment and the

Microenvironment.

Activity 2

(i) In the context of the growing number of supermarkets in the Mauritian

environment, what, according to you, are the threats and opportunities for
traditional shops?

(ii) What can traditional shops do to remain in business?

25
2.4 MACROENVIRONMENT

The macroenvironment consists of the following main forces:

(i) Economic forces (Economic cycle stages, buying power)

(ii) Political forces
(iii) Legal and Regulatory forces
(iv) Technological forces
(v) Socio-cultural factors
(vi) Natural (physical) factors

Let us, understand these with some illustrations and brief explanations.

2.4.1 Economic Forces

The general economic conditions of a country have important bearings on a market.

They provide an indication of the purchasing power, the spending and saving patterns of
the population. Some of the elements that need special attention are mentioned here.

General Economic Conditions:

u Level of employment
u Level of income
u Buying power
u Inflation rate
u Level of spending
u Level of education
u Leisure time availability

Economic Cycle Stages:

26
It is useful for marketing managers to know the economic cycle that a given market or
country is facing. This will help in establishing the appropriate strategy to ensure and
sustain the satisfaction of customers. Basically all markets go through either of these
cycles:

• Prosperity
• Recession
• Depression
• Recovery

Activity 3

(i) Write brief notes on each of the economic cycle stages: prosperity, recession,
depression and recovery.
(ii) Explain how each of these stages can affect the marketing process.

27
Buying Power

The buying power of a consumer represents the resources such as money, goods, and
services that can be traded in an exchange. Changes in economic conditions affect
absolute and relative buying power. The main sources of buying power are:
u Income
u Disposable income
u Discretionary income
u Wealth

The ability of a customer to buy depends on prices, maintenance costs, capacity

constraints, and product availability, etc. However, the willingness of a customer to
actually purchase will depend on affordability and the psychological-social forces
interacting in the mind of the customer. Another important element of the buying process
is who has the authority to purchase. These will be discussed in more details in Unit 4.

2.4.2 Political Forces

Government can play a vital role in influencing the way that a company organises its
activities. Often, decisions are taken that are detrimental to some organisations while
beneficial to others simultaneously. In this perspective, it is important for organisations
to analyse the current and future attitudes of government and political forces. For
example, government may decide to control prices, levy taxes on certain goods and
services, liberalise imports, introduce measures to restrain monopolies and restrictive
trade practices, privatise certain sectors of the government-controlled activities.

2.4.3 Legal and Regulatory Forces

The legal and regulatory forces may have significant implications in marketing.
Marketing managers must be very careful about them. Sometimes it pays to marketing
managers to anticipate the coming into force of any law that is likely going to have

28
negative influences on their operations or their products. Some examples of these forces
are given below:

A. Pro-competition Regulation

Fair trading act prevents businesses from restraining trade and monopolising
markets
Rule of Reason, per se illegal (price fixing, tying or cartel arrangements)
Exclusive dealer arrangements
Inter vs. intra-brand competition
Price discrimination. For example, prohibition of price discrimination, unfair
price competition, provision of services on terms not offered equally to all
purchasers.

B. Consumer Protection Institutions

Consumer protection institutions play the role of watchdogs on behalf of the customers.
In Mauritius we identify for example two such organisations.

ICP (Institute for Consumer Protection)

A.C.I.M (Association des Consommateurs de L’Ile Maurice)

They offer their services and facilities to any customer who has a serious complaint about
a product he/she has purchased or a service that was provided to him/her. Consumer
protection institutions are often active whenever government decides to increase prices
on certain goods etc.

29
2.4.4 Technological Forces

We are all aware of the impact of technology in our daily life as well as in the general
business environment. It pays to relate this impact to the marketing environment in order
to revisit the products and services that are being offered and that will be offered in the
market.

These changes may be grouped under, for example:

u Transportation (more rapid, effect of containerisation, etc)

u Communication
u Health care
u Consumer products
u Manufacturing
u Agriculture
u Marketing
(e-communication)
(more digital and electronic equipment on the market)
(availability of varieties and substitutes, better distribution
network)
(JIT (Just in time) in manufacturing, automation)
(hydroponic production)
[(electronic point of sales (EPOS), E-Commerce)]

2.4.5 Socio-Cultural Factors

Socio-Cultural factors are the dynamics of society. Marketing managers have to take into
account the way society has changed, is changing or will change. For instance,

Demographic and diversity characteristics

Ageing consumers

More single adults

Population “explosion” (new wave of baby boomers) increasing multi-cultural society

Alternative life style awareness

Cultural Values

30
 Health consciousness (personal, environmental)

Family value

Role of educational institutions

Minority/Diversity values

Activity 4

Think about the Mauritian environment and list down at least five factors which are
influencing the way in which business organisations are carrying out their marketing
activities?

2.4.6 Natural/Physical Factors

It is widely acknowledged that the manufacture of many products involves processes that
could be harmful to the natural environment. In fact, organisations are increasingly being
forced to review their production processes to take into consideration such factors that are
likely to cause any negative impact on the environment. Actually, we are now witnessing
the rapid emergence of green marketing and the societal marketing concept.

31
Some factors to consider under the physical/natural environment include:
♦ Depletion of resources
♦ Pollution and effluents control
♦ Natural calamities, such as droughts, cyclones

2.5 MICROENVIRONMENT

The micromarketing environment is that part of the environment that is peculiar to the
individual organisation concerned and over which the organisation has relatively more
control.

The key elements to consider under this are:

(i) Direct and indirect competition, including substitute products
(ii) Influence of Suppliers
(iii) Influence of Customers
(iv) The Resource Base of the organisation

2.5.1 Direct and Indirect Competition

One of the biggest dangers for any organisation emanates from competition. Competition
occurs when organisations market products that are similar to and that can be substituted
for a marketer’s products in the same geographic market.

We can distinguish four main types of competition:

1. Monopoly: one supplier only in the market)

2. Oligopoly: few suppliers exist in the market for a given product)
3. Monopolistic Competition: (one enjoys monopoly but few substitutes exist)
4. Pure Competition: (all sellers are at par with each other and the market has
perfect information on both buyers and sellers.)

32
Competition basically uses the following as tools:
• Price : where organisations compete on price reductions, discounts etc.
• Non-price : where organisations stress level of service, facilities etc.

Activity 5

Write brief notes on each of the four types of competition mentioned.

Other internal forces are linked with the influence of the suppliers and the customers on
the organisation.

You will learn more about these as you progress through the course.

33
Activity 6

Explain briefly how customers and suppliers can influence marketing decisions.

2.6 INFLUENCE OF THE MARKETING ENVIRONMENT

Irrespective of the nature and size of an organisation, there are always elements of the
marketing environment that have both direct and indirect impact on the performance of
the organisation. It is therefore essential for all organisations to monitor very closely the
environment that relates to their business. It is necessary to identify trends in the
environment and examine how these will evolve. It is also important to make forecasts
about future sales.

2.7 THE DYNAMICS OF THE PAST 20 YEARS

The world has witnessed dramatic changes during the past twenty years. These changes
have somehow urged business people to explore new ways of working to survive and
grow in the new and dynamic business environment.

34
The following are some of the most prominent changes that we have witnessed so
far:

1. Most markets of the industrialised world have matured.

2. Consumer tastes are more sophisticated, complex and shifting.
3. Household purchasing power is increasing, particularly because there are more
women in the workforce and both partners are now working.
4. New markets have emerged, with the promise of larger markets.
5. There is a situation whereby global competition is becoming a growing reality.
6. The move from price to non-price competition.

Activity 7

Discuss how the changes mentioned above could influence organisations, in particular
their Marketing Department.

35
2.8 OTHER CHANGES

On the economic, political, technological and social sides, the following are among the
most striking changes that have occurred in recent years.

1. Emerging markets: Asia, Latin America, Eastern Europe

2. Reunification of Hong Kong, Macau & China
3. European Monetary Union (EMU)
4. Changing distribution structures
5. Growing middle-income households worldwide
6. Strengthening/creation of Regional Market Groups NAFTA, ASEAN, FTAA,
FTA, SADC, IOR.
7. Coming into operation of WTO (World Trade Organisation)
8. Continuing privatisation/deregulation of the telecommunication industry
worldwide
9. Restructuring, reorganising, refocusing of large MNCs such as IBM, Eastman
Kodak, Levi Strauss, Siemens, Nike.
10. Transformation of the Internet into a major business tool.

It must be appreciated that these changes are drastically affecting business practices
worldwide, meaning that companies must continuously examine the way they do
business, in particular, demonstrate their flexibility and adaptability. Although it is clear
that all companies need not be involved in international (across-borders) marketing, it is
also obvious that all of them are affected by the new context in some way or the other.
Some companies are involved in across-border marketing in a small way; others actively
seek new market and market segments with common needs and wants across political
boundaries.

You will have an opportunity to learn much more about the marketing environment as
you progress in your course.

36
Activity 8

Assume that you have been asked by a company dealing in powdered milk to devise its
Marketing Strategy.

(a) Analyse the environmental factors that would influence your

recommendations.

(b) What strategy would you propose? Justify your choice

2.9 SUMMARY

This Unit has introduced to you the several factors of the marketing environment that
may have direct and indirect impacts on the operations of an organisation. We have
talked about factors that constitute the macro-environment such as economic forces,
political forces, legal and regulatory forces, technological forces, socio-cultural factors
and natural factors as well as the microenvironment such as direct and indirect
competition, influence of suppliers, influence of customers, the resource base of the
organisation and the trends that we are witnessing in them.

You have to that remember the nature of the marketing environment and the way changes
are taking place in it are of prime importance to marketing managers.

37
UNIT 3 INTRODUCTION TO MARKETING RESEARCH

Unit Structure

3.0 Overview
3.1 Learning Objectives
3.2 Introduction
3.2.1 Marketing Research and Marketing Information Systems
3.2.2 Capitalising on New Technologies for Marketing Research
3.3 The Marketing Research Process
3.3.1 Defining Problems
3.3.1.1 Developing Hypothesis
3.3.2 Designing the Research Plan
3.3.2.1 Research Design
3.3.3 Implementing the Research Plan
3.3.3.1 Data Collection
3.3.3.2 Sampling Plan
3.3.3.3 Contact Methods
3.3.3.4 Questionnaire Design and Construction
3.3.4 Analysing and Interpreting Research Findings
3.3.5 Reporting Research Findings
3.4 The Importance of Ethical Marketing Research
3.5 Summary
3.6 Review Activity

38
3.0 OVERVIEW

In this Unit, you will be able to appreciate the importance of Marketing Research in both
this module and everyday life. Marketing research helps to make available all
information that marketing managers require for their decisions regarding products and
markets.

This Unit contains a group activity.

3.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Define marketing research.

2. Explain what marketing information system is.
3. Explain the different steps in the Marketing Research Process.
4. Identify some of the problems involved in conducting marketing research.

3.2 INTRODUCTION

One of the fundamental tasks of marketing is to “create” products and markets. To

accomplish this, marketing managers have to know and anticipate what customers’ needs
and wants are. For example, an organisation may wish to know the sales potential before
actually launching a product on the market or a company may wish to assess the return on
investment or advertising. In other words, in order to implement the marketing concept,
marketers require information about the characteristics, needs, wants and desires of their
target markets and the various factors that affect and will affect them. Marketing
research performs these tasks. In fact, marketing research may be considered to be the
lifeblood of marketing.

39
“Know thy customer” is a practical statement for successful marketing. Marketing
research helps to provide such information.

3.2.1 Marketing Research and Marketing Information Systems

Marketing Research is defined as:

the systematic design, collection, interpretation, and reporting of information not

currently available, to help marketing managers solve specific marketing
problems or take advantage of marketing opportunities.

In other words, marketing research is the process of defining a marketing problem and
opportunity, systematically collecting and analysing information, and recommending
actions to enhance an organisation’s marketing activities. It is the function that links the
consumer (customer) and public to the marketer through information.

To supplement the process of marketing research, marketing managers make use of a

Marketing Information System (MIS). The Marketing Information System is a
framework for day-to-day management and structuring of information gathered regularly
from sources both inside and outside an organisation. MIS provides a continuous flow of
information considered relevant to marketing managers.

Two important sources of information are:

1. Internal records - for example invoices, consumer databases, inventory, etc.

2. Market intelligence or information - a regular information on market development
in the marketing environment.

The main focus of MIS is on manager’s information requirements i.e what information is
required and why; how it can be stored and retrieved; and the framework for achieving
these. Special attention is placed on expediting the “flow” of information.

40
Both marketing research and MIS are measured by their ability to efficiently improve a
marketing manager’s ability to make decisions. The cost of carrying out the marketing
research must be weighed against the benefits derived. We must evaluate the value of the
information. It is also important for marketing managers to approach the research in a
logical manner, as the difference between good and bad research depends on the quality
of the inputs, amongst others.

To ensure appropriateness of marketing research, marketing managers should give

due consideration to the following:

• Research must be conducted in a systematic manner that involves a series of steps

and activities.

• Data may be retrieved from different sources and care has to be exercised in
selecting the most appropriate/reliable sources.

• Research may apply to any aspect of marketing (any of the marketing mix
variables, segmentation, targeting and positioning, consumer behaviour etc.) that
needs information for decision-making purposes.

• Findings or output of the research must be communicated and acted upon in the
most effective manner.

41
Activity 1

Distinguish between Marketing Research and MIS.

3.2.2 Capitalising on New Technologies for Marketing Research

Technological advances, through the development and integration of various types of

telecommunications (telephone, fax, e-mail, computer on-line access) and computing
technologies (microprocessors, RAM, ROM, ZIP drives) are increasingly enabling
marketing managers to access a growing array of valuable information sources
(databases, electronic bulletin boards, Internet, on-line services) related to customer
buying behaviour, market/ business trends and forecasts, inventory management, etc.

42
Terms that are current in the computer or electronic world include the following:

• Databases: a collection of information arranged for

easy access and retrieval.

• Electronic Bulletin Boards: enable users (a firm’s employers, customer

suppliers, intermediaries, etc) to post a
message for any participant to read and
discuss.

• Online Information Services: offering subscribers access to e-mail,

discussion groups, files for downloading,
chat rooms.

• Internet: a collection of computers “hooked together”

with communication lines that enable users
to communicate and share information
around the globe.

• Intranet: firm’s information accessible and shared by

employers, suppliers, and customers through
an internal computer network.

3.3 THE MARKETING RESEARCH PROCESS

Marketing research must be viewed as a process. This means that there is a sequence of
activities involved. To maintain the control needed for obtaining accurate information,
marketing managers, approach marketing research in five logical (systematic) steps as
shown in Figure 3.1.

43
 Figure 3.1: Steps in the Marketing Research Process

Defining and locating the problem

and strategic research objectives

Designing the research plan

Implementing the data collected

Analysing and interpreting the research plan

Presenting the research findings

3.3.1 Defining Problems

This step may be considered as one of the most important tasks in marketing research. If
a marketing problem is identified and is clearly defined, marketing managers may save a
lot of time and money in their attempt to find a solution to the problem. It is widely
acknowledged that a problem that is well defined may be considered to be half solved.
Problems may be defined broadly, for example, researching for the best or optimum
marketing mix and segmentation strategy for a new product; or problems may be more
specific like what would be the best price for a lap-top or what is the sales forecast of
ice-cream for the next year. To answer these questions, organisations may wish to carry
out their own marketing research (through their own marketing department, if one exists)
or they may commission external marketing research projects.

44
Activity 2

In groups of five, think of a marketing problem facing an organisation of your choice.

Discuss how you could refine the problem further, and turn it into a marketing research
problem.

In fact, this first step focuses on uncovering the nature and boundaries of a negative or
positive situation related to marketing that requires probing beneath the superficial

45
symptoms. The symptom is usually a departure from some normal functions, for
example, failures in attaining sales objectives, lots of consumer complaints, consumers
are really enthusiastic about the product or offer etc. These indicate a need to probe
further to find out the “why” of it. However, it must be noted that it is sometimes not
possible to define objectives in a specific manner. An acceptable starting point must then
be agreed upon.

Very briefly, the research objective leads to identifying what information is needed to
solve or help to solve the problem.

3.3.1.1 Developing Hypothesis

Part of this step involves the development of hypotheses that are relevant to the research.
The kind of hypothesis that is being tested determines in many ways the approach used
for gathering data. Hypotheses are usually drawn from previous research and expected
research findings. A hypothesis is an informed guess or assumption about a certain
problem or a set of circumstances.

For example, the following assumption may be made with respect to the preference of
students on the University canteen:

Students of the UoM prefer the UoM’s canteen to other canteens and eating-places
available in the vicinity of Réduit.

Information relevant to this hypothesis must be gathered to enable researchers to test it.

3.3.2 Designing the Research Plan

After you have defined the marketing problem, the second step in the marketing research
process lays out the overall plan for obtaining the information needed to address the
problem. This involves decision over the research approach and design to be used, the
choice of methodology to collect data, population and sample from whom to collect data,

46
and the cost of the research to the organisation. While making such decisions,
researchers must ensure that the research would be reliable and valid.
• Reliability: the extent to which the use of a research technique produces almost
identical results in successive repeated trials.

• Validity: the extent to which research method measures what it is supposed

to measure and not something else.

3.3.2.1 Research Design

Research design is the framework or plan that guides the collection and analysis of data.
It includes information on:

Who collects the data?

What data should be collected?
Who or what should be studied?
What is the sampling plan?
What technique of data collection should be used?
How much will the study cost?
How will data be collected?
How long will data collection last?

Research may take the form of exploratory, descriptive or causal studies.

u Exploratory Studies: research conducted when more information is needed about

a problem and the tentative hypothesis needs to be made
more specific.

u Descriptive Studies: research conducted when marketing managers need to

understand the characteristics of a certain phenomena to

47
 solve a particular problem; may require statistical analysis
and predictive tools.

u Causal Studies: research conducted in which it is assumed that a particular

variable “ χ ” (independent) causes or changes variable “Y”
(dependent).
Y = f (χ )

Activity 3

Formulate a research plan for the research problem that you have identified in Activity 2.

3.3.3 Implementing the Research Plan

Once the research design has been worked out, the next step in the marketing research
process is to implement the research plan. This process involves gathering, processing
and analysing the information. Let’s now discuss each step.

48
 3.3.3.1 Data Collection

There are two types of data differentiated in research: Secondary and Primary.

1. Secondary Data

Secondary data are published data that have been presented in some kind of report or
publications.

Advantages of Using Secondary Data:

u They are relatively inexpensive and quick to obtain.
u They can be obtained from multiple sources.
u In some cases, we can obtain information that cannot be obtained through primary
research.

Disadvantages/Problems of Using Secondary Data:

u Secondary data may be incomplete, outdated, and obsolete.

u There may also be problems associated with the methodology that was used to
collect data and generate reports, thus the reliability of the data may be
questionable.

Secondary data may be obtained from both internal and external sources.

Internal data may come from budgets, sales figures, profit and loss statement,
debtors list, database of customers and other stakeholders, etc.

External data may come from government sources like census of population,
investment, manufacturing, retail trade, regular publications from the Central
Statistical Office and other institutions, Journals, Commercial research houses:
students’ dissertation and other research reports etc.

49
2. Primary Data

Primary data represent data that are "collected specifically for the purpose of the
investigation at hand". Normally researchers choose primary data when a thorough
analysis of secondary research provides insufficient information for a marketing decision
to be made or when fresh data are required.

Primary data can be collected in four different ways:

Observations: data collected by actually observing the relevant persons or

settings.
Experiments: groups of people are selected, subjected to different treatments
under controlled conditions and observations are made as to
whether responses are in line or not with what was expected.
Surveys: This is explained in more details in the following subsection.
Focus groups: constitute a group of 5-12 persons conversant with the subject to
be investigated, and observe group interaction when members are
exposed to an idea or concept. Consumer attitudes, behaviours,
lifestyles, needs and desires can be explored in a flexible and
creative manner through focus groups. Questions are open-
ended. Focus groups require a skilled person to lead the
discussion otherwise much time may be wasted without achieving
anything concrete.

Advantages of Using Primary Data:

u They match the precise purpose of the organisation.

u They generate current information.
u The methodology used to collect them is under the researcher’s control and is
known.
u They are available to the organisation and remain a secret to competitors.

50
 u The reliability of the data obtained can be determined.

Disadvantages of Using Primary Data:

u They are time-consuming and costly.

u Certain information cannot be collected.

Activity 4
1. What secondary sources of data would you recommend for addressing the
problem you have stated in Activity 2?

2. What primary data would you seek and which method of collection would you
use for the same problem from Activity 2? Justify your answer.

3.3.3.2 Sampling Plan

We next establish “from whom to collect data for primary research.” The answer to this
question comes from the design of a sampling plan after having defined the population to
be studied. The sampling plan generally addresses the following questions:

51
Sample: a limited number of units that closely represents the characteristics of a total
population.
The following questions may be helpful in the formulating of a sampling plan.

♦ Who or what is to be surveyed?

♦ How many persons or units should be surveyed?

The purpose of sampling is to select representative units from a total population. A

population or "universe" englobes all elements, units or individuals that are of interest
to researchers for a specific study.

♦ How are the respondents or units to be chosen?

Population: all the elements, units, individuals of interest to researchers for a specific
study.

Sampling procedures: the selection of representative units from a total population. This
is an essential component of any survey method that must be carefully designed and
implemented to ensure reliability and validity of the research process.

Samples may be chosen by two different methods: probability and non-probability.

A. Probability Sampling

Probability sampling is one whereby each and every element of the population has an
equal chance of being included in the sample

The following are the main types of probability sampling:

Simple random sample: a type of sampling in which all units in a population have
an equal chance of appearing in the sample. Select

52
 elements at random from for example, random numbers,
directory, listed names etc.

Stratified random sample: a random sample in which the population of interest is

divided into groups according to common characteristics or
attributes (Age, Income, Gender, etc) and then a simple
random sample is conducted within each group.

Area or cluster sample: a variation of a stratified sample, with geographic areas,

(urban, rural, east, west, etc.) serving as the segments, or
primary units, such as residence halls, flats etc. are used.

Probability sampling enables the researcher to calculate confidence limits for sampling
error. In other words, one can establish to a given degree of confidence, where the sample
would fit in the population.

Activity 5

Find out more about simple random, stratified random and cluster sampling. Provide
suitable illustrations to show their application.

53
B. Non-Probability Sampling

Convenience, judgmental and quota samples are non-probabilistic samples in which the
final choice of respondents is left to the interviewers or researchers.

Convenience sample:When the most accessible population members are chosen by the
researcher.

Judgement sample: Sample whereby the researcher uses his/her judgement to select
members who are considered the most appropriate ones for the
research in question.

Quota sample: A given number of respondents are chosen from each of several
categories that constitute the population.

The sampling error in these cases cannot be measured statistically. These samples are
mainly used in exploratory studies to develop hypotheses that do not require any
statistical testing.

Actvity 6
Explain how you could use non-probability sampling for the population that constitutes
the research problem identified in Activity 2.

54
 3.3.3.3 Contact Methods

Once the sampling plan is laid out, the next step is to determine how to contact the
respondents (subjects identified for the research), if the survey is the chosen
methodology. The main data-gathering methods for surveys include contacting the
persons identified by mail, telephone, e-mail and face-to-face.
The salient features of each one of these methods are outlined below:

Mail wide area can be covered; limited funds required; must provide
incentive to return the questionnaire, must include a covering
letter to explain purpose of survey, electronic mail is growing in
popularity.

Telephone speed, immediate reaction, computer assisted telephone

interviewing.

Personal interviews flexibility, increased information, non-response can be explored.

Most favoured method for carrying out surveys can be conducted
in shopping malls.

In home get more information but it is costly and getting harder to

accomplish. No
(door-to-door) one may be at home or people may feel inconvenienced.
interview

Mall intercepts: interview a percentage of people that walk by a certain point or

Interview area; can use demonstration and then, assess visual reactions.

In general, mall surveys receive a more honest response than

telephone surveys. There is a bias towards those who spend a lot
of time in malls. Increasingly organisations are using on site
computer interviewing, where respondents are requested to
complete self-administered questionnaires conducted in shopping
malls. Questions can be adaptive depending on the responses.

55
Activity 7

From any textbook of your choice, identify and list the main advantages and
disadvantages of using mail, face-to-face and telephone to obtain information from
people.

Mail

Face-to-Face

Telephone

56
 3.3.3.4 Questionnaire Design and Construction

This step involves designing or constructing a questionnaire, which is an important

component of any of the survey methods mentioned above. It involves identifying
questions that would constitute a questionnaire in order to obtain necessary information
in the most effective and efficient manner. A questionnaire must be carefully constructed
and implemented to ensure reliability and validity of the research process. Questionnaires
must be designed to elicit information that meets the requirements of the study. It must
be pointed out that people are quite reluctant to respond to questionnaires or surveys in
general. It is therefore most recommended to catch the attention and arouse the interest
of the respondents to your survey, while designing your questionnaire.

In the very first place, you must ensure that your questions are:

♦ clear and free of ambiguities

♦ easy to understand and using terms that are current and common
♦ directed towards meeting an objective

You have to define the objectives before designing the questionnaire. You must maintain
impartiality and be very careful with personal data.

The main types of questions are:

Open-ended
These are questions that require the respondent to answer in their own words. For
example: What do you think about the University of Mauritius?

Dichotomous
Is a question that offers two answer choices. For example:
Do you speak French? Please cross relevant box.
Yes No

57
 Multiple Choice
They are questions that offer three or more answer choices. For example:
In which age group do you fall? Please tick relevant box.

5 – 9 years
10 – 14 years
15 – 19 years
20 – 24 years
above 24 years

Scaled
These are questions that are in the form of statements with which the respondent
shows (by marking the relevant box) the level of agreement or disagreement, etc.
Please indicate your level of agreement/disagreement on the statement
“The University of Mauritius has an excellent infrastructure”.

Strongly Disagree Disagree Neither agree or disagree Agree Strongly agree

58
Activity 8

(i) Go through a questionnaire that you have come across recently (this could be
from a case study in a book or survey where you have been invited to be a
respondent). Try to establish which of the questions are examples of the
following:

* Open-ended
* Dichotomous
* Multiple Choice
* Scaled

(ii) Formulate a few questions to provide some more examples of the above.

59
The time taken to fill in a questionnaire must be stipulated so that a respondent to your
questionnaire knows how much time he or she has to devote for that purpose. You must
restrict yourself to asking the necessary questions. In other words, it is most important to
keep questions short and to limit the number of questions asked. The demographic
questions must be ideally placed at the end. You must always attach an explanatory
covering letter to your questionnaire – this would help the respondent to know about your
survey and what you are expecting from him/her.

Great care has to be exercised in framing questions. The following provide some
examples of the type of questions that would make a poor questionnaire.

What is your income to the nearest hundred rupees?

Comments:
Such question must not be placed at the beginning of the questionnaire. It is
better to use multiple choice...categories of income as few people would be keen
to reveal their absolute income.

Are you a strong or weak supporter of Liverpool Football Club?

Comments:
The ambiguity here is how would one define strong/weak? Also there is no
middle ground answer.

Do your children behave themselves well at school?

Yes [ ] No [ ]

How would parents know? What answer would parents provide if one of their
children behave well and others do not?

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 How many pamphlets about University Programmes have you seen during
the last three months?

How would one remember this? This type of question depends on strong memory
of respondent.

Do you believe that it is right to watch TV till late at night?

This is a leading question.

3.3.4 Analysing and Interpreting Research Findings

Once data have been collected, the next step in the marketing research process is to
analyse the data to extract the most pertinent information to meet the objective of your
research. Use is made of tabulation and various tools that would enable the extraction of
meaningful information from the data collected.

Very briefly this step involves:

♦ Displaying data in a reportable and quick to understand format. Normally researchers

try to plan this early in the research process and use table, chart, and figures.

♦ Statistical interpretation- focusing on what is typical or what deviates from the

average (distribution, variance from the standard).

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3.3.5 Reporting Research Findings

The last step in the marketing research process consists of presenting the findings of the
research in a relevant format that would be useful to all users. The output of the research
process is normally a formal, written document with two main sections:

1. The executive summary and recommendations for decision-makers, who are

pressed for time and therefore are not particularly interested to study how the
results were obtained.

2. The technical report that allows its users to analyse data and interpret
recommendations as it gives a detailed description of the research methodology
adopted, procedures and the most important data gathered.

3.4 THE IMPORTANCE OF ETHICAL MARKETING RESEARCH

Organisations are becoming more conscious about ethical practice and social
responsibility. The following are some issues that may be considered in this connection.

♦ Marketing managers and others rely on marketing research to make better decisions.
In so doing, it is important that professional standards of conduct exist by which to
judge the reliability and validity of the research.

♦ Organisations must strive to promote ethical marketing research.

♦ For codes of conduct to be effective, researchers must inform those who participate in
marketing research how to avoid misconduct and adopt the right attitude and
behaviour. If the researcher has given the guarantee that confidentiality regarding
information provided is assured, he or she must ensure that it is actually the case.

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3.5 SUMMARY

This Unit explained to you the marketing research process in some details. You have
gathered that marketing research is a process that involves several steps that must be
systematically followed to ensure completeness and appropriateness. Marketing research
is the process of defining a marketing problem and opportunity, systematically collecting
and analysing information, and recommending actions to enhance an organisation’s
marketing activities. It is the function that links the consumer (customer) and public to
the marketer through information.

3.6 REVIEW ACTIVITY

Activity 9

Using an Internet search engine, such as Google, Lycos or Yahoo, browse the Internet
and locate one company that uses their Internet Web site to provide customers with
product information, and/or uses the web to obtain customer feedback on their products
or services. State the following:

(i) Name of the company; and its Internet address.

(ii) Describe their home page and what type of information it provides and/or is
seeking.

(iii) Identify any aspect that relates to Marketing Research being carried out online by
the organisation.

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UNIT 4 CONSUMER BUYING BEHAVIOUR

Unit Structure

4.0 Overview
4.1 Learning Objectives
4.2 Introduction
4.3 Consumer Markets and Consumer Buying Behaviour
4.3.1 Types of Consumer Buying Behaviour
4.4 Factors that Influence Buyer’s Behaviour
4.4.1 Personal Factors (Unique to the Individual)
4.4.2 Psychological Factors
4.4.2.1 Motivation
4.4.2.2 Perception
4.4.2.3 Personality
4.4.2.4 Attitudes
4.4.2.5 Psychographics
4.4.3 Social Factors
4.4.3.1 Family Influences
4.4.3.2 Reference Groups and Opinion Leaders
4.4.3.3 Social Class
4.4.4 Cultural Factors
4.5 Consumer Buying Decision Process

4.5.1 Problem Recognition

4.5.2 Information Search
4.5.3 Evaluation of Alternatives
4.5.4 Decision to Buy
4.5.5 Post Purchase Behaviour
4.6 Business Buying Behaviour
4.6.1 Special Market Characteristics
4.6.2 Buying Influences on Business Purchases

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 4.6.3 Factors Influencing Business Buyers
4.6.4 Buying Situations
4.7 Stages in the Business Buying Process
4.8 Summary

4.0 OVERVIEW

This Unit introduces consumer behaviour or more specifically how consumers behave
before, during, and after a purchase. Several factors influence the buyer’s behaviour.
Some of these are explained in this Unit.

4.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Define Consumer Buying Behaviour.

2. Identify the factors that influence buying behaviour.
3. Identify stages in the buying decision process.
4. Analyse the types of situations industrial buyers face.
5. Explain how business buyers make their buying decisions.

4.2 INTRODUCTION

The changing factors, patterns and preferences that are being witnessed in our society
have put the study of consumer behaviour in the forefront of marketing activities. For
example, now that both husband and wife are becoming working members of the family
has brought significant changes in the buying behaviour process of families worldwide.
We have noted an increasing use of electrical appliances, an increase in the number of
meals eaten away from home although in reality many want the convenience of fast food,

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the variety and availability of good sit-in restaurants and the taste of a home-cooked
meal. With the variety of products that the market now offers, the customer is finding
himself/herself in a more complex situation when deciding to make a purchase. What to
buy, when to buy and how to buy are questions that puzzle many, if not, most customers
almost everyday. This Unit looks at this buying behaviour process.

Warm-Up Activity

(i) Think of a situation when you were confronted with some difficulties to decide
what you were going to purchase as, for example, a birthday or wedding gift. Jot
down the main factors that influence the choice before the final purchase was
made.

(ii) From the above question, what can you conclude about buyer’s behaviour in
general?

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Successful marketing managers have to find out what their customers’ needs and wants
are in order to gain a better understanding of their buying behaviour.

This is becoming increasingly important to them because:

1. Customers’ reactions to an organisation’s marketing efforts have a great impact on its

success.
2. Understanding how customers make purchasing decisions helps marketing managers
to create marketing mixes that satisfy them, i.e., marketing managers are in a better
position to predict how they will respond to marketing strategies.

4.3 CONSUMER MARKETS AND CONSUMBER BUYING BEHAVIOUR

Definitions:

Consumer Markets: as opposed to industrial markets) consists of purchasers

and household members who intend to consume or benefit
from the purchased products and who do not buy products
for the main purpose of making a profit.

Consumer Buying: refers to the decision (choice) processes and acts of

ultimate consumers involved in buying and using products.
We, as customers, are normally confronted with three main
purchasing decisions: what to buy, when to buy and where
to buy.

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4.3.1 Types of Consumer Buying Behaviour

Buyers normally spend variable time and effort (mental and physical) before they make a
purchase. This depends on the type of product and the amount of actual time available to
them to make decision on what to purchase. The level of involvement of the buyer in
making the purchase is also a determining factor in the buying behaviour process. So is
the importance of the product to the buyer. For instance, the more important the product
is to the buyer, the more involvement determines why he/she is motivated to seek
information about certain prodcts and brand while virtually ignores others. A buyer
usually shows high involvement on purchases of highly priced products that are
particulary visible to others and that constitute certain risks (higher the risk, the higher
the involvement).

In brief, the buyer’s behaviour is basically determined by:

Level of his/her involvement in the purchase decision.

The importance and intensity of interest in a product in a particular situation.

There are four possible types of buying behaviours:

1. Routinised response behaviour: normally shown when buying low-

involvement, frequently purchased low-cost items; needs very little search and
decision effort; often purchases are almost automatic. Examples include soft
drinks, snack foods, milk, cigarettes, etc.

2. Limited problem solving: used when buyers purchase products occasionally and
need to obtain information about an unfamiliar product category. For example,
the purchase of powdered milk and the choice of the brand to purchase if the
consumer is envisaging a change.

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 3. Extended problem solving: used when unfamiliar, expensive or infrequently
bought products are purchased, requiring a great deal of conscious effort.
Examples include cars, houses, computers and education. Significant time may
be spent in seeking information and deciding. Information sources are from the
companies, friends and relatives, organisational personnel etc.

4. Impulse Buying: an unplanned buying behaviour involving a powerful urge to

buy something immediately.

Activity 1

(i) Provide one suitable example to illustrate each of the buying situations described
above.
(ii) Compare and discuss these with your friends.
(iii) Describe the process you went through before you last purchased your pair of
shoes. How would you categorise your buying behaviour?

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4.4 FACTORS THAT INFLUENCE BUYER’S BEHAVOUR

Several factors can influence the buyer in his/her decision to make a purchase. This
Section describes some of the most important ones.

4.4.1 Personal Factors (Unique to the Individual)

Customers are best understood on the basis of the following factors:

Demographic and Socioeconomic Characteristics

Demographic and socio-economic characteristics are the empirical means of describing

consumers. These characteristics are straightforward and include amongst others, sex,
age, marital status, household size, education, occupation, income, dwelling, geography,
city size, and stage in life cycle. It is important to note that these are physical
characteristics that can be checked. These variables are often used to cross-classify other
consumer information obtained.

Demographic and socio-economic trends establish the number of people in a market as

well as their purchasing behaviour and purchasing power – what people purchase and
how much money they are willing to spend for the purchase. Tracking the changing
demographic composition of the potential target groups is an important market
intelligence activity for marketing managers.

Some other factors pertaining to the individual that may have major influences on
his or her consumer’s behaviour are:

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 Situational factors influences resulting from circumstances, time, and
location that affect the choice process.

Physical Surroundings location, store atmosphere, air-conditioning, sound,

lighting, weather, parking facility, etc.

Social Surroundings presence of others in the set up while shopping and

making purchases.

Time factor amount of time available and/or required to look for

the product/s and purchase, frequency of purchase,
duration of use of the product, product life, time of
the day or season.

Product usage what the product to be purchased aims at

(household use, personal use, gift, and specific use).

Buyer’s antecedent state momentary moods, impulse, etc.

4.4.2 Psychological Factors

Psychological factors also have strong influence on the buying behaviour of consumers.
Psychological factors are factors that operate within individuals and, in part determine
their general behaviour, thus influencing their behaviour as consumers.

The most important of the psychological factors that are useful for marketing
managers and personnel are;
Motivation
Perception
Personality
Attitudes
Psychographics

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 4.4.2.1 Motivation
All people have needs and wants at any time. The needs and wants keep them in a state
of tension until they are able to satisfy them. In seeking to satisfy these, people look for
appropriate products and purchase them. In other words, needs and wants drive people to
look for and purchase products, thus going through a process that may be regarded as
motivation.

Motivation refers to an activated state within an individual that leads to goal-directed

behaviour. Motivation usually results from some unfulfilled need. In the context of
marketing, the terms “motives”, “needs”, and “drives” are interchangeable.

People’s motives tend to be more stable than behaviour. Hence, motives may offer a
better basis for predicting future behaviour than past behaviour. Common motives
include possession, economy, curiosity, dominance, and pleasure. These motives are not
specific to any product. An understanding of underlying motives helps marketing
managers to understand consumer behaviour better. It is important to realise that
consumers can have several different motives for a given behaviour.

Motives can be organised in a hierarchy. Abraham Maslow’s hierarchy of human needs

or motives is a widely accepted model, as illustrated below:

Self- Self-fulfillment
actualisation

Self-esteem Prestige and self-respect

Social or belongingness Friendship and affection

Safety or security Protection, order, and stability

Physiological or Biological Food, water, and shelter

Figure 4.1 Hierarchy of Needs

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Identifying consumers’ motives can help the marketing manager to develop marketing
programmes. For example, Air Mauritius might want to know what motivates people to
use its airline in a country where several other airlines operate.

Some possible reasons could include:

• The airline is more economical than others.

• The airline is safer.
• The airline is more comfortable.
• People want to protect the national airline.

Activity 2

Suggest possible reasons why different people prefer to buy different types of

(i) soft drinks

(ii) shampoos
(ii) toothpaste

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 4.4.2.2 Perception

Whenever consumers consider to make a purchase, their perception about the product
plays sometimes a vital role in the decision making process.

Perception may be explained as:

The process of selecting, organising, and interpreting information inputs to

produce the meaning.

In other words, then consumer makes a selection of information that he or she feels is
required, organises the information in his/her way acts on the information to have a
desired meaning in his/her mind.

The selection of information goes through three phases:

1. The first phase involves the following:

Information Input: sensation received through the sense organs.

Selective Exposure: selection of some inputs that are exposed to our
awareness while others are ignored.
Selective distortion: an individual’s changing or questioning of received
information when it is inconsistent with personal
feelings or beliefs.
Selective retention: remembering information inputs that support
personal feelings and beliefs and ignoring inputs
that do not.

2. The second phase is to organise and integrate new information with what is
already stored in memory.

3. The final and third phase regards the interpretation, that is, the assignment of
meaning to what has been organised and integrated in the mind of the person.

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It is important to note that information by type and amount is needed throughout the
choice process…Marketing managers must determine where consumers are in their
choice process and provide them with the appropriate information to move them through
the process until the final purchase.

4.4.2.3 Personality

Every individual has a distinct personality that will influence his or her buying behaviour.

Personality is a set of internal traits and distinct behavioural tendencies that result in
consistent patterns of behaviour.

From the Freudian theories, unconscious needs and drives are at the basis of personality
and human behaviour. This means that a person may not know or understand what his or
her motivation is. This is a common occurrence to many of us at times. It is perhaps in
this context that many new products succeed in the market. We have a tendency to
purchase products that suit our personality.

4.4.2.4 Attitudes

An attitude is a predisposition to respond in a certain way; an opinion is a verbalisation of

an attitude. Because attitudinal data are typically obtained by asking consumers for their
opinions, the terms, “attitude” and “opinion” are often used interchangeably. These
terms refer to an individual’s ideas, evaluations, convictions, or likings with respect to an
object or phenomenon.

An important property of attitudes is the confidence with which they are held. Some
attitudes are weak, whereas others are held with strong conviction. The degree of
confidence associated with an attitude can affect the relationship between attitude and

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behaviour, with higher confidence implying a stronger relationship. Strongly held
attitudes are normally resistant to change.

Traditionally, attitudes are viewed as consisting of three components:

• Cognitive - refers to knowledge, beliefs and opinions an individual has regarding an

object.
“I know that Sony makes good television”.
“I am of the opinion that Toyota makes the most reliable of cars”.

• Affective - reflects feelings, evaluations, or emotions with respect to the object. It

captures the consumer’s overall assessment and reflects the extent to which the
object is rated favourable or unfavourable.
“I prefer Classic Coke to New Coke”.
“I dislike frozen foods”.

• Behaviour (Inclination to act) - reflects behavioural tendencies toward the object. It

is concerned with the likelihood or tendency that a consumer will behave in a
certain way with regard to the object.
“I want to use Signal toothpaste”
“I would enjoy reading this new book”

Attitudes are important to marketing managers because in many situations, they are
related to behaviour. However, as this relationship is not simple, marketing managers
should be cautious about using overall attitudes to predict behaviour. For example, a
marketing manager may consider using attitudes to predict the purchase of a specific
brand and find that his/her prediction fails because of possible changes in attitudes.

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The following factors may cause weak predictions:

1. Not all attitudes are closely related to behaviour.

2. Consumers have positive attitudes toward more than one brand.
3. Attitudes change over time.
4. Situational and personal factors alter purchase plans.

Behavioural intentions are currently planned actions or behaviours to be taken or adopted

in the future. Intentions are self-predictions of behaviour made by the respondent; thus,
information on intentions can be useful, depending on how accurately they are assessed.
Many factors can weaken the relationship between intentions and actual behaviour. For
example,

• Time interval between the disclosure and the behaviour.

• Unforeseen environmental and situational events.
• New information.

Since many factors could affect the relationship between intentions and behaviour,
behavioural intentions are probabilistic in nature. This means that there is no guarantee
that a person’s future intention will follow a specific direction.

However, chances are more on our side in predicting behavioural intentions when:

• Consumers have clear intentions.

• They follow up their intentions.
• They are willing to disclose their intentions.

4.4.2.5 Psychographics

Psychographics are psychological characteristics of consumers that can be quantified;

they include psychologically-based measures of lifestyle.

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A Lifestyle is:

a distinctive pattern of living that is defined by activities, interests and opinions.

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There are distinctive lifestyle patterns such as:

Price consciousness
• I shop a lot for specials
• I save a lot of money by shopping around for bargains

Home person
• I am a home person and I would rather spend a quiet evening at home than go
out to a party as opposed to those who enjoy nightlife, discos etc.

Financial optimist
• I will probably have more money to spend next year than I have now.
• Five years from now, the family income will probably be significantly higher
than it is now.

Lifestyle characteristics are also finding increasing importance and popularity in

marketing.

They are particularly useful for:

Market segmentation
Product positioning and repositioning
Media choice for advertising
Choosing new target markets

You will learn more about these in Unit 5, on Target Marketing.

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4.4.3 Social Factors

Social factors are the forces that other people exert on one’s buying. For example, they
represent the influence of the other members of society (relatives, friends, colleagues,
neighbours, etc) in influencing what to purchase, where and when to purchase. Let us try
to identify some of these influences.

4.4.3.1 Family influences

The members of a family have a definite influence on purchasing behaviour.

For example, we expect behaviour to differ under the following circumstances:

- Individual and group decision making (father or mother alone makes the
decision or joint decision is taken with other family members).
- Gender dominant decision making
- Age dominant decision making (the child decides or influences decisions!)
- Role of father, mother and children in the decision making process

Activity 3

Illustrate how personality, attitudes, psychographics, social factors and family influences
might influence buying behaviour.

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Consumer socialisation is the process through which a person acquires the knowledge and
skill to function as a consumer.

Knowledge is information stored in memory. It is important to determine what

consumers know, since their knowledge is a major determinant of their behaviour. What
prompt consumers to buy, where they buy, when they buy and how they use the product
depend on their knowledge and awareness pertaining to these decisions?

Consumer knowledge may be examined in three general areas:

A. Product knowledge
Awareness
Attributes/features
Price

B. Purchase knowledge
Where to buy?
When to buy?

C. Usage knowledge
Usage operation (for example, how to operate an automatic washing
machine)
Usage situations (under what circumstances will the product be used)

4.4.3.2 Reference Groups and Opinion Leaders

By reference group, we mean any group that influences and affects a person’s values,
attributes, or behaviour. The reference group is often a point of comparison and or a
source of information.

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 For instance, the following factors may have major influences on buying
behaviour.
- membership
- aspiration
- disassociation (when you want to dissociate yourself from a group)

Opinion leader refers to the reference group member who provides information about
a specific sphere that interests reference group participants.
Consumers rely on the opinion leaders for opinions and advice, especially when they
have little knowledge about the product, when they share the opinion leader’s values
and attitudes and when the product details are numerous or complicated.

4.4.3.3 Social Class

By social class, we understand an open group of individuals with similar social rank.

In other words, social class represents:

A group with equal levels of prestige and social esteem who share the same
values and attitudes expressed in behaviour.

For example:
- Upper class
- Middle class
- Working class
- Lower class

Social class may be objectively measured by income, education, occupation, etc. There
are also some attributional measures, for example in many societies, lawyers,
accountants, etc are considered to form part of the upper social class

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4.4.4 Cultural Factors

Cultural factors include culture, beliefs, and subcultures.

Culture may be understood as

The sum total of learned beliefs, values, and customs that serve to direct the
consumer behvtiour of members of a particular society.

Beliefs consist of
A number of mental or verbal statements that reflect a person’s particular
knowledge assessment of something.

Subcultures refers to
groups of individuals who have similar values and behaviour patterns within the
group but differ from people in other groups of the same culture.

Activity 4

From your own experience, provide suitable examples to illustrate how each of the
following factors discussed above, may influence the buying decision.

(i) Opinion Leaders

(ii) Social Class
(iii) Cultural Factors

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4.5 CONSUMER BUYING DECISION PROCESS

Normally five stages are involved in the buying decision process. These are shown in
Figure 4.2 and discussed in this section

Problem recognition (situational)

Information search (internal and external sources)

Evaluation of alternatives (objective and subjective criteria)

Purchase (transaction)

Post-purchase evaluation (perception compared with expectation)

Figure 4.2: The Buying Decision Process

4.5.1 Problem Recognition

The first step in the buying decision process is when the buyer feels or recognises the
need for something. This need is usually triggered by the difference between the actual
and desired state of behaviour of the buyer (reflected by any internal need, for example

84
hunger, thirst, etc.). The need may also be triggered by external stimuli – for example on
on watching a TV advert on jeans you decide or you remember that you need a pair of
jeans.

4.5.2 Information Search

The second step involves search for information about how to satisfy the need.
As explained, this search for information is normally influenced by:
Involvement
Importance
Cost
Risk

Information may come from different sources including personal (friends and relatives
memory, etc), commercials (advertisement, salesmen),.public (mass media), experiential
(past usage of the products) etc. The search (depending upon the degree of involvement)
generates various alternatives to satisfy the need, including a number of competitors’
product and information thereon.

4.5.3 Evaluation of Alternatives

The third stage concerns the evaluation of the alternatives that have been identified
during the information search process.

This process requires:

Establishing criteria, for example, what is important and why.
Evaluating product based on criteria.
Working out some way of balancing criteria.

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It must be appreciated that it is quite often difficult for the buyer to evaluate options on
his or her own. It is acknowledged that consumers are often not trained in decision-
making, particularly when technicalities are involved.
The following provides some guidelines to facilitate the decision making process:

Balance out all the factors and choose the best overall.
Choose the one that has better features.
Decide on one important criterion.
Pick the best brand or option.

Activity 5

(i) Identify a major buying situation where several alternatives are possible.

(ii) Apply the information search and decision making processes to the buying
situation. What conclusions can you draw?

4.5.4 Decision to Buy

The fourth stage in the buying decision process is to proceed with the purchase of the
product. Here again, some difficulties may be awaiting the buyer and sometimes the
buyer’s decision may change because of this.

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Some of the issues that will confront the buyer in actually completing the exchange
(purchase) are:

Ease of buying (convenience, waiting time, availability, etc)

Payment options (credit, cash, deposit, etc)
Delivery (free, immediate, waiting time, etc)
After sales service (warranty, availability of skilled personnel, policy regarding
defective products, etc)
Salesperson or contact person (how cooperative and supportive, friendliness)

4.5.5 Post Purchase Behaviour

The buying process does not stop at the final purchase. It often stays in the mind of the
buyer. Marketing managers must give due consideration to this stage as the buyer
normally talks about his or her experience on the product to other people. Post purchase
behaviour is usually reflected in disappointment, satisfation or delight with to
expectations (particularly when the product has exceeded the expectations of the buyer).

Cognitive dissonance occurs when the buyer recognises an inconsistency between values
and behaviour. This results in the buyer regretting the purchases made and the buyer gets
worked up.

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Activity 6

Whenever buyers have a complaint, they may inform the company, tell others, seek legal
redress or keep quiet about it.

(i) What are the implications of each one of the alternatives to organisations?

(ii) Explain how you think organisations should handle customer complaints.

4.6 BUSINESS BUYING BEHAVIOUR

Business to business marketing refers to:

the marketing of goods and services to individuals and organisations for purposes
other than personal consumption. Businesses are also involved in buying and
they have certain specific behaviour.

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Business buyers may be grouped under four major categories:
• Producers
• Governments
• Resellers
• Institutions

4.6.1 Special Market Characteristics

Let’s now highlight the main specificities associated with the business market and their
buying behaviour.

Businesses are characterised by the following:

Demand
• Derived, dependent on consumer demand
• Inelastic, price does not significantly impact on demand
• Joint, two products are interrelated
• Postponability, quite often demand does not have to be filled immediately.
Fewer buyers
Larger buyers
Geographically concentrated buyers
Close customer-supplier relationship needs relationship marketing
Professional Purchasing
Several buying influences

4.6.2 Buying Influences on Business Purchases

Often there are several individuals and/or units that participate in the organisational
buying decision process.

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These may be classified as:
Users
Influencers
Buyers
Deciders
Gatekeepers

- Users

Those who will use the product and who will often initiate buying or have major
influence buying criteria.

- Influencers

The influencers do not actually use the product, but they have certain influence on
criteria that are identified to evaluate what is to be purchased.

- Buyers

Buyers have the formal authority to purchase. They are normally involved in
negotiating with suppliers.

- Deciders

Deciders have the power to make decisions about what is to be purchased. They
may be from top management and they could reverse the buyers’ decision if they
are not happy.

- Gatekeepers

Gatekeepers have control on the flow of information related to the purchase.

Although, they may not hold important titles, they can prevent information from
getting across.

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It must be noted that in as far as business buying is concerned, each member might have a
different set of evaluative criteria, indicating that the buying decision may be quite
complex at times.

4.6.3 Factors Influencing Business Buyers

The following are the main factors that may have major influence on business buyers:

Environmental factors, such as level of demand, economic outlook, cost of money,

rate of technological change, political and regulatory framework and delopments,
competitive developments.
Organisational factors, such as objectives, policies, procedures, organisational
structures, systems.
Interpersonal factors, such as authority, status, empathy, persuasiveness.
Individual factors, such as age, income, education, job position, personality, risk
attitudes, culture.

The buying decision for businesses is principally based on two different aspects:

Decision about the product (which brand, features, benefits, etc).

Decisions about the supplier (in terms of reliability, facilities offered,
trustworthiness, quality philosophy, etc.).

4.6.4 Buying Situations

Business buying occurs under three types of decision situations:

• Straight rebuy (that is, the same purchasing decision is applied to replenish stock
etc.)
• Modified rebuy (purchasing decision is reviewed before purchases are
made…new quotations, new suppliers, substitute products, etc., are identified
before making the purchase)
• New task buying (for first time purchases)

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Activity 7

(i) Provide two examples of each of the buying situations-straight rebuy, modified
rebuy and new task buying for any organisation of your choice.

(ii) What are the implications of these for marketing managers?

4.7 STAGES IN THE BUSINESS BUYING PROCESS

As compared to the individual buying process, the business buying process normally
passes through more stages as highlighted below:

Problem recognition
General need description
Product specification
Supplers’ search
Proposal solicitation
Supplier selection
Order-routine specification
Performance review

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It must be noted that much attention is devoted to the initial stages before the sources of
supply are identified. Organisations devote much effort to understand and state clearly
the general need and the product specification. In a way, they try to ascertain what they
would be seeking from suppliers. This is also important to suppliers as very often,
businesses require much more that just the physical product and the implications for what
more is sought could be determining factors on profitability. Selection of suppliers is
also given much importance, unless the organisation has to buy from sister companies or
established suppliers with whom they have long-term relationship, in which case the
buying process is significantly simplified.

Activity 8

Choose a major product that an organisation of your choice may require. Apply the
buying process highlighted above to enhance your understanding of how organisations
approach important purchases.

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4.8 SUMMARY

This Unit has introduced general concepts and issues related to what happens to both the
individual and the organisation when either of them decides to make a purchase. You
have learnt how purchasing or buying decisions may be influenced in several ways and
by several factors such as the family, the social class, the opinion leaders etc. You have
also learnt about the stages involved in the buying process, both for the individuals and
businesses. Understanding the concepts discussed in the unit is of paramount importance
to marketing managers as the information related to consumer and business buying
behaviour provides a good basis for formulating marketing strategies.

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UNIT 5 TARGET MARKETING

Unit Structure

5.0 Overview
5.1 Learning Objectives
5.2 Introduction to STP
5.3 Definitions
5.4 Segmentation
5.4.1 Criteria for Assessing Viable Market Segments
5.4.2 Bases for Segmenting Markets
5.4.2.1 Segmenting Consumer Markets
5.4.2.2 Segmenting Industrial Markets
5.4.3 The Segmentation Process
5.4.3.1 Target a Generic Market
5.4.3.2 Analyse Benefits Desired
5.4.3.3 Remove Qualifying Benefits
5.4.3.4 Group Benefits into Segments
5.4.3.5 Enumerate Customer Characteristics
5.4.3.6 Evaluate the Segments
5.4.3.7 Select the Segments for an Appropriate Approach
5.4.3.7.1 Choosing the Segments that Pass the
Evaluation Stage
5.4.3.7.2 Analysis Stage
5.4.3.7.3 Profiling Stage
5.4.3.7.4 Evaluate the Market Segment
5.5 Target Market Selection
5.6 Positioning
5.6.1 Ways of Positioning Products
5.6.2 Types of Positioning
5.7 Summary

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5.0 OVERVIEW

This Unit introduces a very important aspect of marketing. It deals essentially with
markets and their segments and provides reasons for the why of segmenting and the bases
that could be used for such purpose. You will also be introduced to the concept of
targeting and positioning.

5.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Define the terms segmentation, targeting and positioning.

2. Identify the bases for segmentation.
3. Explain how to segment a market.
4. Explain how a target market is selected.
5. Analyse how a product is positioned in a market.

5.2 INTRODUCTION TO STP

The heart of modern strategic marketing can be described as target marketing, that is,
STP or Segmentation, Targeting and Positioning. Market segmentation is the process of
dividing a heterogeneous market into distinct groups of buyers who have almost same
needs, characteristics, or buying behaviour that might require separate products or
marketing mixes.

Once a market is segmented, the needs and wants of the market can be met more
effectively and profitably.

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Warm-Up Activity

(i) List what segmentation, targeting and positioning connote to you.

(ii) Compare your answer with your friends.

5.3 DEFINITIONS

Let’s first define a few terms and concepts related to this Unit. You must have already
encountered some of the terms, but this Section will help reinforce your understanding of
the concepts.

• Market
A market consists of all the potential customers sharing a particular need or want
who might be willing or able to engage in exchange to satisfy that need or want.
Markets can be homogeneous (where buyers have almost the same needs or
wants) or heterogeneous (where buyers have varying needs or wants).

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• Segmentation
Segmentation is the process of dividing large heterogeneous markets into smaller
ones where needs and wants are identical and the response to the marketing mix
varies.

• Market Segments and Niches

Segments normally represent large identifiable groups within a market whereas
niches are more narrowly defined groups that seek a special combination of
benefits.

• Mass Marketing v/s Target Marketing

Mass Marketing
Mass Marketing means marketing a product with standard features and attributes
to the public at large.

Mass Marketing is best explained by the following motto:

To Henry Ford, 'People could have a Ford in any colour as long as it is black'.

The main implication of this proposition is that there are costs involved in
stopping a production line to produce a car that is of a different colour. It is more
economical to produce a car of one colour and make this affordable to as many
customers as possible. Mass marketing refers to marketing of products and
services that have standard features.

• Target Marketing
Distinguish the segment, target one or more, develop products and programmes
tailored to the segment.

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 In other words, the market is thought as being made up of various categories or
groups of customers and marketing managers may think it wise to produce a
product that would meet each category or group as far as possible. To those who
want blue cars, make blue cars available to them etc.

Activity 1

(i) Provide suitable illustrations for the above concepts – markets, mass marketing
and target marketing. Compare your answers with your friends.

(ii) What are the immediate benefits of mass marketing and target marketing?

5.4 SEGMENTATION

As explained earlier, segmentation is the process of dividing a market into subgroups of

customers who have almost identical means and wants. Marketing managers must take a
number of decisions in considering whether to segment a market or not. This section
explains what is involved in the segmentation process.

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5.4.1 Criteria for Assessing Viable Market Segments

Segmentation requires organisation to consider the following criteria before actually

deciding on whether to segment a market or not.

• Measurability: marketing managers must be able to measure

characteristics and needs of consumers to establish groups
in the segments.

• Accessibility: the segments must be accessible.

• Responsiveness: there must be differences among the segments, that is,

consumers from every segment must respond differently
from each other.

• Substantiality: segments should be big enough to ensure profitability.

• Competition: there must be fair competition.

Thus, for segmentation to be successful:

• Marketing managers must identify segments that have enough profit potential to
justify developing and maintaining a marketing mix.
• Most importantly, organisations must be able to sell to the segment.
• Consumers must have different needs for the product and the segmented
consumer needs must be homogeneous (more or less similar).
• There is no point to be present in a segment that is not of the appropriate size to
ensure profitability. Likewise, segments that are not accessible cannot be
attractive. For example, it may not be appropriate to try to supply a product to an

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 organisation that has an established contracted source of supply for the same
product.

Activity 2

Think of some segments in a market or industry of your choice. How would you apply
the above criteria to decide on the attractiveness of the segments? Jot down your answer.

5.4.2 Bases for Segmenting Markets

Several possibilities exist to segment a market. We now discuss some of the bases used
for segmentation. It must be noted that the examples that follow are not exhaustive and
many other possibilities exist, depending upon the characteristics of the market.

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 5.4.2.1 Segmenting Consumer Markets

The process of segmentation starts with an identification of variables that can be used to
segment markets. There is a need to determine the variables that distinguish one
marketing segment from other segments. For instance, segmentation variables should be
related to consumer needs for, and uses of, or behaviour toward the product. As
mentioned earlier, segmentation variable must be measurable. If there is no best way to
segment the markets, it is better to forget segmentation, as selecting inappropriate
variables may not be profitable to the organisation. The bases can be grouped under
demographic, geographic, psychological, behavioural and benefits etc.

The following are some examples of variables that are used under each of the bases to
segment a market:

u Demographic Age, sex, fertility rate, migration patterns, and

mortality rates, ethnicity, income, education,
occupation, family life cycle, family size, religion
and social class.

u Geographic Continents, countries, districts, towns, etc.

u Psychographic Personality characteristics, motives and lifestyles.

For example, consumers’ activities such as work,
hobbies, eating habits; consumers’ interests such as
bachelorhood, family, social work, etc.
Marketers must be aware of the changing lifestyles
and market products accordingly.

u Behavioural Variables Takes into consideration the frequency of use of the

product by the buyers, for example whether they are
regular users, potential users, non-users,
heavy/moderate/light users. Also considers time of

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u Benefits Segmentation
use – for example, cereals for breakfast, as a snack
food, etc.
Focuses on the benefits rather than on the features.
For example the benefits that people seek in using a
particular product as may be illustrated by the use
of toothpaste: Are people seeking prevention of
tooth decay, long time protection, freshness of the
mouth, whitening of the teeth in choosing
toothpaste? People of different age groups, infants,
babies, teenagers, middle aged and the elderly have
different buying behaviour and their needs and
wants regarding certain products may not be the
same. You have special toothpaste or oil lotion for
babies and children of the lower age group etc.

Activity 3

Provide suitable examples to illustrate Geographic, Demographic, Psychographic, and

Behavioural segmentation as applicable to the consumer market.

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 5.4.2.2 Segmenting Industrial Markets

You are now aware that industrial markets are quite different from the consumer market.
Accordingly, the bases for segmenting industrial markets do differ from consumer
markets in some ways.

A few possibilities for segmenting the industrial markets are:

• Industry Type different industries have different requirements in terms of

quality, product features, etc.
• Technology Base different organisations have different means that they use.
• Company Size large businesses have different requirements and purchase
in different ways compared to small and medium size
businesses.
• Size of Order some organisations, may order in bulk to benefit from
economies of scale while others may not be able to do so.

Activity 4

Provide illustrations for using Industry type, Technology base, Company size, Size of
Order in segmenting the industrial markets.

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5.4.3 The Segmentation Process

The process of segmenting a market involves a number of activities and steps. If carried
out scientifically, the process consumes both time and effort, but then the overall result
can be very rewarding to an organisation. The steps involved are schematically shown in
Figure 5.1.

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 Figure 5.1: Segmentation Process

Target a generic market

Analyse benefits desired

Remove qualifying benefits

Group benefits into segments

Enumerate customer characteristics

Evaluate the segments

Select the most appropriate segment/s

The activities involved and in particular, the questions that need to be addressed in the
segmentation process are briefly explained below.

5.4.3.1 Target a Generic Market

What broad product market is the firm offering? For example is it in the furniture,
computer or electronic equipment market?

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 5.4.3.2 Analyse Benefits Desired

List all potential customers needs; this may be assisted by a brainstorming session. For
example, in a computer hardware market the needs may be speed, storage capacity,
reliability, aftersales service, etc.

5.4.3.3 Remove Qualifying Benefits

Assume that there are some core needs. What are these? Because everyone wants them,
they are not useful for segmentation purposes. Remove these from your list of needs.
For example, everyone may require reliability for a computer and thus reliability is not an
appropriate variable.

5.4.3.4 Group Benefits into Segments

Form one "sub market" by starting with a "typical" type of customer. Aggregate people
who have similar needs and wants into this segment. Identify the determining
dimensions for each "sub market". For example, for home use and for company use hard
disk requirements may differ. Some children may wish to use their computers for
playing games.

5.4.3.5 Enumerate Customer Characteristics

Name the "sub-markets" or segments and fully describe the different segments in terms
of geographic, demographic and psychographic variables. Be sure to establish why the
different segments have different needs and wants. Try to establish the determining
characteristics of the segments identified.

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 5.4.3.6 Evaluate the Segments

We now try to decide which segments to choose, based on criteria discussed earlier:
Which segments are large enough? Easy to reach? Which segments could your firm
serve best, given its strengths and weaknesses? Where is the competition weakest or least
aggressive?

5.4.3.7 Select the Segments for an Appropriate Approach

The following steps may prove useful in deciding the segments for a particular market.

5.4.3.7.1 Choosing the Segments that Pass the Evaluation Stage

In actual practice, the formal market segmentation exercise would consist of a survey,
whereby data are collected on the following amongst others:

1. Attributes and their importance ratings (that is, of what importance are these
attributes to users)
2. Brand awareness and brand ratings.
3. Product usage pattern (for example, heavy, moderate or on-off uses)
4. Attitudes towards product categories: the Cola drinks, fruit juices etc.
5. Demographics, psychographics and media graphics of respondents (for example, age
groups, economic situation, eating out/in habit, reaction/response to media etc.).

5.4.3.7.2 Analysis Stage

The data obtained are then processed and analysed. For instance, factor analysis is used
to remove highly correlated variables (for these would be inappropriate for segmentation
purposes). Next, cluster analysis is applied to create a specified number of maximally

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different segments. You will learn more about factor and cluster analysis in other
modules and as you proceed with your programme of studies.

5.4.3.7.3 Profiling Stage

After having identified the various clusters or segments that make up the whole market, it
is necessary to determine the profile of each segment.

This is achieved as follows:

• Each cluster/segment is profiled in terms of its distinguishing characteristics.
• Each segment is named.

5.4.3.7.4 Evaluate the Market Segment

Once the segments are identified, the next step is to evaluate each segment in terms of the
following parameters, (taking into consideration what has been explained in section 5.4.1
about the attractiveness of a particular segment):

• segment size and growth

• segment structural attractiveness (how attractive is the segment)
• company objectives and resources (Is there a match between the company objectives
and the chosen segment? Are the resources of the organisation good enough to
service the chosen segment?

5.4 TARGET MARKET SELECTION

It must be appreciated that each identified segment represents a broad group of customers
who have almost identical needs and wants for the product in question. However, the
group is made up of individuals who may have different characteristics, means and
preferences. It is therefore important for marketing managers to go one step further and

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determine which group of people they will focus their attention on. This process of
focussing on one group is called targeting. Targeting a particular group of customers
from within a segment is important as it enables some degree of customisation. It is
easier to focus attention on or serve a smaller group than a larger one.

5.6 POSITIONING

Positioning may be regarded as the way consumers perceive a product on dimensions

most important to them. When marketing managers attempt to position their product in a
market, they try to use attributes that would make a product or service occupy a distinct
place in the minds of the customer. This is achieved by first trying to establish how the
majority of the customers perceive the product and then positioning it in such a way that
it appears to have the characteristics that the target market desires the most. The
marketing strategy here is to match these perceptions as closely as possible. Positioning
tries to drive marketing managers to come up with what is termed a “Unique Selling
Proposition”, i.e., a product that would most influence the perception of the targeted
customers and that could make it look different from competitors’ products.

A Product Positioning

is the customers’ perception of a product’s attributes (benefits and cost) relative

to those of competitive brands.

For example, toothpaste has been positioned as follows in the market:

Blendax: a fluoride toothpaste that fights cavities.
Closeup: a toothpaste that whitens the teeth and takes care of bad breadth.
Colgate Total: a toothpaste that has all of the above and keep the mouth fresh all
day long.

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Activity 5

Check the advertisement of some products that are quite familiar to you. Establish the
criteria used by the supplier/manufacturer to position the products.

You will note from the examples you have chosen in Activity 5 that the purpose of
positioning is to minimise confusion in the minds of customers and facilitate the selection
process. It is assumed that customers tend to group or “position” products in their minds.
Positioning addresses the question “How is the product perceived by customers relative
to competition on important attributes (benefits), desired in each market segment?”

Marketing managers, rather than allowing customers to position products on their own,
attempt to influence and shape customers’ perceptions about products through
advertising, personal selling, and sales promotion (e.g., free tasting, demonstration, gift
vouchers, free coupons, etc.).
Marketing managers often analyse product positions by developing perceptual maps.
These maps are developed by questioning consumers about their perceptions of products,
brands, organisation with respect to a number of dimensions, including what they would
consider as “ideal” product attributes. Thus, marketing managers can compare their
firm’s brand position against competing brands’ positions and an “ideal” brand position
based on the dimensions researched.

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Product positioning is a part of a natural progression when market segmentation is used.
Effective product positioning (differentiation) helps to serve a specific market segment
by creating an appropriate image in the minds of customers in that market.

5.6.1 Ways of Positioning Products

Different possibilities exist to position products in the market. We briefly explain

these in this section.

Head-To-Head Positioning

The Head-to-Head positioning strategy involves the direct matching of a leading

competitor’s positioning attributes. This is normally done when the
manufacturer’s attributes are comparable but are of a lower cost. When the
manufacturer’s attributes are superior, a higher price may be claimed. This type
of positioning requires a lot of marketing effort and is best achieved when a
manufacturer or service provider benefits from price and cost leadership. For
example, this is often observed in powdered milk – Red Cow and Everyday.

Differentiated Positioning

Marketing managers have recourse to differentiated positioning when their

products are indeed different from those offered by competition.
Unique features (Automatic Brake System and Air Bags in cars, for example)
Unique benefits (Colgate Total, Sensodyne, Close up, etc.)
Unique packaging (Single slices for bread and cheese)

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 Customer-Oriented Positioning

Positioning is also carried out on the basis of the needs and wants of customers.
Quite often, organisations have recourse to this type of positioning in serving a
niche market. Banks and transport companies are good examples of organisations
that practice customer-oriented positioning.

Marketing managers find it important to evaluate the positions of existing products. This
will enable them to increase or strengthen a brand’s market share and profitability by
repositioning. Repositioning can be accomplished by physically changing the product or
one or more of the other elements of the marketing mix for that brand.

Activity 6

(i) Jot down a few toothpaste brands that are available on the market.
(ii) What do you think are the bases that have been used for their segmentation?
(iii) What are the groups targeted by the manufacturers?
(iv) How is the brand positioned in the market? Which characteristics are used more
prominently?

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5.6.2 Types of Positioning

In order to consolidate your understanding of positioning (that is to make products

occupy a distinct place in the minds of customers), we provide here some more examples
of different ways that are normally used to position products in the mind of customers.

Attribute Disney World - largest children park.

Benefit Blendax Antiplaque - decay fighter.
Use Mauritius is a great place for shopping trip and tourism.
User J&J shampoo for babies and children, Head and Shoulders
versus dandruff.
Competitor Sprite, Seven Up, Fanta, the uncola drink.
Product Class Flora, Meadow Lea, margarine against butter, Vita Ghee
versus
cooking oil.

Activity 7

Provide some more examples, of your experience that have been used by organisations to
position their products. Share results with your friends.

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Many companies have attributed their success to the most appropriate use of positioning
in their marketing strategies.

These have been achieved on the basis of several parameters, namely:

Enhance own current position

Avis / Budget - We are second, we try harder
It is a fact that Avis/Budget is second to Hertz Mautourco. They are aware that
people know about this and they clearly try to gain customers’ attention with the
motto or notion that since they are second, they have to try harder to achieve the
first position. In this attempt to seek the leadership position, they have to provide
better services etc. and this does indicate that customers will benefit from them!

Look for the gap

Look for an unoccupied position that consumers would value.

Reposition a competitor
Famous repositioning is Marlboro: from a woman's cigarette to a macho man's
one. Mercedes from conservative to sportive features.

Activity 8

Study one or two products known to you that have required repositioning – for example
Everyday Powdered milk. Try to explain what have occasioned the repositioning
strategy.

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5.7 SUMMARY

This unit has introduced to you the concept of segmentation, i.e., a process whereby a
market is divided into groups or segments of customers who have almost identical buying
behaviour. Bases that can be used for segmentation are for example, psychographic,
demographic, geographic and behavioural.

The concept of target marketing has also been explained. Targeting marketing involves
the design of complete marketing programme to meet the needs of different segments in a
market.

Positioning a product in the minds of customers is another concept that has been
explained in this unit. Positioning is about making a product occupy a distinct place in
the mind of customers so as to gain in a better way their support and patronage.

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UNIT 6 MARKETING MIX: PRODUCT

Unit Structure

6.0 Overview
6.1 Learning Objectives
6.2 Introduction to the Concept of Product
6.2.1 Differences Between Goods and Services
6.2.2 Levels of Product
6.3 Classification of Consumer Products
6.3.1 Industrial or Business Products
6.4 Product Line and Product Mix
6.4.1 Dimensions of a Product Mix
6.4.1.1 Product Depth
6.4.1.2 Product Width
6.4.1.3 Product Differentiation
6.5 Product Life Cycle
6.5.1 PLC: Introduction Stage
6.5.2 PLC: Growth Stage
6.5.3 PLC: Maturity Stage
6.5.4 PLC: Decline Stage
6.6 Branding
6.6.1 Benefits of Branding
6.6.2 Importance of Branding
6.7 Packaging
6.7.1 Customers’ Complaints on Packaging
6.8 Labelling
6.9 Developing and Managing New Products
6.9.1 New Product Development
6.10 Summary

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6.0 OVERVIEW

This Unit introduces one of the marketing mix variables, i.e., product. You will learn that
a product is anything tangible or intangible that can be offered on the market and for
which there is a potential buyer. Terms associated with products that you will learn in this
unit are branding, packaging, labelling, product life cycle and so on.

6.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Outline a broad view of products.

2. List the classifications of consumer products, and briefly describe each category.
3. Describe the types of industrial products.
4. Explain the concept of Product Life Cycle.
5. Explain the concepts related to Branding: benefits of branding, importance of
branding, type of brands.
6. Explain the concepts related to packaging.
7. Identify the use of labelling.
8. Analyse the role of new products in an organisation.

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Warm-Up Activity

(i) List any six products that come to your mind in the next minute.
(ii) Have a look at the list again and jot down a few reasons that have prompted you
to list these products.
(iii) What conclusion can you draw from this exercise?

6.2 INTRODUCTION TO THE CONCEPT OF PRODUCT

This Unit introduces various concepts related to product as a marketing mix variable.
The development of successful products requires knowledge of marketing and product
concepts.

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Definition of a Product

A product is a bundle of tangible and intangible attributes that a seller offers to a potential
buyer to satisfy the buyer's needs and wants. When people buy a product, they are really
buying the benefits and satisfaction they believe the product will provide. Products are
bought on the basis of promises and expectations that they will provide satisfaction.
However, satisfaction is only realised once what is promised as value is compared to
perceived value after the transaction.

6.2.1 Differences Between Goods and Services

In the definition of a product, the words ‘tangible’ and ‘intangible’ appear. It is

important to understand them. Goods like pencils, notebooks, pens, and bread are
tangible. You can see them, feel them, and touch them. Services are intangible, meaning
that they cannot be seen or touched. Services can only be experienced, for example, the
hairdresser provides a service to you when he or she cuts or dyes your hair.

The main distinguishing characteristics of services are:

1. Intangibility: major component of a service is intangible (cannot be

touched or seen).

2. Perishability: most services cannot be stored for future sales, e.g., an

airplane, unoccupied seats on a plane or a haircut. For
example, if a hairdresser and his employees can cut the hair
of 50 people in a day and no one turns up during a
particular day, they will lose the opportunity to cut hair on
that day and, therefore, the opportunity to generate revenue
is lost.

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3. Inseparability: personal customer contact is often the integral part of the
service. For example, you will have to meet personally the
hairdresser to have a haircut.
4. Variability: in service quality, there is a lack of consistency, as services
are provided by people. There is no guarantee that the
hairdresser will cut your hair exactly the same way each
time you have your hair cut.

However, note that the sales of goods and services are always interconnected. In other
words, a product will usually incorporate a tangible component (the physical goods) and
an intangible component (the service that you provide to the customer in making the
product available to him/her).

6.2.2 Levels of Product

We identify three levels of benefits that are associated with a product:

1. Core Product We first define the core benefits that the product will
provide to the customer.

2. Actual Product We must then build the actual product around the core
product.

3. Augmented Product We try to offer additional consumer benefits and services

so as to exceed, if possible, satisfaction of buyers.

These are shown in Figure 6.1

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 AUGMENTED PRODUCT

ACTUAL PRODUCT
courtesy Returns policy

Brand name

Features CORE
warranty PRODUCT
repairs
Key labeling
Benefits
packaging
Quality level

advice
credit

After sales service

Figure 6.1: Levels of Product

The characteristics shown in Figure 6.1 must be carefully combined to provide the core
benefit(s) as well as the augmented product. The next sections in this Unit will explain
each characteristic in more details.

For example, in the case of an Acer Computer,

Core The product offers the ability to compute, word process and navigate the
Internet.
Actual Acer (brand name) has a convenient design that attracts the attention, it
has got speed and storage feature, that provide the desired benefits such as
reliability and desired storage capacity.
Augmented Buyers receive more than just the hardware. Buyers are given a warranty
on parts and workmanship, free lessons on how to use the computer and
the Internet, quick repair service when needed and extra softwares and
supporting facilities.

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Thus, marketing managers have to identify the core consumer needs, then design the
actual product and find ways to augment it in order to create the bundle of benefits that
will best meet or ideally exceed, the customer’s expectation. In other words, marketing
managers must try to add layers to the core benefit of the basic product to acquire
competitive advantage. It is also very common these days to find on the market, products
with “no frills” as they are commonly called. Here layers are removed (lesser levels) to
make the consumer pay less. For example, a detergent that is sold in plain plastic bags
with a minimum labelling (what is in fact required legally); no frills airline where the
core benefit is supplied, that is, transfer from a geographical place to another with no
provision for meals or refreshment available on board.

Activity 1

(i) From examples of your own experience or from the market place observation, list
examples of the strategic use of the three levels of product for competitive
advantage.

(ii) Identify also some products where levels are removed.

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6.3 CLASSIFICATION OF CONSUMER PRODUCTS

There are several ways to classify consumer and business products as we shall now see.

Consumer products are normally classified according to the extent the buyer is willing to
search for information and the extent to which the buyer is willing to substitute one
product (brand) for another, once adequate information is available to make a decision.
On this basis, consumer goods can be classified into shopping and non-shopping goods.

Shopping goods are: goods for which the customer undertakes to continue the
search for more information before the purchase decision
is made.
Non-shopping goods are: goods for which no further information is required and the
decision for purchasing the product is already made.

Marketing managers further classify non-shopping goods as convenience goods and

speciality goods.

Here’s a list of the various terms used to refer to products.

• Non-durable goods: Non-durable goods are tangible goods that are normally
consumed in one or a few uses. Examples include beer, soap, and salt. Since
these goods are consumed relatively quickly and purchased quite frequently, the
appropriate strategy is to make them available in many locations, charge only a
small mark-up and advertise heavily to induce trial and build preference.

• Durable goods: Durable goods are tangible goods that normally survive many
uses. Examples include refrigerators, machine tools, and clothing. Durable
products normally require more personal selling and service, command a higher
margin and require more seller guarantees.

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• Services: Services are intangible, inseparable, variable and perishable. As a
result, they normally require more quality control, supplier credibility, and
adaptability. Examples include haircuts and repairs.

• Convenience goods: Goods that the customer usually purchases frequently,

immediately, and with a minimum effort. Examples include tobacco products,
soaps and newspapers.

• Shopping goods: Goods that the customer, in the process of selection and
purchase, characteristically compares with other products, on such bases as
suitability, quality, price and style. Examples include furniture, clothing, used
cars, and major appliances.

• Speciality goods: Goods with unique characteristics and/or brand identification

for which a significant group of buyers is habitually willing to make a special
purchasing effort. Examples include specific brands (Levis Strauss, Panasonic,
Kodak) and types of fancy goods, cars, stereo components and photographic
equipment.

• Unsought goods: Goods that the consumer does not know about or knows about
but does not normally think of buying. New products, such as smoke detectors
and food processors, are unsought goods until the consumer is made aware of
them through advertising. The classic examples of known but unsought goods are
life insurance, cemetery plots, gravestone, and encyclopaedia.

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Activity 2
Give three examples of

(i) Convenience goods

(ii) Speciality goods
(iii) Unsought goods

6.3.1 Industrial or Business Products

Business-to-business or industrial products are classified as:

Materials and parts are goods that enter the manufacturer’s product
completely. They fall into two classes: raw
materials and manufactured materials and parts.

Capital Items are long-lasting goods that facilitate developing

and/or managing the finished product. They
include two groups of items: installations and
equipment.

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Supplies and Business Services are short-lasting goods and services that facilitate
developing and/or managing the finished product.
Examples of these include financial, legal,
marketing research and consultancy services.

6.4 PRODUCT LINE AND PRODUCT MIX

Marketing managers must have good knowledge of the relationships that exist among all
products of their organisation if they are to coordinate and integrate the marketing of the
total group of products.

The following concepts help describe the relationships among an organisation’s

products.

Product Item a specific version of a product (a particular type of shirt in a line of

shirts), brand of powdered milk in a product line.

Product Line a group of closely related product items viewed as a unit because
of marketing technicality or end-use considerations (a “line” of
children’s clothing by a manufacturer of clothing – e.g.,
Mothercare).

Product Mix the complete set of products that an organisation makes available
to customers (Phoenix Beer, Stella Pure Gold, Blue Marlin,
Guinness, Malta Guiness, Pearona, Cidona and so on), a detergent
mix (Blue Magic, Crest, Cernoscour), a cigarette mix (different
brand name for different price lines - for example, Embassy,
Matinee, Rothmans, Marlboro, and so on).

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6.4.1 Dimensions of a Product Mix

6.4.1.1 Product Depth

Product depth measures the number of products that are offered within each product
line. The intention of the marketing manager in trying to increase product depth is to
satisfy several consumer segments for the same product, maximise shelf space,
discourage competitors, cover a range of prices and sustain dealer support. The main
problem associated with a broadened product depth lies in the higher cost of inventory.
For example, Coca Cola is available in cans, bottles of .33, 0.5, 1.5, 2 litres and so on.

6.4.1.2 Product Width

The product width measures the number of product lines a company offers. Product
width enables an organisation to diversify products that appeal to different consumer
needs and encourages one-stop shopping.

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Activity 3

Identify a major company that markets an array of products. Make a table to illustrate its
product depth and width.

6.4.1.3 Product Differentiation

Product differentiation is the process of creating and designing products so that

consumers perceive the set of benefits and costs associated with them as different from
competing products.

Product differentiation results in the modification a marketing manager makes to

the following benefit and cost dimensions:

Benefits Dimension:
Product Dimension (label, package, brand name, warranty)
Service Dimension (rapid service, cleanliness)
Brand Dimension (well known and attractive brand name)

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 Cost Dimensions:
When a marketing manager applies different prices to differentiate
products.

Activity 4

(i) Use examples, from your experience, to illustrate how marketing managers
differentiate their products from competitors.

(ii) What conclusions can you draw about the benefits of product differentiation?

6.5 PRODUCT LIFE CYCLE

All products go through what is termed a life cycle. Classically, the Product Life Cycle
(PLC) represents the progression of a product through four stages of its life. A typical
PLC is shown in Figure 6.2.

As you must have noted from Figure 6.2, the four stages to the Product Life Cycle
are:
1. Introduction
2. Growth
3. Maturity
4. Decline

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The PLC concept can be applied to:

product category (computer)

product style (desktop, notebook)
a product item/brand (Acer)

Introduction Growth Maturity Decline

Sales
(Rs)

0
• Low sales • Increasing • Maximum • Sales Time
• Questionable sales sales decrease
profits • Increase in • Profits higher • Cost per
• Experiencing profits • Same customer low
customers • More number of • Profits
• High cost per customers competitors decrease
customer • More more or less • Lesser
competitors • Cost per competition
customer
lowest

Figure 6.2: Characteristics of the Product Life Cycle

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6.5.1 PLC: Introduction Stage

This is the stage when the product is first introduced on the market. A product does not
have to be an entirely new product; it can be a new model (with changed features) of the
existing product. Examples of computer products with new features are the Pentium IV,
the Windows XP and so on.

You are sharply advised to review this section one you have completed Units 7, 8 and 9
on the other marketing mix variables.

The following marketing mix considerations are generally applicable in the

introduction stage:

During the introduction stage, it is first required to build channels of distribution.

Initially, selective distribution is preferred. Of course, this depends on the type of
product. The market intermediaries or channel members are offered promotional
assistance to support the product (PUSH strategy). On the promotion side,
communications should stress the benefits of the product to the consumer, as opposed to
its brand name, since there will be little competition at this stage and you need to educate
consumers about the product's benefits and features.

On the price side, two alternative strategies are possible:

1. Price Skimming: Set a high price in order to recover developmental costs as

soon as possible or make early profits.
2. Price Penetration: Set a low price in order not to lure competitors to enter the
market. This strategy also increases demand and therefore
allows the company to take advantage of economies of
scale. Profit is maximised over the long term and in selling
bigger volume.

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6.5.2 PLC: Growth Stage

During the growth stage, the brand will be more or less known and the strategy is to build
brand loyalty. Competitors are now entering the market place. Profits begin to decline
late in the growth stage as more competitors come in and excess capacity prevails.

The marketing mix is normally changed and adapted during the growth stage. For
example, the product may be modified to take care of weak or neglected attributes. There
is now a strong need to differentiate the product, and communications should stress the
brand name of the product, since consumers are better aware of the product’s benefits.
Distribution may have to be more intensive as the product finds increased acceptance.
Pricing may have to be reviewed downwards, especially if previously, a price skimming
strategy was adopted.

6.5.3 PLC: Maturity Stage

At the maturity stage, the sales curve peaks. There is fiercer competition and consumers
are now experienced buyers.

The marketing mix may be adapted in various ways. For instance, the product may be
rejuvenated through a change in the packaging, new models, sizes or other aesthetic
changes. Advertising focuses on differentiating the brand, short-term sales promotion
aims at the end users (PULL) and resellers (PUSH). There is again a move to more
intense distribution and decreasing prices or aligning with competition. Successful
companies will enjoy a large, loyal group of stable customers. Repositioning of the
product in the mind of customers may be a valid alternative as well.

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Activity 5

Provide suitable examples to illustrate how products might be altered and repositioned to
help marketing managers to improve sales during maturity and decline stage of the PLC.

6.5.4 PLC: Decline Stage

In the decline stage, sales may fall off rapidly. This fall is more often than not caused by
new technology or a social trend. Organisations can justify maintaining the product line
as long as the sale of the product contributes to profits or enhances the effectiveness of
the product mix. Alternative courses of action regarding the product in decline include
decisions to eliminate or reposition to extend its life. The marketing mix will have to be
modified on the basis of the alternative chosen.

It is important to note that the PLC curve may take various shapes. For example, fads
come and go very quickly: their life cycle is very short. Figure 6.3 provides a few
examples of the shape that the PLC might take.

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Activity 6

Refer to Figure 6.3 on the following page.

Provide suitable examples of products/services that would apply to each of the PLC
shape shown.

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Sales (Rs)
Introduction Growth Maturity Sales (Rs)
Introduction Growth Maturity Decline

Time
Product life-cycle for product classes
Product life-cycle for product forms Time

Sales (Rs) Sales (Rs)

Introduction ← Growth ← Maturity Decline Introduction Growth Maturity Decline

Time Time
Product life-cycle for brands Product life-cycle for fads

Figure 6.3: Examples of Shapes of PLC

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6.6 BRANDING

Branding occupies in a product a place of great importance, particularly in this world of

increasing competition. A brand name gives the product an identity and without brands, the
consumers’ choice often becomes arbitrary.

Brand refers to
A name, term, design, symbol or any other feature that identifies one seller's good or
service as distinct from another’s.

A brand name is that part of a product that can be spoken, including letters, words and numbers:
for example, 3M, Omo, Blue Magic, Verbatim, etc.

Brand names help to simplify shopping, guarantee a certain level of quality and allow for self-
expression.

Some of the terms that are associated with branding are:

Brand Mark: elements of the brand that cannot be spoken, i.e. symbol, logo of an
organisation-For example the UOM logo:

Trade Character: for example, McDonald, KFC.

Trade Mark: legal designation that the owner has exclusive rights to the brand or part
of a brand.
Trade Name: The full legal name of the organisation. For example: Ford which is not
the name for a specific product.

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6.6.1 Benefits of Branding

Branding provides numerous benefits to both buyers and sellers. Some of them are listed below:

To buyers, branding: To sellers, branding:

u Helps them to identify the product u Differentiates product offering from
that they like or dislike. competitors.
u Helps to identify the marketer or u Helps to segment market by creating
supplier. tailored images.
u Helps to reduce the time needed for u Helps to identify the organisation’s
purchase. products, making repeat purchases
u Helps them to evaluate the quality of easier for customers.
products, especially if they are u Reduces price comparisons.
unable to judge a product’s u Helps an organisation to introduce a
characteristic. new product that carries the name of
u Helps to reduce buyers’ perceived one or more of its existing products.
risk of purchase.
u Helps buyers derive a psychological
reward of owning the brand, e.g.,
BMW or Mercedes.

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6.6.2 Importance of Branding

It is clear that consumers cannot check all brands or products available on the market and
that provide the same benefits. Branding helps to make quicker decisions.

However, it is also important to note that brand loyalty is declining due to an increase in
similar new products for customers to choose from, and an increase in marketing
activities to encourage brand switching and the increasing quality of private label
products.

Various types of branding exist in the market. Examples include:

• Manufacturer’s Brands
The producer or the manufacturer initiates the manufacturer’s brands. It requires
the producer to be involved in distribution, promotion, and to some extent,
pricing. Brand loyalty is encouraged by quality, promotion and guarantees. The
producer tries to stimulate demand, for instance, by encouraging middlemen to
make the product available to a larger group of customers.

• Private Distributor Brands

This type of branding is initiated and owned by the resellers. Manufacturers are
not identified in the product. This helps retailers to develop more efficient
promotion, to generate higher margins and to increase store image. For example,
Cora has its own brand of milk, juice and some other products.

• Generic Brands
These indicate only the product category. Generic brands basically began as low
cost alternatives in the drug industry, for example, paracetamol tablets.

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6.7 PACKAGING

Packaging also forms very much part of the actual product. It consists of a product’s
physical container, label and/or insert and may represent a significant percentage of the
product’s cost. Packaging involves the development of a container and a graphic design
for a product. Many consumers are quite sensitive to packaging, which may influence
their purchase decisions.

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The functions of packaging are to:

• Protect product and maintain functional form. Examples include milk, chocolate,
fresh juice.
• Discourage or minimise shop-lifting.
• Offer convenience while using the product (cooking oil filled in a plastic bottle as
opposed to 20 litre tin)
• Promote product by communicating its features and benefits.
• Develop reusable package for alternative use.
• Help in segmentation, tailored to a specific group (for example, small bottle or
pack for individual and family bottle or pack for economy)

Activity 7
Identify some products of your choice. Observe how effective the functions of
packaging, as listed above, apply to the product.

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While designing a package, there may be a need to:

Consider consistency among package designs.

Inform potential buyers of the new products content, features, uses, advantages,
expiry date and hazards.
Create a desirable image through colours and graphics.
Meet the requirements of intermediaries - transportation, storage and handling.
Take care of environmental exigencies.

6.7.1 Customers’ Complaints on Packaging

Consumers often have several complaints with the packaging. Marketing managers need
to address proactively these complaints if they want to ensure customer’s satisfaction.

Such complaints may be:

• Functional problems: Rice, flour, sugar, oil, vinegar (leaking package).

• Packages that are difficult and inconvenient to open.
• Recyclability (problems associated with hygiene, and so on).
• Safety issues (sharp edges).
• Package deception (large package for tiny or little content).

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6.8 LABELLING

Labelling facilitates the identification of the product and provides useful information to
customers on several aspects of the product. In brief, labelling describes the product in
several dimensions, such as:

• Providing general description of the product.

• Indicating the grade of the product.
• Specifying the country of origin of the product, its content and main features.
• Indicating how to use the product etc.
• Serving as a promotional tool (colourful design).
• Fulfilling legal obligations (indicate expiry date, ingredients used)
• Identifying purposes: Universal Product Code for inventory and information (bar
coding).

6.9 DEVELOPING AND MANAGING NEW PRODUCTS

To compete effectively and achieve the organisational goals, marketing managers must
be able to adjust the organisation’s product mix. This requires an understanding of
competition and customer attitudes and preferences (customer behaviour). Often, this
also requires organisations to develop new products.

Let’s briefly understand what is meant by new products and what are their implications in
the marketing area.

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A new product can be:

A Continuous Innovation: No new buyer behaviour to learn, i.e., products

not previously marketed by the firm, but by
others and buyers already have experience of
these products.

A Dynamic Continuous Innovation: Some education is required for consumers to

adopt product; it takes the shape of ongoing
changes that are made to existing products

A Discontinuous Innovation: Entirely new consumption patterns for

products that are considered as new offers

For a new product to succeed, it must ideally:

Have desirable attributes that will meet the needs and wants of customers.
Be unique and not easy to copy.
Have its features communicated to the consumer in the most appropriate manner.

It must be noted that developing new products may be quite expensive and risky.
However, failure to introduce new products in the market can also be very risky to
organisations. This implies that organisations must strive to analyse their product
offering continuously and bring appropriate changes so as to maintain growth.

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Organisations develop new products in two main ways:

1. Through acquisition or merger with other companies: That is, the buying-
out of other companies that produce different products. For example, Timex
bought Guess and Monet Jewellers to bring in new offers to their product mix.

2. Through internal development: That is, developing the product using

internal expertise and resources. The new product development process is
explained in some details in the Section 6.9.1.

Why Do New Products Fail?

As you may be aware, many new products fail in the market place. The main reasons for
failure may be:

Lack of differentiating advantage and the product is regarded as a "me too"

product.
Absence of a proper marketing plan for launching and managing the product.
Poor timing for introducing the product on the market.
Target market may be too small; smallness may be the result of a shift in
consumer preferences.
Poor product quality.
No access to market - when the market or the segment is protected in some way.
Pricing may not be appropriate.

Marketing managers have to give careful consideration to these factors if they wish to
minimise the probability of product failure. Product failures may have significant impact
on the image and credibility of the organisation.

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6.9.1 New Product Development

Marketing-oriented organisations approach the development of new products very

carefully. The development process goes through seven distinct phases:

1. Idea Generation
2. Product Screening and Evaluation
3. Concept Testing
4. Business Analysis
5. Product Development
6. Test Marketing
7. Commercialisation

The phases are briefly explained below.

1. Idea Generation

The first stage in the development of new products is the idea generation. This
stage involves continuous and systematic search for new product opportunities.

In developing new products, marketing-oriented organisations develop new ideas

first. However, it is important to realise that ideas for the creation of new
products are quite difficult to generate. Generally, ideas are generated by chance
or by a systematic approach. Sometimes the ideas come from the customers, the
suppliers, the employees, or any of the stakeholders in the marketing
environment. Many a time, new opportunities manifest themselves from the
changes in the environment and ideas are developed to exploit these new contexts.
We have to point out that only a few ideas are good enough to reach the final
stage in the new product development process, that is, commercialisation.

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 The following sources may prove helpful for the development of new ideas,
concepts and so on:

Marketing-oriented sources: identify opportunities based on consumer

needs and wants.

Laboratory-oriented sources: identify opportunities based on pure

research or applied research.

Intra-firm sources: brainstorming, giving incentives and

rewards for ideas, suggestion boxes,
analysing existing products, reading trade
publications, specialist magazines, and so
on.

2. Product Screening and Evaluation

The next step is an evaluation of the new product as it is conceptualised. This

stage involves the preparation of a checklist for the new product attributes
considered most important for ideas generated. The checklist enables the ideas to
be compared. Bases for comparison will be from the general characteristics,
marketing characteristics and production characteristics perspectives. The ideas
with the best or optimum potential are selected for further research.

Some research questions that may be addressed at this stage are:

Are the product ideas identified consistent with the goals of the organisation? Is
the organisation capable of producing and marketing the product?

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3. Concept Testing

In this phase, a sample of potential buyers is presented with the product idea by
way of a written or oral description to determine the attitudes and initial buying
intentions. This is always done before investing considerable sums of money and
resources in Research and Development. This process enables better
understanding of the product attributes and benefits.

Some questions to ask the potential buyers are:

Would you be interested to buy the product?

Would you replace or switch your current brand with the new product?
Would this product meet your real needs?
How much would you be willing to spend on the product?

4. Business Analysis

Once the concept testing is cleared, the organisation makes a thorough analysis of
the costs and benefits of adding the identified product or service to its product line
or width.

The following questions help to guide such an analysis:

What would be the potential contribution to sales, costs and profits?

Does the product fit into the current product mix?
What environmental and competitive changes are expected and how will
these changes affect sales, and so on.
Are the internal resources adequate?
Is financing available?
Will current distributors be willing to assist in distribution?
What will be the reaction of current distributors if distribution of the
product is entrusted to new intermediaries?

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 The answer to the above questions will establish whether it is technically feasible
to produce and market the new product or not. If it is seen feasible, the
organisation may proceed with the next stage, that is, product development.

5. Product Development
Organisations normally develop a prototype or a working model to the extent that
this is possible and feasible before going ahead with final production for
commercialisation. The prototype or model would incorporate the attributes that
consumers previously identified they desire from the product. The product
(prototype or model) is next subjected to market testing or trials.

6. Test Marketing
The prototype or model undergoes to what is termed market testing. Market
testing provides an opportunity to observe actual consumer behaviour. Often,
marketing managers have recourse to a limited introduction of the prototype in
geographical areas chosen to represent the proposed market; the intention is to
find out the reaction of probable buyers. At the same time, market testing
represents a sample launch of the marketing mix identified for the product. This
stage helps to establish whether to go ahead, to modify the product, to modify the
marketing plan or to drop the product altogether.

Alternatively, market testing may take the form of a simulated test market. Free
samples are offered in the store and afterwards people are interviewed, for
instance over the telephone, to provide feedback.

Market testing has certain advantages and limitations. Advantages are that it helps
to contain the risk of product failure and to identify the weaknesses associated
with the product and the marketing mix before full-scale commercialisation. The
main limitations of market testing are that it may be very costly and quite often,
competitors may either interfere or copy the product and rush it out first.

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7. Commercialisation

Once the product has successfully passed through the product development and
market testing stages, it is manufactured in sufficient quantity for
commercialisation. The commercialisation stage normally corresponds to the
introduction stage of the Product Life Cycle. In this stage, there is a need to make
decisions regarding final marketing mix decisions, warranty, and so on.
Warranties can offer a competitive advantage and prompt trial of the product.

Activity 8
Choose a product of your choice.

Apply the concepts that you have studied in this Unit to provide a brief critical
explanation on the product features, packaging ad labelling as well as branding.

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6.10 SUMMARY

This Unit has introduced to you Product as a marketing variable. You have learnt that a
product is defined as anything tangible or intangible that can be exchanged in a market
(goods, services, ideas) for money or some other unit of value.

You have also appreciated the importance of branding, packaging and labelling in the
product offer.

You have learnt about new products and how they are developed.

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UNIT 7 MARKETING MIX: PRICE

Unit Structure

7.0 Overview
7.1 Learning Objectives
7.2 Role of Price in Marketing Exchanges
7.3 Price Definition and Terminologies
7.4 Environmental Factors Influencing Price
7.4.1 Marketing Mix Influence on Price
7.4.2 Environmental Influences
7.4.2.1 Competitive Environment Influence
7.4.2.2 Legal Environment
7.4.2.3 Economic Conditions
7.5 Steps Involved in Setting Price
7.5.1 Step 1 – Establish Price Objectives
7.5.2 Step 2 – Establish Pricing Strategies
7.5.2.1 Existing Products
7.5.2.2 Pricing New Products
7.5.3 Step 3 – Determine Pricing Policies
7.5.4 Step 4 – Determine Pricing Tactics
7.5.5 Step 5 - Make the Final Pricing Offer
7.6 Pricing Tools
7.6.1 Profit-Oriented Pricing
7.6.2 Cost-Oriented Pricing
7.6.3 Break-Even Pricing
7.7 Bases for Pricing
7.7.1 Cost-Based Pricing
7.7.2 Demand-Based Pricing
7.7.3 Competition Based Pricing
7.7.4 Customers’ Needs Based Pricing

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 7.7.5 Multiple Product-Based Pricing
7.7.6 Channel-Based Pricing
7.8 Summary

7.0 OVERVIEW

This Unit introduces the concept of Pricing as one of the marketing mix variables. Price
is the only component of the marketing mix that brings revenue to the organisation.
Without revenue, there is neither growth nor survival.

Hence, pricing plays a crucial role in marketing activities and it is often one of the
biggest challenges that marketing managers have to address.

7.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

Assess the importance of price as a marketing mix variable.

Explain the key concepts related to pricing decision for organisations.
Analyse the influence of the environment on price.
Decide on pricing strategies for existing and new products.

7.2 ROLE OF PRICE IN MARKETING EXCHANGES

Price is the only element of the marketing mix that brings revenue to the organisation.
As such, it is of utmost importance to make the appropriate decisions about prices, as it is
also the case for the other elements of the marketing mix. Most exchanges are based on
money, although barter system and counter trade are common and are still widely used.

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It must be noted that the price that a customer is willing to pay for a product or a service
depends largely on the cost and benefit to the consumer. Customers will only exchange
their money or equivalent for what they consider to be of value to them and very often
this is independent of what the customers can actually afford these days. We do see
people buying things that are beyond their means; in this respect, marketing managers
can play the important role of increasing the relative affordability of consumers – for
instance, marketing managers may decide to offer hire purchase, zero or no deposit,
credit facilities, and so on. Price, thus plays a pivotal role in enabling market exchanges
and influencing customers to purchase.

Activity 1

(i) Recall a few instances when you had to purchase certain products. What factors
did you take into consideration? How important was the price factor to you in the
different situations?

(ii) Think of a situation where you were confronted with an unexpected increase or
decrease in the price of a product that you often purchase. Jot down the reactions
you had at that time.

(iii) What are the main causes of price fluctuations? What impact do they have on you
and on organisations?

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7.3 PRICE DEFINITION AND TERMINOLOGIES

Let’s now look at some general terms related to Price.

Price may be defined as:

The value placed on what is exchanged. Something of value is exchanged for

satisfaction and utility and includes tangible (functional) and intangible (prestige)
factors. The value may be represented in terms of money or barter.

Consumers normally first determine if the utility to be derived from the exchange is
worth it and only then decide to make the exchange. Most of us have limited means and
we cannot afford to buy each and everything that we value. This means that there is
always an opportunity cost involved in deciding to purchase a specific product. Price
represents the value of a good or service and enables exchanges. For an exchange to take
place between a buyer and a seller, there must be a match in the value set by each party.
This means that marketing managers must understand the value consumers derive from a
product and use this as a basis for pricing a product. All customer-oriented organisations
adopt this approach.

Some of the terms with which you have to be familiar in connection with price are
listed below:

Fixed Price the retailer or supplier sets the price and the customer cannot
normally bargain
Negotiated Price buyer and seller negotiate the price between them
Tender Price the buyer calls for competitive bids from a variety of potential
suppliers
Market Prices they are ruling prices in the market and neither buyers nor sellers
can influence the price

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7.4 ENVIRONMENTAL FACTORS INFLUENCING PRICE

The pricing of a product may be one of the most difficult tasks that marketing managers
have to address. Marketing managers set prices on the basis of the marketing mix and the
other environmental factors that may have probable impact on them.

Some of these influences are:

1. Marketing Mix Influence

2. Environmental Influence
3. Legal Environment
4. Economic Conditions

Let’s try to understand these further.

7.4.1 Marketing Mix Influence on Price

In relation to the marketing mix, pricing considerations involve:

1. The value to the consumer of what the product represents (at the three levels
discussed in Unit 6)
2. Product manufacture costs
3. Marketing channel costs and other distribution costs
4. Promotion expenditure

In as far as the product is concerned, pricing must reflect the value of the product to the
customer. For instance, price will have to incorporate the cost associated with credit
facilities, after-sales service, warranty, transportation, packaging, labelling, and so on.

Price will also include costs that are associated with distribution, such as the sales
manager and salesmen salaries, storage cost, transportation and delivery cost, cost of

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obsolescence, defects, damaged products and intermediaries commission, etc. With
respect to promotion, price will include expenses made towards advertising, sales
promotion, personal selling and cost implications of publicity.

7.4.2 Environmental Influences

In setting the price of a product, the marketing manager has to take into consideration
several factors in the environment within which the organisation operates. From Unit 2,
you are already aware of the role of environmental forces and factors on products and
markets.

Let us choose the following as examples and try to understand what’s their impact
on pricing.

1. Competitive environment
2. Legal environment, including government policies
3. Economic conditions

7.4.2.1 Competitive Environment Influence

In the competitive environment, the organisation has the choice of setting its prices
above, at par with or below what competitors price. The reaction of an organisation to
prices charged by competitors will depend on its policies and strategies on pricing. For
example, an organisation may decide to match or beat price cuts by competitors.
Sometimes the organisation may have no choice but to align with competitors’ pricing. It
must be emphasised that nowadays, consumers want more than just a low price.
Consumers seem more interested in “value for money pricing” – they are ready to pay
extra for whatever value added to the products – for example, chopped salad, scaled fish
and so on. Organisations may compete on non-pricing consideration by emphasising
product features, service and quality. These strategies help them to build customer
loyalty towards the product and the brand. Customers must be able to perceive the

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differences in brands or products on offer and view them as desirable. Whenever
organisations compete on the basis of prices, it is important for them to consider how
price differences may be offset by the perceived benefits and promote these. For
example, organisations may emphasise on the better durability of its product, or that its
product is safer to use and provides more comfort.

Activity 2

(i) Identify any product of your choice that serves the same basic purpose (for
example, toothpaste or powdered milk).
(ii) Find out the prices set by various companies that supply the product. Analyse
these prices.
(iii) What conclusions can you draw in connection with competitive pricing?

All the elements in the macro-environment (discussed in Unit 2) have an impact on

pricing decision. But the most important factors that may have a drastic impact on price
are the legal environment and the economic conditions, discussed next.

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 7.4.2.2 Legal Environment

The legal environment can put many constraints on pricing decisions. For example,
government can control the price of certain products and even fix them. Under these
conditions, the marketing manager will have no alternative but to accept the
recommendations.

Many countries have laws that prevent organisations from practicing the following:

• Horizontal price fixing (occurs when competing organisations join together to

set prices. Such agreements among competitors are forbidden)

• Price discrimination (for example, when an organisation sells the same product
at different prices to different customers without any valid justification)

• Deceptive pricing (to deceive customers by advertising sales promotion and

offering discounts when in fact there is no such discount)

7.4.2.3 Economic Conditions

The economic conditions of a country can also have important influences on pricing. For
example, during recession, there is more emphasis on the price/value. People and
organisations themselves become very price-conscious. In such cases, marketing
managers would be wise to consider offering discounts and sales promotion in order to
keep sales on-going. Of course, decisions would also depend on the type of products and
how price-sensitive customers become during inflationary period. Quite often, during
inflationary period, consumers get used to price escalation (increase in prices) and this of
course influence their buying behaviour in some way. For example, demands for
products fall and organisations should consider providing superior service to keep sales
on-going.

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We suggest that you go back to Unit 2 and while reviewing the unit, you try to
understand and think of some examples on how the other factors of the environment
influence prices.

7.5 STEPS INVOLVED IN SETTING PRICE

Marketing managers usually approach the price setting exercise as a process consisting of
five steps.

The five steps involved in setting prices are:

Establish pricing
objectives

Establish pricing
strategies

Determine pricing
policies

Determine pricing
tactics

Make the final pricing

offer

7.5.1 Step 1 – Establish Price Objectives

In normal practice, there is much uncertainty regarding the reaction to price on the part of
buyers, intermediaries, competitors, and so on. Price must be set in line with the
financial and marketing objectives of the organisation. Financial objectives may be

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either profit maximisation or a target return on investment or pricing for cash flow
purposes (get cash quickly in the short term to meet current expenditure). Marketing
objectives may be either sales growth (increase in market share) or maintaining the
current level of sales or even survival of the business. Thus, organisations must establish
their pricing in relation to the objectives that they wish to pursue. For example, an
organisation may wish to lower its prices in order to penetrate the market and gain market
share or keep its prices up in order to recoup its investment more quickly.

Activity 3
Think of some examples from your experience that illustrate how pricing can help to
improve market share. Record your findings.

7.5.2 Step 2 – Establish Pricing Strategies

Marketing managers have to consider what strategies they wish to pursue in setting
prices. Pricing decision must be taken for both existing and new products. Strategies may
be formulated to keep margins low so as to discourage competitors from entering the
market. The following are possible strategies for existing and new products:

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 7.5.2.1 Existing Products

Pricing possibilities for existing products are:

• Price above the market (particularly when the product is differentiated or higher
prices reflect higher quality or status)
• Price below the market (to gain market share, to discourage competition)
• Price at the market (for example, for standardised products that offer no visible
element of differentiation)

Activity 4
(i) Identify some products of your choice. Analyse the implications for the various
alternatives of pricing those products: pricing above, below and at the market
price.
(ii) What marketing conclusions can you make from the list that you have made?

7.5.2.2 Pricing New Products

Marketing managers have two main options in setting the price of a new product. These
are skimming and penetration pricing.

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 Skimming Pricing
Price skimming is to charge the highest price possible to buyers who most desire
the product. This practice helps to generate much needed initial revenue for
maintaining cash flow, and to cover high research and development costs quickly
or sooner. It is most useful for products that have limited capacity introductions
(supply is less than demand), that is, when only a small number of units are
available for commercialisation.

Note the following key points as regards skimming pricing:

It involves setting the price high at the introductory stage of PLC (for
example, to recoup investment more quickly.)

The price may be lowered in later stages.

Price skimming is only possible when there is a sufficient number of

customers who have a strong demand for the product and who are able to
pay a premium price for it.

It is a useful or appropriate practice when there are few close substitutes

for the product.

Price skimming is normally adopted for unique products that are difficult
to copy or imitate and with which there is an element of status associated.

Market Penetration Pricing

Market penetration pricing involves the setting of price at the lowest level compared
to competitors, to catch markets and increase sales. Market penetration is by far less
flexible than skimming pricing as it is more difficult to raise prices than it is to lower
them. Quite often, organisations use it to follow skimming pricing.

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 Market Penetration Pricing:

implies setting low price at the outset of PLC to capture the market.
is useful when all segments are sensitive to price (that is, demand is elastic).
is useful when all costs decrease rapidly with volume.
aims to take as much market share as possible when competitors are likely to
enter the market quickly.

7.5.3 Step 3 – Determine Pricing Policies

After having decided which pricing strategy to pursue for existing and new products, the
next step to follow is to determine pricing policies.
Successful organisations normally define their policies in connection with the price of
their products.

Pricing policies generally cover areas such as:

Uniform delivered pricing across a region (that is, same price across a region)
Zone/area pricing (different prices in different area or zone)
Discount policies (what the company believes concerning discount)
Credit policies (what policies exist in connection with credit facilities)

7.5.4 Step 4 – Determine Pricing Tactics

The next step in price setting is to decide on the tactics to be adopted vis-à-vis the
customers and competitors.

Tactics would include elements such as:

Price lining or matching Multiple products in a particular product line, each at a

different price, e.g. a range of different food processors at
different prices

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Psychological pricing When price is used as a measure of quality, benefits and so
on.

Prestige pricing Pricing that is associated with status, for example, BMW,
Mercedes, Parker pens.

Odd-even pricing For instance, price tags of Rs99.99 sounds cheaper than
those of Rs100., and may indicate that the product is Rs99.

Value for money pricing Provide for a reasonable margin so as to enable customers
to appreciate the value of the product to him/her

Price bundling Offer a product, options, and customer service for one total
price, for example an air conditioner with installation
charges included, toothpaste plus toothbrush bundled
together and offered at one price.

Activity 5

(i) Identify examples from the Mauritian market to illustrate the above price tactics.

(ii) How effective do you consider these tactics to be?

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7.5.5 Step 5 - Make the Final Pricing Offer

The last step in the price setting process is to make and communicate the final offer to the
buyers.

7.6 PRICING TOOLS

This section discusses some of the tools that marketing managers could use for pricing
decisions. You are advised to read the relevant sections on elasticity of demand and
pricing from any Economics textbook as well as costing from any accounting textbook.

Let us first understand the basic concept of elasticity.

Price Elasticity is a measure of the sensitivity of the demand to changes in prices. In other
words, price elasticity indicates the variation in quantity demanded when price changes.
It is expressed as a percentage and represents the percent change in quantity demanded
relative to the percent change in price, that is:

Price Elasticity = % change in Quantity

% change in Price

If the
Price elasticity is greater that one, then price is said to be elastic
Price elasticity is less than one, then price is said to be inelastic

The more inelastic the demand, the more it pays for sellers to raise the price. This
basically applies to products that are unique, high in quality, prestigious, and exclusive
amongst others.

The more elastic the demand, the more sellers should consider lowering the price, as
long as costs do not exceed extra revenue.

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7.6.1 Profit-Oriented Pricing

Pricing for profit-orientation is worked out as follows:

F
Price (P) = Fixed cost per unit ( ) + Variable cost per unit (V) + Expected return per
Q
r×I
unit ( )
Q
That is,
F r×I
P= +V +
Q Q
Where

P = price to be charged
F = total fixed costs
Q = quantity to be produced and sold
V = variable cost per unit
r = expected rate of return on investment
I = investment needed to produce and market product

For profit-oriented pricing, the organisation decides on an expected rate of return for the
investment that it has made in producing or acquiring the product or service. The price is
set to cover fixed and variable cost, all overheads as well as the expected rate of return
from the sale of one unit of the product.

7.6.2 Cost-Oriented Pricing

Cost-oriented pricing basically means:
Cost Plus Pricing
Mark Up Pricing

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P = C+M

Where

C = Rupee cost of goods per unit

M = Rupee mark up per unit
P = Selling price per unit

This is simply worked out from the cost that is incurred in producing or purchasing the
products for resale. A desired mark-up is added to the cost and the selling price is the
sum of these two components.

P−C
× 100 represents the percentage mark-up on price.
P

7.6.3 Break-Even Pricing

Break-even pricing enables the organisation to just break-even with no profit or loss
incurred. The break-even quantity is computed as follows:

Break-even quantity:

F
Q= (the terms are defined above)
(P − V )

Here, it is assumed that both economies of scale and price are constant. However, there
is an entire family of break-even points corresponding to different prices and normally
demand conditions dictate what to price, that is, how many units customers will be
willing to purchase.

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7.7 BASES FOR PRICING

Organisations can decide to set the price of their products or services on the following
bases:

Cost-based
Demand-based
Competition-based
Customer’s needs-based
Multiple-product based
Channel-based

7.7.1 Cost-Based Pricing

Cost-based pricing involves adding to the total cost incurred in producing or acquiring
the product or service a percentage or a sum that represents the desired profit; the method
of calculation was described in subsection 7.6.2. The marketing manager has to establish
the desired margins. Costs represent the fixed and variable costs and all overheads. At
times, it may be difficult to determine overhead costs and this is one of the main
limitations of cost-oriented pricing. Another limitation concerns the adjustments required
to take care of rising costs. Cost-based pricing is particularly useful when consumers are
price inelastic (price does not affect level of demand significantly) and when the
organisation has control over prices. In normal practice, organisations maintain a floor
price, under which it is not possible to descend, unless you are scrapping the products.
Mark-up pricing is very common among retailers and is used for tenders and provision of
services, among others. The main advantage of cost-based pricing is that it is easy to use
and administer.

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7.7.2 Demand-Based Pricing

Demand-based pricing is based on an estimate of demand for the products or services at

different prices. In other words, it is related to how the consumer’s demand for a product
would be affected by price. This involves finding out what the consumer’s expected
price is and then working backwards to account for all costs to arrive at selling price that
is desired by the consumers. The demand for the product or service is first established.
The intermediaries’ mark up is next worked out, and the selling price is then set.
Companies that sell directly to consumers usually practice this type of pricing. Price
decisions revolve around what people will agree to pay. Often the companies offer a
range of acceptable prices, particularly when it is believed that price is the key factor in
the consumer decision-making process. A classic example of demand-based pricing is
that practiced by the mobile phone companies. Different models of mobile phones are
made available at different prices for different segments.

7.7.3 Competition-Based Pricing

Competition-based pricing, as its appellation suggests, is based on what prices

competitors sell their products on the market.

Possibilities under this strategy are:

Price Leadership: The organisation sets the price first; all others may follow with
similar or different prices.

Pricing with the Competition: Parity pricing - prices are kept at the same level
as competitors; this helps to minimise price comparison.

Ceiling or Limit Pricing: Here the intention is to set a price that is low enough to
discourage competition but high enough to generate in the desired profit. The low
price acts as a barrier to entry in the market.

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7.7.4 Customers’ Needs-Based Pricing

Customers have certain expectations on the price of the products they wish to purchase.
For example, there are customers who constantly look for low prices; others like to
negotiate and bargain while others feel more at ease with fixed prices. Customers’ needs-
based pricing takes care of these needs and expectations.

7.7.5 Multiple-Product-Based Pricing

It is quite common these days to see on the market, products that are bundled together
and offered as one package. Organisations try to achieve various objectives through this
strategy, for example, that of increasing sales volume when, for instance, four units of the
same product are bundled or tied together with the offer “four for the price of three”.

Other examples and possibilities are:

Price Bundling: selling two or more goods/services as a single package for one
price e.g. travel tours package (with hotel accommodation, tickets, transfer),
toothbrush plus toothpaste

Captive Product Pricing: two products that are used together; e.g.: low price for
hardware while the software is priced high; camera and films, mobile phone and
calls

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7.7.6 Channel-Based Pricing

Organisations also have recourse to offering special prices to their intermediaries. Some
examples are:

Quantity Discounts: reduced prices for large volume or bulk

purchases

Cash Discounts: incentives given for purchasers to pay their

bill quickly by offering discounts (for
example, 5% discount for cash payment)

Seasonal Discounts (also cyclical pricing): offering discounts at certain times of the
year

Geographic Pricing: zone, area or region pricing – different

prices in different areas of the country

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Activity 6
(i) Identify some examples to illustrate the pricing strategies mentioned above.
Compare and discuss your list with that of your friends.

(ii) What lessons do you learn about pricing from the discussions? Record your
conclusion.

7.8 SUMMARY

This Unit has stressed the importance of pricing as a marketing mix variable. Price
represents the value that the buyer places on a product to occasion an exchange. Price is
also the only component of the marketing mix that brings revenue to the organisation.
Pricing, as you must have learnt, can support a wide range of objectives that an
organisation may desire to pursue. Pricing is also subject to a number of influences that
have been discussed in this Unit.

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UNIT 8 MARKETING MIX: PLACE

Unit Structure

8.0 Overview
8.1 Learning Objectives
8.2 Introduction
8.3 Choice of Distribution
8.4 Marketing Channels
8.4.1 Why Market Channels?
8.4.2 Marketing Channel Functions
8.4.3 Channel Levels
8.5 Channel Conflict
8.6 Modes of Distribution
8.6.1 Intensive Distribution
8.6.2 Exclusive Distribution
8.6.3 Selective Distribution
8.7 Physical Distribution
8.7.1 Physical Distribution Functions
8.7.2 Service Output Level Desired by Customers
8.7.3 Meeting Customer Service Levels
8.8 Reducing Order Cycle Time
8.8.1 Reducing Total Physical Distribution Costs
8.9 The Five Major Physical Distribution Functions
8.9.1 Order Processing
8.9.2 Inventory Management
8.9.3 Materials Handling
8.9.4 Warehousing
8.9.5 Transportation
8.9.6 Co-Coordinating Transportation Services
8.10 Summary

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8.0 OVERVIEW

In this Unit, you will have an opportunity to learn about the vital role of place as a
marketing mix variable. You will understand that organisations have two alternatives for
distributing their products: either they distribute the products themselves or they make
use of market intermediaries or channel members. The implications of both strategies for
distributing the products as well as the main functions that are involved in physical
distribution are discussed in this Unit.

8.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Explain the importance of place in the marketing mix.

2. Explain how Physical Distribution activities are integrated into marketing channel
management decisions and overall marketing strategies.
3. Identify the three important Physical Distribution performance objectives: customer
service, total distribution costs, and order cycle time.
4. Explain how order processing expedites product flow through the marketing channel.
5. Analyse how inventory management decisions are made, about when and how much
inventory to order to maintain adequate product assortments that meet or exceed
customer service standards.
6. Analyse how warehousing facilitates the storage and movement function in physical
distribution.
7. Identify the basic modes of transportation.
8. Examine the criteria marketing managers use to select between the different basic
modes of transportation.

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8.2 INTRODUCTION

Place refers to how products and services are made available to consumers in the market
place. Place is equivalent to physical distribution channel or logistic in marketing. In
fact physical distribution represents:

A set of firms and individuals that take title or assist in transferring title of the
particular good or service as it moves from producer to the consumer.

Distribution must be viewed as part of the production process. The method of distribution
and the outlet where the product is sold should complement the quality dependability and
value of the product itself.

As explained earlier, products are best defined in terms of the benefits they provide. In
this context, distribution must be regarded as vital to the creation of value for the
customers as is manufacture.

Warm-Up Activity

Jot down five to ten terms that come to your mind in connection with distribution.

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8.3 CHOICE OF DISTRIBUTION

Various options are available to marketing managers for making their products available
to customers. These may be exemplified as follows:

1. Distributing through company’s own sales outlets.

2. Selling through franchised outlets.
3. Using the services of the manufacturer’s agents to market the product through
specialised or non-specialised wholesalers and/or retailers.
4. Using the company’s own sales force to distribute product directly to end-users or
through specialised or non-specialised wholesalers and/or retailers.
5. Distributing through mail or parcel delivery services on the basis of orders from
catalogues or coupon advertisement placed in the mass media.
6. Selling through the Internet.

Activity 1

Use any textbook of marketing of your choice or your own experience to analyse the
implications for an organisation to adopt each of the distribution alternatives listed above.
Record your findings.

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You will have observed from these alternatives that organisations have the choice to
distribute products themselves or to make use of intermediaries. At the outset, it must be
noted that the more “middlemen” or marketing intermediaries that a company chooses to
have, the higher will be the price paid by customers, as each one of the intermediaries has
to be rewarded appropriately (generally by way of commission paid to them). Thus the
right balance and choice must be made in order to optimise value to customers.

Some considerations that must be given to the question of distribution are:

The maintenance of distribution outlets.

The position of products on the shelves- near the entrance or the back door, at eye
level, at the top or the bottom of the shelves and so on.

The extent of provision of after sales service/technical facilities.

The size and physical set up of retail units (Small shops / corner shops/ developed
– retail chains, Supermarkets/ Hyper markets).

Activity 2

What effects do size, maintenance of distribution outlets and positioning a product on the
shelf have on customers?

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8.4 MARKETING CHANNELS

Marketing channels are:

Sets of interdependent organisations involved in the process of making a product

or service available for use or consumption.

Marketing channels grant their facilities and know-how to manufacturers for the retailing
of the products to customers or potential customers and the public at large.

8.4.1 Why Market Channels?

The distribution of a product may involve a significant cost to manufacturers. Often,

manufacturers lack financial and other appropriate resources to ensure themselves the
distribution of their products as efficiently and effectively as possible. For instance, a
manufacturer of small inexpensive products that must be made available as widely as
possible will have to invest in premises and human resources for this purpose. As a
result, the manufacturers will have to meet the costs involved in establishing such outlets.
These costs may be quite significant and sometimes prohibitive; hence, the decision to
make use of intermediaries. Intermediaries help companies to achieve the mass-
distribution economies that they require.

There are numerous other reasons as to why companies opt for what we commonly call
intermediaries, middlemen, distributors, or channel members. Producers who cannot
afford to distribute their products themselves often enjoy higher return by directing their
investment in their main business; they therefore delegate the function of making the
product available to customers in the hands of intermediaries (also referred to as
distributors or middlemen or channel members). However, as far as possible, it is
recommended to any manufacturing organisation to have at least an outlet to sell or
display its products. This outlet will help the organisation to acquire experience on
managing retail outlets and obtaining direct feedback from customers. Sometimes, this

179
practice creates problems whereby channel members see the organisation to be in
competition with them. It is a fact that often customers prefer to purchase directly from
the manufacturer or producer.

However, organisations must appreciate the superior efficiency of middlemen in making

goods widely available and accessible to their target market. Further, intermediaries
exploit their contacts, experience, specialisation, and scale of operation to market the
organisation’s products or services more than the organisation can virtually achieve on its
own.

8.4.2 Marketing Channel Functions

The main objective of a channel is to perform the task of promoting exchange of goods
among producers and consumers. The key or specific functions of a channel include the
following:

1. INFORMATION: Monitoring and disseminating information to and

from customers and manufacturers.
2. PROMOTION: Performing some of the functions associated with
promoting the products.
3. NEGOTIATION: Negotiating with existing and potential customers
as well as manufacturers.
4. ORDERING: Placing firm orders with manufacturers.
5. FINANCING: When paying the manufacturers in advance or in
cash; also when agreeing to participate in the
financing of promotional activities.
6. RISK TAKING: For instance, risk taken in accepting to hold the
product in inventory.
7. PHYSICAL POSSESSION: When intermediaries buy in cash or credit, they take
possession of the products; this is not the case when
they hold goods that are in consignment – in such a
case, ownership remains with the manufacturer.

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8. PAYMENT: Paying in cash or settling debts made in connection
with credit purchases or products that were in
consignment and sold.
9. TITLE: When buying in cash or credit, distributors take title
of the products.
You will note that marketing intermediaries perform the task of moving goods from
producers to consumers. Their main functions and roles can be categorised as assisting
with research, promotion, contact matching, negotiation, physical distribution, financing
and risk taking.

8.4.3 Channel Levels

In distribution, we refer to the channel levels as being the number of intermediaries that a
product must go through before it finally reaches the customer. Hence, we refer to the
channel level as being zero (product goes directly from the manufacturer to the
customer), one level (product goes to the customer through a retailer), two levels
(product goes to the customer through a wholesaler and a retailer). These are
diagrammatically shown in Figure 8.1.

Figure 8.1: Channel Levels

Zero Level M C

One Level M R C

Two Levels M W R C

Legend

M = Manufacturer
C = Consumer (end user)
W = Wholesaler (Buys from producers or their agents and then
resell to retailers)
R = Retailer (sells directly to final user)

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Activity 3

(i) Identify some products in the market that are distributed through each of the 0, 1
and 2 levels.

(ii) Explain why would organisations have recourse to two channel levels for
distributing their products?

(iii) What are the main disadvantages of using two channel levels?

8.5 CHANNEL CONFLICT

Intermediaries may be the cause of several problems to marketing managers. Sometimes

they work in co-operation and sometimes they do not. Intermediaries negotiate the
commission and other rewards for the services they provide. The margin of commission
is often the source of conflict between intermediaries and manufacturers. It is also argued
that the more the number of distributors in a given area, the lesser is the revenue derived
by a specific distributor. This situation is another cause of conflict among distributors
and manufacturers.

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We speak about horizontal conflict when different dealers at the same level of the
channel are in competition or conflict: for example, when dealers operate close to one
other or dealers start offering prices that are not in line with the organisation’s price list
and so on.

Vertical Conflict occurs among intermediaries who are operating at different levels: for
example, conflict that may exist between manufacturers themselves and/or wholesalers or
wholesalers and retailers. Conflict often relates to commission, payment terms, inventory
management and so on.

With the Vertical Marketing System (VMS), whereby all the stakeholders
(Suppliers/Producers/Wholesalers/Retailers/etc) of an organisation work in partnership
with one another (as a unified system), conflict is minimised and customers benefit from
the value added from such interrelationship. This is diagrammatically shown in Figure
8.2.

Figure 8.2: The Vertical Marketing System

Contractual Relationship

S M W R

Legend
S = Suppliers
M = Manufacturers
W = Wholesalers
R = Retailers
C = Consumers (organisations or individuals)

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Activity 4

Discuss how consumers might benefit from Vertical Marketing System.

8.6 MODES OF DISTRIBUTION

Distribution may be carried out intensively, selectively or exclusively, depending upon

the nature of the products and other considerations. These are explained in this Section.

8.6.1 Intensive Distribution

In the intensive mode of distribution, as many distributors as possible are identified to

make the products available to customers. The purpose of intensive distribution is to
make the product available as widely as possible. Intensive distribution is primarily
applicable to convenience goods like cigarettes, matches, rice, toothpaste, edible oil, and
so on.

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8.6.2 Exclusive Distribution

In the exclusive mode of distribution, a limited number of intermediaries are identified to

market and distribute the products. The intermediaries are granted the exclusive right to
distribute the company’s products in the territories that are assigned to them.

For example, the Beechand Group of Companies has exclusive rights to market Toyota
cars in Mauritius, the Leal Group of Companies for BMW, and Iframac Ltd for
Mercedes.

Exclusive distribution tends to enhance the product’s image and allows higher
commitment and specialisation. However, care must be taken to ensure that the
appointed intermediaries meet the expected target sales and remain committed to the
manufacturer.

8.6.3 Selective Distribution

In the case of selective distribution, the number of intermediaries lies somewhere

between intensive and exclusive distribution. Marketing managers make use of only a
few intermediaries in a particular area; all possible intermediaries in that area, as it is the
case with intensive distribution, are not appointed to market the organisation’s product.
As an example, take the case of the distribution of home appliances by a specific
manufacturer. Higher priced home appliances are sold in selective stores.

Benefits of Selective Distribution to intermediaries and producers:

Selective distribution is used, particularly by new companies seeking to establish

a distribution channel in order to make their products available.

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 Companies looking for distributors may promise selective distribution as an
incentive, (e.g, that they would be among the few ones to cover the area or
region).

Selective distribution is used particularly by well-established companies.

Normally it helps to establish better working relationship with the selected

middlemen and companies expect a better than average selling effort.

Selective distribution enables producers to gain adequate market coverage with

more control and lesser cost than intensive distribution.

Marketing managers may base themselves on the following factors in their choice of
intensive, selective and exclusive distribution:

Terms and responsibilities of channel members

Price policy
Cost of sale and distribution overheads
Distributors territorial rights
Mutual services

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Activity 5

(i) List a few examples of the three modes of distribution, intensive, selective and
exclusive, for some products that are known to you.

(ii) Discuss in groups of five why the manufacturers of two of the products that you
have listed under selective and exclusive distribution have chosen such modes.

(iii) List the advantages and disadvantages associated with the choice made by the
manufacturers.

8.7 PHYSICAL DISTRIBUTION

Let’s now look at a fundamental function of place as a marketing mix variable: the
Physical Distribution. Physical distribution involves the actual transfer of the product
from the manufacturer to the customer as an end user and refers to:

the activities such as order processing, inventory management, materials

handling, warehousing, and transportation - used to move products from
manufacturers or producers to consumers and other end users.

In other words, physical distribution deals with the physical movement and holding of
inventory, both within and among channel members (suppliers, manufacturers,
intermediaries, facilitating agencies and consumers/end users).

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The main functions of physical distribution, that is, order processing, inventory
management, warehousing, materials handling and transportation constitute nearly 50%
of all marketing costs and have an immediate impact on customer satisfaction.
Accordingly, marketing managers have to spend time and effort to make strategic
decisions about their physical distribution programmes in order to ensure the competitive
advantage of their organisations.

Physical distribution is an important element in marketing strategy because it can help to

decrease costs (operating costs, investment cost of capital) and increase customer
satisfaction. Physical distribution systems have to meet the needs of the supply chain as
well as the customer chain.

In other words, a physical distribution system must have as objective the minimisation of
distribution costs and order cycle time and maximisation of customer service. This is yet
another challenge to marketing managers, as it may be quite difficult to obtain the right
balance between services and costs. For example, to provide a high level of customer
service by holding large inventory assortments close to the customer may be cost
prohibitive or may cause serious space problems. Ideally, marketing managers must
assess the customer service level requirements, then develop a physical distribution
system to minimise total distribution costs and order cycle time.

8.7.1 Physical Distribution Functions

As you have already noted from the previous sections, the main objective of the physical
distribution system is to get the right goods to the right consumers at the right time and at
the right cost. Physical distribution involves a number of activities, such as:

Order Processing
Warehousing
Inventory Management
Transportation
Materials handling

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We shall explain these in more details in section 8.9. Let us first discuss the element of
service as applied to physical distribution.

8.7.2 Service Output Level Desired by Customers

The expectations of customers from physical distribution are many. These may be
classified in terms of:

Lot Size (number of units that are made available to the customer)

Waiting Time (amount of time a customer waits before being served or attended)

Spatial Convenience (degree to which marketing channel makes it easy for

customers to move around while identifying products they need)

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 Product variety (different brands of the same product, different unit sizes and so
on)

Service Backup (add-on-service and after-sales services:- credit, delivery,

installation, repairs provided by the channel)

8.7.3 Meeting Customer Service Levels

Service is an important component of benefits to the consumer, as service can be as

important in attracting customers and accruing revenue, as are the products, brand equity
and costs.

Customers often seek and expect a variety of services from providers of services and
products. In the physical distribution area, they basically look for availability of sizable
inventory assortments, efficient order processing and handling, timely shipments or
replacement of defective parts. Customer inventory requirements influence the desired
level of physical distribution service. Because needs and wants vary from customer to
customer, marketing managers must analyse customer preferences very carefully and
adapt to them. Marketing managers must also monitor the service levels competitors
offer and match or exceed those standards when the costs of providing the services can
be justified by the sales generated.

8.8 REDUCING ORDER CYCLE TIME

Order-Cycle time is the time it takes from when the order is placed to when it arrives at
the appropriate destination. Its purpose is to reduce costs and/or increase customer
service.

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In physical distribution, it often happens that when managers try to minimise the
individual cost involved in the physical distribution system, decreasing costs in one area
often leads to a rise in another. Thus, managers have to use a total cost approach to
physical distribution and view it as a system of related activities rather than a set of
unrelated ones.

Total cost analysis (TCA) weighs inventory levels against warehousing and ordering
costs, materials handling costs against modes of transportation, and all distribution costs
against customer service standards.

A distribution system’s lowest total cost is never the result of using a combination of the
cheapest functions; instead, it is the lowest overall cost compatible with the firm’s stated
service objectives.

Marketing managers must be sensitive to the issue of “cost trade offs”. Trade offs are
strategic decisions to combine (and recombine) resources for greater cost-effectiveness.

8.9 THE FIVE MAJOR PHYSICAL DISTRIBUTION FUNCTIONS

As mentioned earlier, the five main functions of physical distribution are:

1. Order Processing
2. Inventory Management
3. Materials Handling
4. Warehousing
5. Transportation

These are briefly explained in this Section.

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8.9.1 Order Processing

Order Processing is the receipt and transmission of sales order information in the
physical distribution process.

The main tasks involved in order processing are summarised below.

1. Order Entry
The order placed by a customer or sales person is entered into the organisation’s
system.

2. Order Handling
Order handling requires the following activities whereby the order is:

• Transmitted to warehouse for product availability verification - if product

is not available, order is sent to production or customers are offered a
substitute or an alternative
• Transmitted to credit department- checking for prices, terms of payment,
customer’s credit rating
• Transmitted to warehouse where the following sub activities are carried
out:
¼ Pick and assemble order
¼ Schedule delivery with chosen transportation carrier
¼ Invoice/s despatched to customers
¼ Inventory records are adjusted
¼ Order is despatched - ready for delivery

In this computer world, many companies are pushing their suppliers towards EDI
to reduce physical distribution costs and cycle times. Electronic Data Interchange
(EDI) is a means of integrating order processing with production, inventory,
accounting, and transportation. EDI is an information system for the supply
chain that links marketing channel members and facilitating agencies. It allows

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 members of the supply chain to reduce paperwork and share information among
channel members on:

- Invoices
- Orders
- Payments
- Inquiries
- Scheduling

Although EDI may initially increase investment levels and training costs in the short
term, it does bring savings in the long run.

8.9.2 Inventory Management

Inventory Management deals with developing and maintaining adequate product varieties
that meet customer’s service level requirements.

The objective of inventory management is to minimise inventory costs while maintaining

an adequate supply of goods. To achieve this objective, marketing managers focus on
two main issues:

1. When to order- the reorder point (in units of goods on hand)

2. How much to order- the Economic Order Quantity (EOQ)

Reorder point is the inventory level (in units) that signals the need to place a new order.

To determine the reorder point, the following parameters are used:

1. Order lead time: average time that is required between placing the order and
receiving it.

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2. Usage rate: rate at which a product’s inventory is used or sold per unit
period of time.

3. Safety stock: the amount of extra inventory a firm keeps to avoid

stockouts.

• Reorder point (in units) =

Order lead time (in days) x usage rate (in units per day) + safety stock (in
units)

• What quantity to order: this will depend on two sets of costs:

Inventory - carrying costs (how much to keep in stock and what’s

the cost associated with such stock)
Order processing cost (how much it costs to place an order and
have it on hand.)

Larger inventory orders reduce the number of orders in a time period but increase
inventory- carrying costs while smaller inventory orders reduce inventory-carrying costs
but increase the number of orders in a time period. When both sets of costs are
considered, the lowest cost order size is the minimum point on the total cost curve. This
point is referred to as the Economic Order Quantity:

Economic Order Quantity:

the order size minimising the total cost of ordering and carrying inventory.

Some firms have dropped the use of EOQ and adopted a Just-in-time approach (JIT),
making materials and products available at the very time when they are required for
production or resale.

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Just-in-time inventory management depends on a high level of coordination (supply chain
networks) among suppliers, producers and physical distribution facilitating agencies.
This approach minimises material waste and reduces inventory costs. It often results in
suppliers locating or moving their operations closer to customers. The main limitation of
JIT is to actually have the product on hand at the time it is required. It is reported that
with the increasing number of vehicles on the road and frequent traffic jams, strict
application of JIT may cause some problems.

8.9.3 Materials Handling

Materials Handling englobes all activities in connection with the physical handling of
products.

An effective materials handling system should:

Reduce the number of times a product is moved from one place to another before it is
finally handed over to the customers (automated conveyer systems, use of fork lifts)
Decrease inventory-carry costs (less damaged goods; less money blocked in stock or
inventory)
Increase the usable warehouse capacity (more efficient use of space)
Increase customer satisfaction (through delivering the right products at the right time
to customers)

Materials Handling Packaging Concepts:

With recent technological development, the following possibilities exist to facilitate the
handling of products for despatch:

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 Unit loading: grouping one or more boxes on a pallet or skid and this pallet is
handled by forklifts and so on.

Containerisation: the practice of consolidating many items into one container, which
is sealed at the point of origin and opened at the destination. This
ensures less damages during transportation, better control from
thefts and so on.

8.9.4 Warehousing

Warehousing involves designing and operating facilities for storing and moving goods.
Basically the warehousing functions are closely linked with those of materials handling.

Functions of Warehousing include:

Receiving the goods (the goods are cleared for customers and are brought to the
company premises or warehouse)
Identifying the goods (checking the goods for damages so as to claim insurance, if
any)
Sorting the goods (in case the goods are packed in a container)
Despatching the goods to storage
Holding the goods in store
Recalling and picking the goods for onward delivery to customers and end users
Collecting the shipment (for goods that need to be air or sea freighted)
Despatching the shipment (goods loaded on board ship or airplanes for their outward
journey to their destination)

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Modern warehouses are equipped with electronically automated receiving and shipping
systems to perform the warehouse functions.

The main types of warehouses are:

u Private warehouses: facilities operated by organisations

for distributing their own products.

u Public warehouses: organisations that rent storage and

related physical distribution
facilities (for example, goods are
kept in government custody near
harbours or airports).

u Bonded warehouses : organisations that offer storage

facilities for bonded goods (goods

that are held before clearance from
customs).

- Distribution Centres (private or public): these are large centralised

warehouses that concentrate on
moving rather than storing goods.

When goods reach the warehouses, the warehouse manager attempts to separate the
“slow” moving inventory goods from the “fast” movers. Fast movers go straight to the
distribution centres. Slow movers are stored at a warehouse strategically located in a
network of distribution centres or are held in the producer’s warehouses near the factory.

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8.9.5 Transportation

Inventory is either in storage or movement. Transportation carriers are really

“warehouses on the move”. The transportation function adds time and places utility to a
product by moving it from where it is produced or manufactured to where it is purchased
and used.

The following are the most common modes of transportation:

Pipeline (for fluid products such as lubricating oils, gasoline, kerosene and so on)
Waterway (where rivers and canals are used for transferring goods by ferries and
so on)
Railroads (locomotives and trains are used)
Trucks (different types of lorries and delivery vans are used)
Airway (aeroplanes are used as carriers)
Seaway (use of ships, ferries etc)

In selecting a transportation mode, managers normally take the following criteria

into consideration:

Accessibility (to what extent is it easy to get access to them? are they
overbooked? etc)
Dependability and reliability (how much care will be taken to ensure that the
product reaches its destinations in time and good shape?)
Load flexibility: (the degree to which a transportation mode can provide
appropriate equipment and conditions for moving specific goods that are heavy
or that have special shape or size)
Speed: (the total time a carrier keeps possession of the goods)
Frequency of shipment to a destination (how often does the carrier operate a line
to and fro)
Cost: (what is the total cost involved?)

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 Nature of product to be transported: (product characteristics: liquid, solid and
gases, toxic, volatile, etc)
Volume and weight of products: (size and mass)
Distance: (longer distance- higher total cost but less per unit cost)

8.9.6 Co-coordinating Transportation Services

It is most important for organisations to coordinate the transportation services that they
require. Quite often, one needs to book two to three months in advance in order to secure
shipment on a specific date. There is a need to follow up as soon as the goods arrive as
storage costs in ports and airports may be excessive. If left unattended, transportation can
very well be the cause of customer dissatisfaction. Managers must work out the best
schedule (which mode, what cost and so on) to ensure that the customers (internal and
external) receive the products that they require on time and in good shape.

Managers may wish to consider:

• Inter-mode transportation: two or more transportation modes used in

combination. This includes the organisation’s
transportation facilities as well.

• Freight Forwarders: facilitating agencies that consolidate shipments

from several firms into efficient lot sizes. Freight
forwarders’ profits come from the difference
between the transportation rates they charge a
manufacturer of the products to be, shipped or air
freighted and the rate that the carrier charges the
freight forwarder. The advantage of using freight
forwarders is that they assist in determining the
most efficient carriers and routes. They are also
useful for shipping goods to foreign markets.

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• Megacarriers: freight transportation firms that provide several
methods of shipment, a kind of one-stop shop to
take care of all the transportation problems of an
organisation.

Activity 6

Identify a major organisation of your choice. Examine how they approach their
distribution strategy.

8.10 SUMMARY

This Unit has explained the importance of place as a marketing mix variable. Place is
related to making products and services available to customers and end users.
Organisations either ensure the distribution of their products themselves or else they
delegate this task to intermediaries. You have learnt that intermediaries are people or
organisations that assist a manufacturer to make the product available to customers and
the public at large. In fact, intermediaries play a most important role in the distribution
process. Intermediaries make available to manufacturers, their facilities, know-how and
contacts and participate in financing distribution costs as well as assume certain risks on
behalf of manufacturers. You have learnt what intensive, selective and exclusive modes
of distribution are. You have also learnt that physical distribution involves the
processing, warehousing, inventory management and transportation of goods.

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UNIT 9 MARKETING MIX: PROMOTION

Unit Structure

9.0 Overview
9.1 Learning Objectives
9.2 The Role of Promotion
9.3 Objectives of Promotion
9.3.1 Specific Objectives of Promotional Strategies
9.4 The Promotion Mix
9.4.1 Advertising
9.4.1.1 Developing an Advertising Campaign
9.4.1.2 Benefits and Limitations of Advertising
9.4.2 Personal Selling
9.4.3 Public Relations/Publicity
9.4.4 Sales Promotion
9.4.4.1 Sales - Promotion Programmes
9.4.4.2 Sales - Promotion Objectives
9.4.4.3 Sales Promotion Programme Design
9.4.4.4 Promotion to Resellers
9.4.4.5 Estimating Market Response
9.4.5 Direct Marketing
9.4.5.1 Benefits of Direct Marketing
9.4.5.2 Forms of Direct Marketing
9.4.5.3 Customer Databases
9.4.5.4 Direct Marketing Program Design Considerations
9.9 Summary

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9.0 OVERVIEW

This Unit introduces you to Promotion as another marketing mix variable. You will learn
that promotion is essentially a communication process – communication that takes place
between manufacturers or service providers and customers as well as the public at large.
You also will learn that the promotion mix is composed of advertising, publicity,
personal selling, sales promotion and direct marketing.

9.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Explain the role of promotion.

2. Discuss on promotion and communication process.
3. Learn about the Promotional Mix: Advertising, Publicity, Personal Selling, Sales
Promotion and direct marketing.
4. Select promotional tools.
5. Define the Nature of Sales Promotion & Sales Promotion.
6. Know what Sales Promotion achieve: Opportunities and Limitations.
7. Elaborate on Consumer Sales Promotion Techniques.
8. Explain Trade Sales Promotion Techniques.
9. Define publicity.

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9.2 THE ROLE OF PROMOTION

By definition, promotion is:

To communicate with individuals, groups or organisations to directly or

indirectly facilitate exchanges by informing and persuading one or more
audiences to accept an organisation's products.

Successful companies have to continuously communicate with their customers. This

communication should not be left to chance. Marketing managers must take absolute
care in designing communication to the public at large and their specific target audience.

This involves considering:

What to communicate?
When to communicate?
How to communicate?
What cost would be involved?
What resources are required?

In fact, we now refer to promotion as the Integrated Marketing Communication (IMC).

Promotion has its own mix of variables that marketing managers can use. They are
advertising, publicity, personal selling, sales promotion and direct marketing. These are
discussed in this Unit. As promotion is basically a communication process, you are
strongly advised to broaden your knowledge on Communication (you may wish to refer
to any textbook in management and read the chapter on Communication).

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Warm-Up Activity

Illustrate the use of the promotion mix that is, advertising, publicity, personal selling,
sales promotion and direct marketing from examples of your experience.

Jot down a few issues that come to your mind regarding these.

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9.3 OBJECTIVES OF PROMOTION

The broad objectives of promotion are:

1. To improve the price/quality trade-off from the company’s standpoint.

2. To increase sales volume and market share.
3. To communicate to target audience anything related to the product, place and
price .
4. To build and sustain relationship with customers.

Promotion is often used to increase the perceived value of a product relative to its real
value to the customers. For example, oil additive is commonly thought to have no
significant value in terms of increasing engine life or improving performance. Only a
few customers have the expertise to determine whether oil additives actually improve
performance or engine life. Through promotion it was possible to convince them and
keep them convinced that the oil additives do extend engine life and improve
performance.

Promotion on its own may not be able to create a successful product but can only increase
market acceptance. Many possible relationships exist between consumers and product
knowledge. These lead to different promotional objectives, as explained below.

Situation 1

Consumers are unaware of the brand name but have a need for the product.
For such cases, promotion must play the role of informing customers of the
existence of the brand, demonstrate its benefits and uses.

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Situation 2

Consumers know a particular brand but purchase a competing brand.

In such cases, there is a need to demonstrate the superiority of the firm’s brand.
Basically the specific objective of promotion in this case is to attempt to increase
market share through creating changes in consumer behaviour, attitudes, and
perceptions.

Situation 3

CONSUMERS know the brand and purchase it, but they often or sometimes purchase
competing brands as well.
Here the primary promotion objective may be to develop a higher degree of brand
loyalty e.g. cereal manufacturers frequently enclose cents-off coupons in package
in order to encourage repeat purchase of the same brand.

Situation 4

Consumers are aware of the brand and purchase it consistently.

In this case the primary objective of promotion is to reinforce purchase via
reminder advertising or phone calls. This strategy is often adopted by insurance
companies, maintenance contract with other organisations, etc.

9.3.1 Specific Objectives of Promotional Strategies

The specific objectives of promotion are to:

• Inform, persuade and remind customers about products, their features and benefits.
• Increase Brand awareness (the more we communicate about the brand, the more
people get to know about it).

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• Build knowledge of product and Brand (from information that is communicated
repeatedly and widely)
• Build corporate image (through repeated reference to the company and the
brand)
• Change consumer attitudes about a company
• Change consumer attitudes about a brand
• Build brand image and positioning
• Announce price reduction/increase
• Inform consumers of place of sale (that is where the product or the service is
available)
• Develop brand loyalty (through continuously reminding customers about the
brand)
• Reassure consumers of brand quality
• Increase or enhance short-term/long term sales
• Prospect customers (particularly for people who hear or read or learn about the
product)
• Obtain product trial (people who try are more likely to adopt the product)
• Inhibit purchase of competitive brands
• Inform consumers of favourable credit, delivery, and warranty terms
• Increase store patronage and store loyalty

In other words, promotion is about communicating to the public at large and to target
customers pertinent information that is related to the product, price and the place in order
to catch their attention and get them to purchase the organisation’s products. Otherwise,
promotion helps to maintain a presence in the minds of regular customers so as to keep
them loyal and occasion repeat purchases. Promotion also helps organisations to build
and reinforce their image and product/service brands.

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Activity 1

Use examples of your experience to illustrate some of the objectives of promotion as

listed above.

9.4 THE PROMOTION MIX

In this section, we explain in some details the variables that constitute the promotion mix,
which, to remind you, are:

Advertising
Personal Selling
Sales Promotion
Publicity
Direct Marketing

Organisations normally combine specific elements of the promotion mix to promote their
products. These elements must blend harmoniously into an effective communication
strategy to meet the promotional objectives.

Let’s now discuss each of these elements.

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9.4.1 Advertising

Advertising is:

Any paid form of non-personal communication about an organisation or its products that
is transmitted to a target audience through a mass/broadcast medium.

Advertising is a communication from an organisation to promote its products or services.

This communication is transmitted to a target group through an appropriate medium:
print (newspapers, magazines, etc) or broadcast and electronic medium (radio, television,
Internet). Advertising is quite convenient to inform and convince large group of
customers and the public at large about products and their benefits. Advertising finds
itself most useful and appropriate whenever there exists severe competition and when
new products are introduced in the market. It is used by various organisations including
churches, schools, universities, social groups and charities, political parties and
politicians, not for profit organisations, etc.

In deciding what to and whether to advertise, you will find it useful to address the
following questions:

Does the product possess unique and important features that must be
communicated to customers or that if communicated to them would improve sales
or consumption?
Are the hidden qualities and features of the product important to the buyers?
Is the general demand trend for the product adequate? Will it be so? For how
long?
Is the market potential for the product significant?
Is the competitive environment favourable to advertising?
Does the organisation have sufficient funds to finance and launch an advertising
campaign?

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Advertisements are particularly meant for:
standardised products (in order to maintain a presence in the minds of customers)
products that are meant for large markets
products that have easily communicable features
low priced products (to emphasise value for money, quality products that are
available cheaply)
new products (any product improvement brought to the original one etc)
products that are sold through intermediaries (this also puts intermediaries in the
picture)

The following examples illustrate the purpose and objectives of advertising. They will
help to improve your understanding of advertising as a “promotion tool”.

(a) Promoting Products or Organisations

Institutional advertising promotes organisations, images, ideas, etc. For example,
tobacco companies sponsor various social activities to promote the company
image. Product advertising promotes goods and services available or to be made
available (new products).

(b) Stimulating Primary and Selective Demand

When introducing new products, there is a need to stimulate primary demand.
Advertising is used to inform people about the product (introduction stage of the
product life cycle). Advertising is also used to stimulate the demand for a product
group.

For selective demand, advertisers use competitive advertising, brand uses and
benefits not available with other brands. Many organisations have recourse to
comparative advertising, where the product of a competitor is comparable to the
organisations’ product.

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(c) Offsetting Competitors Advertising

Quite often organisations have to make use of defensive advertising to respond to

competitors’ advertising and minimise their influence on the target market. This
is particularly used in fast food industry and for extremely competitive consumer
product markets.

(d) Enhancing salespersons’ effectiveness

When launching new products in particular, organisations often use advertising to
present product to buyers by informing them of uses, features and benefits and
also encourage them to contact intermediaries, etc.

(e) Increasing use of a product

Consumers usually consume a limited amount of a product. This limits the
absolute demand for the product. Advertising may be used to encourage or
convince the market to use the product in various ways including more sizeable
quantity or more frequent use of the product.

(f) Reminding and reinforcing perception of customers

Advertising may be very useful in reminding the customer about the company and
or its product name. Reinforcement prevents cognitive dissonance, that is, regrets
that may result after a purchase has been made.

(g) Reducing Sales fluctuations

Advertising helps to enhance sales during slow periods to maintain production
efficiency. For example, advertising the sale of sweaters at reduced prices in the
summer months; reduced admission fare in cinema houses during a particular
period in time.

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We shall now examine briefly the activities involved in developing and implementing an
advertising campaign.

9.4.1.1 Developing an Advertising Campaign

In principle, while developing an advertising campaign, the marketing manager must try
to integrate marketing activities such that the campaign incorporates sales promotions
and other communications tools. The advertising campaign involves designing a series
of communications (oral and/or with appropriate graphics messages etc) and placing
them in various advertising media to reach a particular target market. The seven steps
shown in Figure 9.1 can prove quite helpful in planning an advertising campaign. The
same steps with appropriate modifications may be followed to plan a promotional
campaign that involves the other promotional tools, that is, personal selling, public
relations, sales promotion and direct marketing.

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 Figure 9.1: Steps for Developing an Advertising Campaign

Identify and Analyse the Advertising Target Group.

Define Campaign Objectives

Establish the Advertising Budget

Create an Advertising Message

Develop a Media Plan

Implement the Campaign

Evaluate the Effectiveness of the Campaign

Feedback

1. Identify and Analyse the Advertising Target Group

It is first important to identify the group of people or organisations to which
the advertisement is targeted. Data on the advertising target group is sought
and collected to establish an information base for the campaign. Generally,
the more information we have on the target group, the more effective will be
the campaign, in the sense that you will know which media to use, when to
launch the campaign, etc.

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2. Define campaign objectives
Once the target group has been identified, the next step is to define in precise
terms what the organisation hopes to accomplish from the campaign. The
objectives set must be clear, realistic, and measurable. Measurability helps to
assess the success of the campaign.

It is important to determine clearly, what the campaign is trying to achieve. For

example, is it to increase purchases, to generate traffic in the retail store? To
persuade customers about this product being cheaper and of better quality? Etc.

You may wish to consider the following examples to define your advertising
campaign’s objectives:

Demand oriented objectives versus image oriented objectives (that is to increase

demand or enhance the company’s image, can be both as well)
Increase product/brand awareness
Change consumer attitudes and preferences; reposition product
Increase customer knowledge about product features, benefits, and uses
Communicate price increase/reduction
Communicate where products/services are available.

3. Establish the Advertising budget

The advertising budget represents the total amount of money that is allocated for
advertising over a defined period. The budget allocation is a very important and
determining step of the advertising plan. Several possibilities exist for
establishing the advertising budget. These include assigning to the advertising
budget a percent of sales turnover, matching competitors’ campaigns, using
judgement and intuition of experienced managers, etc. The advertising budget
must also take into consideration the financial resources. At times, it pays to
invest in advertising to keep the company alive and improve cash flow, etc.

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4. Create an Advertising Message
The next thing to do is to work on the message that the organisation wishes to
transmit to its target audience. The message may be a function of the product’s
features, uses, benefits, availability, price etc. Here knowledge of the
characteristics of target market is of prime importance. Often organisations
formulate different messages to different target groups. Sometimes a celebrity is
associated with the advertising message. Absolute care must be taken to ensure
that the advert is able to attract the reader’s attention, arouse his or her interest
and influence him or her to react positively to the message. The amount of
information to communicate is also a decisive factor; the more information we
wish to communicate, the more costly it may be from a media point of view – for
example more television time or larger space in newspaper, magazines, etc.

Activity 2

(i) Identify any advert of your choice from a newspaper or magazine.

(ii) Determine to what extent the advert is able to create awareness, arouse interest
and desire, and prompt for action.

(ii) How would you wish to improve the advert? (Please bring the advertisement with
you for class discussion)

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5. Develop a Media Plan
The media plan specifies the choice of media (television, radio, internet,
newspaper, magazines and so on) that would be used as well as the timing (dates
and time of ads) of the adverts. The media plan indicates an approximate target
group as well as the number of persons to whom we wish to direct our message.
As the primary objective of advertising is to reach the highest number of people
(within the advertiser’s target) per rupee spent, it is important to have a good
strike rate – that is, reach the majority of the target group.

Media available for advertising may be any (or any mix) of the following:

TV Channels/programs
Sponsored cable channels
Radio
Magazines
Newspapers
Direct Mail
Outdoor: Billboards/Posters/Kioks
Place-based: Schools, Universities, Supermarkets, Health Clubs, Dining Halls, etc.
Electronic: Website, CompuServe, etc.

In deciding which medium to choose, you have to examine the location and
demographics of your target group and choose media that will appeal to this group. Quite
often the contents of the message to present do influence the choice of media. Costs of
media as well as the availability of the media are other factors to consider. Some media
may prove very expensive, prohibitive, and restrictive; for example, some countries do
not allow advertising on television, etc.

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 The following serves as useful guidelines to formulate the media plan:

Cost and total cost: per reader/viewer cost; varies with timing (primetime for radio
or television) or page location in newspaper or magazine.
Reach: number of viewers/readers in the audience, print media includes circulation
and pass on, more for magazines than newspapers.
Waste: represented by the number of audience that are not in the target market or
who have missed the advert.
Frequency: how often can the medium be used or changed, i.e., TV and radio
hourly, newspapers daily or weekly, Yellow pages and directory yearly.
Message performance: number of exposures that each advert generates and
how long it remains available to the target group; outdoor ads as well as magazines
that are kept for a long period of time provide many exposures, etc.
Clutter: This represents the number of adverts that appear in a single
programme or issue of a print medium.

6. Implement the Campaign

Once the message and the media plan are ready, the next step is to implement the
campaign. Executing the campaign requires proper planning and coordination.
Activities involved include contacting and liasing with advertising agencies,
research organisations and departments, media firms, printers, photographers, and
commercial artists etc. A detailed schedule is much desired to ensure that
everything is accomplished on time.

7. Evaluate the effectiveness of the campaign

The final step for an advertising campaign is to evaluate to what extent the
objectives are achieved. This involves an assessment of the effectiveness of the
copy produced, etc., and the media selected. It is acknowledged that the typical
consumer is bombarded with several advertising messages a day and that
throughout the year. Most people cannot remember a typical advert two or three
days after seeing it.

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 In order to ensure the success of an advertising campaign, it is recommended to
pretest a copy of the message before launching the campaign. During the
campaign, inquiries are made to check for effectiveness, etc. Many organisations
also carry out post tests after the campaign, to evaluate the effect of the publishing
campaign, change in sales or market share, although it is acknowledged that
accurate results may not be obtained because of various circumstances.
Recognition tests are often carried out to determine the degree to which
consumers recognise and remember advertisements. A feedback loop helps to
provide continuous information about the campaign so as to draw lessons for
future campaigns.

9.4.1.2 Benefits and Limitations of Advertising

Table 9.1 lists the main advantages and disadvantages of advertising.

Table 9.1: Advantages and Disadvantages of Advertising

Advantages of Advertising Disadvantages of Advertising

Advertising provides lots of flexibility in various ways. Absolute cost may be very high in certain
For example, you may focus your advertising message on a circumstances. Cost includes the cost of
small, precisely defined segment (such as in-house the media, the cost associated with the
newsletters) or aim at the mass market, using the design of the template or TV spot (may be
appropriate media. prohibitive), etc.

Advertising may be quite cost efficient. The message is Advertising may not provide quick
capable of reaching a large number of persons or feedback or any feedback for that matter.
organisations at a low cost per person. Further it allows the
message to be repeated and it can help to improve public
image considerably.

Advertising enables the buyer to receive and compare the Advertising is much less persuasive than

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messages of various competitors. personal selling as there is no personal
contact involved.

Advertising is very often used to build a long-term image of You may reach only a part of the audience
a product. The more you advertise the more the company and in turn the audience does not
image and brand name of the product is established in the necessarily have to pay attention.
mind of customers.

Advertising can trigger quick sales, for example,

Mammouth advertising a weekend sale.

Activity 3

(i) From your experience and some additional reading, list down the major strengths
and weaknesses of each of the media, (TV, Radio, Newspapers, Magazines,
Billboards, electronic) that are available for advertising purposes.

(ii) Under what circumstances could advertising be of minimal importance to

marketing managers?

9.4.2 Personal Selling

Personal selling takes place through personal communication in an exchange situation

between the sellers or their representative/s and potential buyers. Personal selling is in

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fact a more specific communication aimed at one or more persons. It is very effective at
establishing and building buyers’ preferences, convictions and actions.

Some of the implications of personal selling are:

Cost per person may be quite high and may represent the most expensive
promotional tool.

Because of the opportunity of meeting the customers or potential ones in person,

personal selling may have better influences on them. However, there are
instances where personal selling may produce negative effects, for instance when
the timing is not chosen properly, or when the sellers are not experienced enough
or do not have appropriate interpersonal skills to deal with customers, etc.
Personal selling generally provides immediate feedback.

Compared to advertising, personal selling enables marketers to adjust their

message quickly to improve communication.

Personal selling is most effective when buyers’ interests are aroused and they are
interested to spare time to listen and respond.

A major drawback of personal selling is that it requires lots of commitment and

money to develop a sales force of the appropriate standards. Recruitment of a
quality sales force may be quite difficult for some organisations.

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9.4.3 Public Relations/Publicity

Public relations is a major mass-promotion tool that is mostly used to build and maintain
good relations with the stakeholders of the organisation, that is:

customers
employees
stockholders
government officials and institutions
suppliers
society in general

Compared to advertising, publicity is a non-paid form of a personal communication

about an organisation or its product that is transmitted through a mass/broadcast
medium.

Publicity or public relations involves the dissemination of news about an organisation or

its products or both through the mass media by a person who is normally external to the
organisation. The organisation identifies any celebrity person of its choice to talk about
its product or the organisation itself or both. The sponsor organisation does not
remunerate the person identified. Publicity may have both positive and negative impacts.
For instance, it is excellent when the celebrity person is popular and maintains his or her
popularity. However, if there is anything controversial about the person afterwards, the
organisation may face severe repercussions. Thus, marketing managers have to be very
careful in making the choice and must address bad publicity tactfully. The need to
cultivate effective media relations and targeting publicity to key stakeholders are viewed
as priorities in public relations.

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Publicity and Advertising compared

To facilitate your understanding of publicity, the following points of difference between

advertising and publicity may prove useful:

Publicity is primarily informative whereas advertising may be both informative and

persuasive.
Publicity is more subdued.
Publicity does not identify the sponsor.
Publicity is free.
Publicity is part of a program or print story and appears more objective.
Publicity is not subject to repetition.
Publicity is more credible.

In the same context as what has been discussed in the earlier Sections and Sub sections
on Advertising, the activities involved in public relations are:

1. Setting public relations objectives – considering the image an organisation

wishes to project to its market.

2. Choosing public relations vehicles and media – selecting the appropriate media
and message for the target market, e.g. using “up-market” publications to project
“up-market” image.

3. Implementing public relations programmes – ensuring newsworthy stories are

published.

4. Evaluating public relations programmes – measuring the impact, e.g. level of

sales before and after PR campaign.

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The main limitation of using publicity is that the media must judge publicity to be news
worthy, timely, interesting and accurate before they accept to go ahead. It may not be
possible for the organisation to control the contents or timing of the message or action.

Activity 4

Provide suitable examples of your experience relating to publicity or personal relations

used as a promotion tool.

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9.4.4 Sales Promotion

Sales promotion involve the identification of materials that act as a direct inducement,
offering added value, or incentive for the product; these materials are then distributed to
consumers directly or through intermediaries and sales persons.

Sales promotions are designed for immediate (short-term) increase in product sales
although indirectly organisations may benefit in the longer term. It must also be
appreciated that the frequent use of sales promotion may have negative effects on the
image of the organisation.

9.4.4.1 Sales Promotion Programmes

Marketing managers have in sales promotion an effective tool to create awareness about a
product, influence the customers through trials, free tasting, coupons, and so on. Sales
promotions in fact include all short-term offers meant for customers (buyers, retailers, or
wholesalers) and designed to achieve mostly a specific and immediate response.

Sales promotions fall into two main categories:

1. Trade Promotions: those directed toward retailers and wholesalers, and

2. Consumer Promotions: those directed toward the end users and consumers.

Trade promotion involves the participation in trade shows and fairs organised by
government and other agencies. They are basically meant for marketing intermediaries
whereby the organisation seeks to enlarge its distribution network. Consumer promotions
are run by the organisation for the benefits of its customers and the public at large.

Sales promotions are normally supplemented with advertising programmes. In turn, the
advertising programmes provide an opportunity to build on the image of the company
and make it better known. Sales promotions contribute to an advertising programme by

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creating cognitive and affective responses, although the primary function of sales
promotion is to create immediate and specific behavioural responses.

Most of you must have had some experience of sales promotion recently. For example
the sales persons who are present in the supermarkets or hypermarkets to introduce to you
the products of their company and offer free tasting and miniatures. These are now
regular occurrences in everyday life. In fact in recent years, research shows that the rate
of growth in sale-promotion expenditures has greatly exceeded the rate of growth in
advertising expenditures.

Sales Promotion Expenditures are increasing for the following reasons:

1. Slow population growth has intensified competition for market share and sales
promotion provides a short-term answer.

2. Micro-marketing and niching segmentation and rising media costs have made
advertising less cost-effective.

3. Mature PLC’s make differentiation more difficult and sales promotions such as
free fasting, giving coupons and scratch cards among others become more
prevalent.

4. Intermediary resellers are seeking increased trade promotion support for a firm’s
product or product line.

5. Price-oriented sales promotion programmes are more reliable than advertising for
boosting short-term sales volume and earnings.

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 9.4.4.2 Sales Promotion Objectives

Sales promotion programmes must be planned to achieve both efficiency and

effectiveness. Cost involved and time requirement may be quite significant. Further if
responses are immediate, you may create rush towards your outlets that is difficult to
control and serve. For maximum effectiveness, the sale promotion programme must be
consistent with the marketing strategy and coordinated with the advertising programme.
Sales promotion programmes may be directed to final buyers (pull strategy) or
intermediaries (push strategy).

Pull Strategy Promotions attempting to get consumers to buy

products via an increased number of incentives.

Push Strategy Promotions attempting to push more products

through the distribution channel.

Sales promotion programmes involves the following main activities:

9.4.4.3 Sales Promotion Programme Design

If you are involved in the design of sales-promotion programmes, you are advised to take
the following suggestions into consideration.

1. Factors influencing the Nature of the Market Response

Many sales promotion programmes are ineffective and too costly for one or more
of the following reasons:

(a) Consumer response rate to the promotion is very small. For example, low
coupon redemption rate.

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 (b) Sales resulting from the promotion are largely displaced sales; that is,
sales are made to customers who would have bought the product anyway.
(c) A large portion of the sales increase is due to stocking-up, thus borrowing
sales from future periods. Stock-up effects are likely to be greatest when:

• Buyers have much storage space or do not mind money tied up in

inventory
• Low product spoilage or obsolescence risk
• Promotions are directed toward regular customers
• No limit is set towards purchase volume, that is no restriction on
how many units a customer can have at one go.

2. Brand-Specific Considerations: Direct Price Incentives

Promotion of perceived high-quality brands impacts weaker brands (and private
label products) disproportionately. More switching from weaker brands to
stronger brands occur than the reverse when weaker brands are promoted. The
more the frequency of price “deals” the more sensitive consumers are to price,
that is, if organisations keep on lowering their prices, consumers have a tendency
to wait for the lowest price.

Over the long-term, continued price promotions of premium brands to compete

regular brands may gradually undermine its position of advantage. Leading
brands (those that enjoy high market share) have the most customers to lose and
the fewest to gain in promotion wars with competition. Also, because they have
the most customers, the lost profitability from displaced sales is more significant
for high-share than low-share brands.

9.4.4.4 Promotion to Resellers

Trade promotions are designed to achieve either inventory building or promotional

support. Many trade promotions fail to achieve these objectives because:

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1. Forward buying buyers buy in large volume during deals to avoid buying at
normal prices.
2. Diversion buyers make purchase beyond their own requirements
during price “deals” and resell the discounted merchandise
to other resellers at a profit.
3. Failure to “pass through” price reductions.

Marketing managers can address these problems by analysing the buyers’ needs with
respect to the product category to be promoted and the brand’s price elasticity (for
example, to what extent price will influence demand or how sensitive customers are to
price). In as far as product category is concerned, one important parameter to consider is
the shelf life of the product. Low perishable products can be inventoried easier than
high-perishable products. However, inventory ties up space and money and that needs to
be taken into consideration as well.

Similarly slow moving product categories are less attractive for forward buying practices
than rapid- moving product categories. Retailers will not engage in forward buying for
slow-moving brands since these products create inventory problems. Retailers may
decide to forward buy (buy in advance), if the price reduction exceeds the inventory
holding costs associated with the turnover of the product. If the retailer passes the price
reduction to consumers and the brand has strong price elasticity, retailers may buy in
larger-than-normal quantities in a given time period with the intention of selling the
larger purchase within that time period.

Sales Promotion Programme Cost

Cost considerations are most important for sales promotion programmes. There is no
point to launch a sales promotion campaign half-heartedly. Most promotions will incur
both direct fixed costs and variable costs.

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Direct fixed costs may be in the form of:
Physically distributing samples
Mailing coupons
Advertisement carrying coupons
Inquiry slips
Premium offers

Variable costs would be:

Value of the coupon used

Money-off special to trade/customer
Retailer remuneration for processing redeemed coupons

9.4.4.5 Estimating Market Response

Estimating market response is critical in sales-promotion budgeting because:

1. Total variable costs cannot be estimated without an estimate of market response.

2. Unlike advertising objectives, sales promotion objectives normally have a direct
link to sales volume.

Thus, estimating response enables marketers to assess sales-promotion profitability (that

is, marketers assess whether or not the programme will pay for itself within some given
time period) and the likelihood of the programme’s objective being achieved.

Specifically there are six types of market response that managers might expect:

Redemption rates: the total number of (or percentage of total possible) buyers
responding to the incentive.

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Displacement rates: the number (or percentage) of buyers who bought the item during
the promotion and who would have purchased it at the normal
price. Displacement rates among users of a brand tend to be very
high.

Acquisition rates: the number of non-regular buyers purchasing the item during the
promotion. It is not unusual for redemption rates to exceed the
brands market share as a result of the combined displacement and
acquisition rates.

Stock-up rates: the volume sold during the promotion that are “borrowed sales”
from future purchase periods. When this occurs at the wholesaler
or retailer trade levels it is referred to as “forward buying”.

Conversion rates: the level of post-promotion purchases that come from new
customers acquired during the promotion period.

Product line effects: many sales-promotions are very similar to price reductions and
cross-product elasticities of demand may exist between the
promoted product and complementary or substitute products - for
example, sales of more cameras occasion sales of more films etc.

For complementary products, sales gains due to a reduction in another promoted product
is referred to as “add-on-sales”. For substitute products, sales reductions due to a
reduction in another promoted product is referred to as a “cannibalised” sale. Where
possible, add-on and cannibalised sales must be taken into account while assessing the
programme profitability just as most displacement rates.

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Activity 5

(i) Identify five popular sales promotion techniques.

(ii) Write brief notes on how they are implemented.

9.4.5 Direct Marketing

Direct Marketing is the process of developing and exploiting a direct relationship

between an organisation and its customers. Direct marketing programmes have existed
for over one hundred years.

The recent rapid growth of direct marketing is partly due to:

Fragmented markets – (market segments which can be served according to needs

and preferences as opposed to mass markets).
Rapid increase in credit card ownership, which facilitates the transactions
stimulated by direct marketing programmes.
Increased use of computers and internet (and decreased cost) for storing and
analysing large customer databases.

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 9.4.5.1 Benefits of Direct Marketing

Direct marketing is growing rapidly because of the many benefits it offers, both to
customers and marketers. Table 9.2 lists the main benefits that can be derived from the
practice of direct marketing.

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 Table 9.2: Benefits of Direct Marketing to Customers and Marketers

Benefits to Customers Benefits to Marketers

Convenient and time saving Personalised service

E.g. on-line transaction can be done from home E.g. mailing lists can be bought and names
and at any time of the day and night. selected to target potential customers.
Products and messages can then be
personalised and customised.

Hassle-free Relationship building

E.g. there is no need to be physically present in By enjoying individualised products, satisfied
the store to make a purchase if shopping is by customers come back to the same organisation,
catalogue. Save customers hassles of traffic thus, creating a relationship.
jam, parking space and so on.

Comparative shopping Timing accuracy

E.g. catalogues can provide a good description E.g. the customer database can provide data
of a variety of goods and their price. Product such as birth dates of a family. This can be
specifications may be examined at leisure and used to propose gift ideas to the customer at
compared with those of competitors. the right time.

Privacy Privacy
There are some products which consumers Competitors do not get access to the
prefer to buy in private and for which they may strategy/offer used by the organisation.
feel quite embarrassed to discuss with sales
persons.

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 9.4.5.2 Forms of Direct Marketing

The main forms of direct marketing are:

• Telemarketing use of telephones or television to sell products or

services
• Face-to-face selling
• Direct-mail marketing
• On-line Marketing
• Catalogue Marketing
• Direct-response marketing
selling through catalogues
mailing of letters, leaflets etc
shopping through interactive computer systems,
linking buyers and sellers electronically
selling through catalogues which are available in
stores or which are sent by post
e.g. advertising a particular product on TV and
providing a toll-free number for customers to order
the selected product

Activity 6

Choose three forms of Direct Marketing from the above and list down their advantages
and disadvantages.

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 9.4.5.3 Customer Databases

Without knowing who their customers are, organisations will not be successful at
conducting direct marketing. A customer database enables organisations to successfully
target their markets.

A customer database comprises of a collection of data about existing or potential

customers. The database includes geographic, demographic, psychographic and
behavioural data. Databases can have several uses to organisations. For example, from a
database, we may

• Tailor products and services to customer preferences

• Provide for on-going interaction with existing and potential customers
• Select media that fit the profile of customers
• Maximise personalisation
• Build and retain customer relationship

9.4.5.4 Direct Marketing Program Considerations Design

The effectiveness of a direct marketing response depends on:

how effective it is in generating the desired response

how efficient it is, from the cost and benefit point of view.

Generating the desired response depends on the design of the marketing database and
how the database has been used to select target customers.

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Using Purchase History to Forecast Response

A major advantage of direct marketing is its ability to deliver specific offers efficiently
by focussing the organisation’s efforts on those customers who are most responsive.
This is achieved by segmenting the organisation’s customer base with respect to
purchase history.

Three useful types of data that can be obtained from database and that are linked
to purchases are:

Recency amount of time since last purchase

Frequency the percentage of solicitations in some recent

period that resulted in an order or the number of
orders in a time period

Monetary Value the average order amount within a given period

The two immediate consequences of direct marketing are:

1 The elimination of distributors or minimal use of intermediaries

• Eliminating the need of their services

• Absorbing the cost of performance of these services by
the direct marketing programme

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2. Opportunity to perform the distribution services more efficiently

Essentially a direct marketing programme:

• Eliminates the middlemen’s margins, absorbs these margins, and offers the
product to the consumer at full retail price or less.
• Absorbs the costs of fulfilling the order to the customer, which is less than the
margin added by a middleman when the indirect channel is used.
• Passes on the delivery cost to the customer. This is a cost usually absorbed by
either the manufacturer or reseller in traditional marketing middlemen
transactions.
• Eliminates or minimises the cost of maintaining a field sales force.
• Eliminates the cost of mass advertising.
• Incurs the cost of design, production, and mailing direct marketing promotion
literature.

With direct marketing, fixed cost associated with sales force and advertising are quite
low. With lower direct fixed costs and higher unit variable contribution to margins, the
same unit sales volume using the indirect channel (traditional middleman marketing
channel structure) will generate substantially larger total profits.

Activity 7

What does Direct Marketing do especially well?

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9.9 SUMMARY

This Unit has explained to you the several concepts and terms that are associated with
Promotion as a marketing mix variable. You have understood that promotion is
essentially a communication from sellers and service providers to buyers and the public
at large in order to promote the products and services. You have learnt that promotion
has five main components:

1. Advertising
2. Public relations
3. Publicity
4. Sales Promotion
5. Direct marketing

You have also appreciated that promotion is a process that needs to be undertaken with
care in order to achieve optimum efficiency and effectiveness.

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UNIT 10 STRATEGIC MARKETING PLANNING

Unit Structure

10.0 Overview
10.1 Learning Objectives
10.2 Introduction
10.2.1 Strategic Marketing Planning
10.2.2 Understanding SBU’s
10.3 Strategic Planning Process
10.3.1 Swot Analysis
10.3.2 Mission Statement
10.3.3 Formulating Corporate Objectives
10.3.4 Developing Corporate Strategy
10.3.4.1 Organisational Goals or Objectives
10.3.4.2 Tools for Strategic Market Planning
10.3.4.3 Marketing Plan
10.3.5 Implementing Marketing Strategies
10.3.6 Controls and Evaluations
10.4 Summary

10.0 OVERVIEW

This Unit introduces you to the various steps involved in Strategic Marketing planning.
You will become conversant with tools and techniques that are used in strategic
marketing planning. You will have other opportunities to learn more about marketing
planning as you progress in your programme of studies. This Unit simply lays the
foundation for understanding what strategic marketing planning is about.

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10.1 LEARNING OBJECTIVES

After completing this Unit, you should be able to do the following:

1. Define a marketing plan and strategy.

2. Elaborate on the activities involved in strategic marketing planning.
3. Identify the stages involved in strategic marketing planning.
4. Explain how to formulate a marketing plan for an organisation.

10.2 INTRODUCTION

It is necessary for you to understand the importance of strategic marketing planning and
marketing. Technically, strategic planning helps you to establish where your
organisation is now (what it is currently doing and achieving) and where you would want
your organisation to be in the future (that is, in which business you would wish to be in).

Strategic marketing planning requires some effort from marketing managers and in this
Unit we provide a framework to understand what is involved in strategic marketing
planning.

The concept of a strategy:

A strategy is a comprehensive and integrated course of action for achieving a sustainable

and competitive change. Strategies are means that are used in order to achieved ends (the
targets or goals that you have set).

A strategic marketing plan gives direction to an organisation’s efforts in dealing with its
environmental opportunities and threats with a view to achieving profitability and
growth. It enables the organisation to better understand the scope of marketing research,
consumer behaviour analysis, and product, distribution, promotion, and price planning, as
well as the segmentation, targeting and positioning of markets.

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The strategic marketing process includes amongst others the development of:

SWOT Analysis

Mission Statement

Organisational Goals/Objectives

Corporate Strategy

Marketing Strategy

You have studied in the previous Units the importance of marketing in organisation, in
particular, how marketing helps to identify customers needs and wants and satisfy these
profitably. It must be emphasised that marketing essentially plays an integrating and a
coordinating function in an organisation. In this respect, the strategic marketing plan is in
fact a plan of all aspects of an organisation’s strategy in the market place.

The process of strategic marketing planning yields as output a marketing plan.

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Warm-Up Activity

(i) Suggest some reasons why companies need to develop strategies.

(ii) From your understanding of the previous Units of this module, jot down a few
items that you believe must be incorporated in a marketing plan.
(iii) Compare and discuss your findings with your friends.

You will appreciate from the warm-up above activity that a marketing plan deals
primarily with the marketing strategy as it relates to target market(s) and the marketing
mix.

10.2.1 Strategic Marketing Planning

A Strategic Marketing Plan provides an outline of the means and resources required to
achieve the organisational marketing goals. The plan lays down the direction an
organisation will pursue within its chosen environment and guides the allocation of
resources and effort.

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Strategic marketing planning requires general marketing orientation (on outward focus on
customers) rather than a narrow operational orientation (an inward focus on operations
and actvities). All functional areas of an organisation, including marketing must
participate in the planning process. Remember what we said about marketing oriented
organisations; marketing plays an integrating and coordinating function. Depending
upon how the organisation is structured in terms of whether it is a one-business activity
or multi-business activities, the strategic marketing plan for the overall organisation will
take different forms.

10.2.2 Understanding SBUs

An organisation can be broken down into several strategic business units (SBUs). Each
SBU is a division, product line, or other profit centre within the parent company. For
example, the Rogers Group in Mauritius is an multi-business organisation and adopts the
concept of SBUs.

SBUs have their own strategic plan and can be considered a separate business entity
competing with other SBUs for corporate resources.

We know by now that customers buy products by weighing the benefits (usually gained
through product's features and attributes) they receive from a product versus its cost. A
company can choose a strategy of offering products differentiated (by features or
functionality), from its competitors (ACER computers possibly at a higher price), or
offering products similar to its competitors, but at a lower price (Cash and Carry). In
practice, a company's strategy usually includes both differentiation and low cost, but it is
useful for marketing managers to determine which of these two is more prominent.

Further, a company has to decide whether to pursue different strategies in different

segments of the market (usually defined by different customer types). Products can
become standardised (for example the VCRs, etc.); making continuous differentiation
may be very difficult to achieve. In such cases, competition is then predominantly based

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on price or service elements. It is often difficult to pursue a low cost strategy in one
segment of the market while simultaneously focusing on a differentiated strategy in a
different segment of the market because information is accessible and customers become
aware.

In this context, an organisation may wish to consider creating a separate subsidiary or

SBU to compete with other organisations for price conscious or the upscale customers.

Activity 1

(i) Choose any group of companies in Mauritius. List down a few of the SBUs that
fall under the group.

(ii) Study one of the SBUs and point out the main features of its marketing strategy.

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10.3 STRATEGIC PLANNING PROCESS

The strategic planning exercise normally includes the following processes:

Table 10.1: The Strategic Planning Process

Performing a SWOT analysis + Competitive

Analysis

Developing a Mission Statement

Formulating Corporate Objectives

Developing Corporate Strategy

Developing Marketing Strategy

Implementing the Marketing Strategy

Evaluation and Control

Feedback

Each one of these processes is briefly explained in the next sub-sections. Please note that
you will learn more about strategic planning as you progress in your Programme of
Studies at the University.

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10.3.1 Swot Analysis

The strategic marketing planning process starts with an analysis of the internal and

external (or surrounding) environment to determine the Strengths and Weaknesses of

the organisation (based on its internal environment) and the Opportunities and Threats
that the external environment present. This is often called the SWOT analysis.

In other words, the SWOT Analysis examines the organisation’s:

Internal Strengths and Weaknesses

And
External Opportunities and Threats

By carrying a SWOT analysis, a company can determine what its distinctive

competencies are (that is, the activities that the organisation does best or in what it
excels). This will help to determine what the organisation must be doing in the future (in
what business it should be in and from what business it should withdraw). In other
words, the SWOT analysis helps to formulate or reformulate the mission statement of the
organisation. The SWOT analysis also helps to identify trends (in consumer behaviour
or markets) and make forecasts about sales, profitability, etc. Unit 2 of this textbook that
explains in some details the marketing environment of an organisation will be most
helpful in assisting you to perform the environmental audit and scan. It is also essential
for an organisation to analyse its competitive environment. It must know the stage and
nature of competition and anticipate how competition will evolve. You will learn more
about how to assess competitive forces later in your programme of studies

10.3.2 Mission Statement

The mission statement is considered to be the invisible hand that guides the organisation
as it paves its way into the future. The mission statement must be brief and stipulate what
the organisation broadly wishes to achieve with respect to its products, markets and

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stakeholders. To-day’s mission statement emphasises more what the organisation will be
doing to keep in touch with consumers’ needs and wants. It is also important for the
organisation to strike the right balance in defining the scope of its business – neither too
wide and broad nor too focus.

For instance,

Mauritius Telecoms may define its business as being in the communications

business instead of the telephone business.
Visa Card allows customers to exchange values and not credit cards.
3M solve problems by putting innovation at work.

Mission statement must also capitalise on the distinctive competences of the corporation,
as identified from the SWOT analysis.

Activity 2

Identify the mission statement of any organisation of your choice. Examine its contents
and record conclusions that you can draw from the mission statement.

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10.3.3 Formulating Corporate Objectives

In formulating the corporate objectives (that emanate from the mission statement and that
concern the whole organisation), it is quite important for the organisation to dwell within
the broader limits of its mission. This is achieved by taking into consideration the
environmental opportunities and threats and the companies’ resources and distinct
competencies.

10.3.4 Developing Corporate Strategy

Corporate strategy is a coherent, integrated and comprehensive action plan. It is

concerned with issues such as market or product development, diversification,
competition, differentiation, interrelationships between business units and environmental
issues. It attempts to match the resources of the organisation with the opportunities and
risks of the environment, as identified by the SWOT and the competitive analyses.
Corporate strategy is also concerned with defining the scope and roles of the SBUs’ of
the organisation so that they are coordinated and integrated to achieve desired goals.

10.3.4.1 Organisational Goals or Objectives

Specific goals and marketing objectives must be formulated so that they can be
accomplished through the most efficient use of the organisation’s resources.

These goals and objectives are derived from the mission. Goals must specify the end
results whereas objectives are the specific targets that have to be met.

When objectives are set, it is important for you to remember the following criteria.
Objectives must be

• Specific (and not ambiguous)

• Measurable (expressed in quantifiable terms)
• Achievable (and challenging)

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 • Consistent (taking into consideration the resources of the organisation)
• Time bound (a time frame must be set for each objective)

10.3.4.2 Tools for Strategic Marketing Planning

The following are some of the many tools that are used in developing corporate strategy.
Please note that these tools act as supplements and not substitutes for management’s own
judgement:

• BCG Product Portfolio Management

• SWOT analysis (already discussed)

• Porter’s five forces governing competition

• Product Life Cycle Concept

• Growth Strategies

Growth Strategies take the following forms:

Market Penetration - more of existing products sold to the existing market

Market Development - existing products sold to new markets
Product Development - new products sold to existing markets.
Diversified Growth - new products for new markets:
Horizontal (unrelated products to current markets)
Concentric (New product for new markets)
Integrated growth Forward/Backward/Horizontal

Marketing strategy encompasses selecting and analysing the target market(s) and creating
and maintaining an appropriate marketing mix that satisfies the target market and the
organisation. Marketing strategy articulates a plan for the best use of the organisation’s
resources and tactics to meet its objectives. Organisations must not pursue strategies (for

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instance, offer of products or services) that are not consistent with their objectives or that
would stretch significantly their resources.

Marketing Strategies must include:

(i) Target market (Intended):

Remember that a target market is group of persons or companies for whom an

organisation creates and maintains a Marketing Mix that specifically fits the
needs and preferences of that group. Two fundamentals questions to address in
selecting a target market are:

Does the organisation have the resources to create the appropriate marketing mix
for the targeted segment? Does the targeted segment meet the company’s
objectives?

You are also advised to revise what we discussed in Unit 5 on Segmentation,

Targeting and positioning

(ii) A Marketing mix:

You are already aware that the marketing mix is designed around the buying
motive, with emphasis placed on the marketing concept. Here factors to consider
are the effects of the marketing environment on the marketing mix and how the
latter will be affected or will have to be revised in the future, remembering that it
is not possible to have final answers, given the changing needs and demands of
customers. Remember also that before developing the marketing mix, it is
important to determine the needs of the target market. You will have to take into
account what we discussed in Units 6-9 concerning the marketing mix variables,
namely product (Unit 6), Price (Unit 7), Place (Unit 8) and Promotion (Unit 9)

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 10.3.4.3 Marketing Plan

The main outcome of strategic marketing planning is a marketing plan. A marketing plan
is required for each marketing strategy developed. Marketing plans vary in the duration
(the time period of the plan) and scope (the various products and markets for the
organisation). Marketing plans are effectively developed with the participation and
collaboration of everyone in the organisation, and must ideally be a bottom-up and top-
down process.

The marketing plan normally includes the following parts:

1. Executive Summary – [An abstract of what the report contains]

2. Situation Analysis – [Audit of the internal current state of affairs]
3. Opportunity and Threat Analysis – [An analysis of the external environment]
4. Competitive Analysis – [An analysis of the competitive environment]
5. Company Resources – [A statement of the company’s resources]
6. Marketing Objectives – [The marketing objectives that are formulated]
7. Control mechanism and evaluation.

10.3.5 Implementing Marketing Strategies

The next step in the marketing planning process concerns the implementation of
strategies that have been formulated. This stage involves the identification and allocation
of resources to enable the achievement of the defined objectives. It must be remembered
that the implementation stage requires monitoring and continuous feedback so as to take
into account the changes that occur and are likely to occur in the environment. When
changes are noted or anticipated, appropriate corrective action must be initiated, such as -
re-allocation and re-identification of resources.

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10.3.6 Controls and Evaluations

Marketing control process consists of establishing performance standards, evaluating the

actual performance by comparing it with the actual standards, and analysing the
difference between the expected and actual performance. Feedback is important in the
planning process as it keeps track of various changes and forces organisations to review
their strategies. In fact, feedback enables the planning process to be dynamic and
iterative. Organisations have to incorporate flexibility in their plans to account for
changes in the environment.

Please remember that effective planning reduces or minimises daily crises. Organisations
that spend time and effort to write down their marketing plans have better chances of
seeing their organisations operating smoothly. The plan provides a direction to the
organisation and hence ensures that the organisation is aware of where it is going and
what it is trying to achieve.

Activity 3

(i) Identify an organisation of your choice and that you know quite well.

(ii) Study its marketing operations and list the main features.

(ii) Propose a marketing plan for the organisation.

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10.4 SUMMARY

This Unit has introduced the concept of strategic marketing planning. You have noted
that strategies represent “means” to achieve ends and they have to do with allocation of
resources. Strategic Marketing Planning is a process that starts with an environmental
and competition audit follows by the formulation of broad and specific strategies and
ends with evaluation and control. The process is iterative and dynamic feedback takes
care of these. You will learn much more about strategic planning as you progress in your
programme of studies.

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 SAMPLE ASSIGNMENT

Assignment A

(1) Assess consumer perceptions of and attitudes towards an edible product (liquid or
solid) that you are familiar with.

(2) Identify the strengths and weaknesses of the product.

(3) Determine the marketing implications of the strengths and weaknesses of the
product as identified in (2).

Procedure:

1. Select a unit of the product chosen.

2. Select a convenience sample of 5 individuals; try to maximise on diversity (e.g.,

please do not use 5 females from the University), while also selecting individuals
whom you feel might be in the target market. This means that, at a minimum, the
sample should consist of individuals who are currently aware of the product.

Inform them that you are conducting a study on consumer perceptions and set up
a 10 minute meeting with each individual separately, in a quiet location.

Ask each individual to taste the product. Give them some time to savour it. Then
ask them to rate it: good/bad, too sweet/not sweet enough, oily/non-oily,
nutritious/not nutritious, hunger filling/not hunger filling, etc. You determine
the important descriptive adjectives to use. Use 1-5 scales and have them

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 record their responses on the form you have designed (e.g.: This product tastes . .
. Bad 1 2 3 4 5 Good).
Make sure to ask them if they have any other comments on the taste or
appearance of the product (open-ended question). Examples of questions you can
use are:

3. What do they think of the taste? Have they tried it before? Do they consume it
regularly? Do they know of anybody who consumes it? Why do people like it?
What kind of people would be most likely to like/eat/drink it? Try to assess
consumer perceptions of the current marketing mix used, and if there are some
negative feelings, try to obtain some suggestions as to how packaging/product
taste / pricing/ promotion/ distribution might be improved.

RECORD ALL RESPONSES. You may want to have a questionnaire drawn up

ahead of time with questions on it. BUT be flexible and ready to probe with other
questions if the subject has some interesting responses that you want to follow up
on.

4. Analyse your findings: are there some generalisations that you can make based on
the five individuals you have interviewed? Summarise consumer perceptions and
attitudes. What are the marketing implications of your findings?

5. What problems did you encounter while collecting data? How might you change
the design of the study to make it more accurate, efficient, and/or easier on the
subject?

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